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Hersha Hospitality Trust (NYSE:HT)

Q4 2012 Earnings Call

February 21, 2013 11:00 am ET

Executives

Nikki Sacks – ICR

Neil H. Shah – President and Chief Operating Officer

Jay H. Shah – Chief Executive Officer and Trustee

Ashish R. Parikh – Chief Financial Officer and Assistant Secretary

Analysts

David Loeb – Robert W. Baird

Nikhil Bhalla – FBR Capital Markets & Co.,

Andrew Didora – Bank of America-Merrill Lynch

Ryan Meliker – MLV & Company

Bill Crow – Raymond James Financial

Operator

Good morning, ladies and gentlemen, and welcome to Hersha Hospitality Trust Fourth Quarter 2012 Earnings Conference Call. Today’s call is being recorded. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions)

At this time, I’d like to turn the conference over to Ms. Nikki Sacks. Please go ahead, ma’am.

Nikki Sacks

Thank you and good morning everyone. I want to remind you that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and as amended by the Private Securities Litigation Reform Act of 1995.

These forward-looking statements reflect Hersha Hospitality Trust’s plans and expectations, including the Company’s anticipated results of operations through capital investments.

These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the Company’s actual results, performance or achievements or financial provisions to be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements. These factors are detailed in the Company’s press release, and in the Company’s SEC filings.

With that, let me turn the call over to Mr. Jay Shah, CEO.

Jay H. Shah

Thank you, Nikki, and good morning to everyone. I’m joined today by Neil Shah, our Chief Operating Officer; and Ashish Parikh, our Chief Financial Officer.

Let me start today by providing some of our thoughts around our strong fourth quarter results, and why we believe that we are at an inflection point in the earnings potential of our portfolio. Hersha’s commitment to concentrated ownership of hotels in New York and other U.S. gateway markets has created a unique and very attractive earnings and cash flow profile for this company.

Our hotel investments, our decision to renovate our portfolio during the early stages of the cycle, and our proactive capital recycling and non-core disposition strategy all are combining to yield out performance as the cycle moves ahead.

Since the recovery of the lodging markets in 2010 we have acquired 18 assets with a combined value approaching $1 billion. We’ve invested approximately $100 million in repositioning and renovation capital expenditures and sold 25 assets worth over $210 million.

It’s been a transformational period for our company and our positioning the portfolio in the strongest and most vibrant urban centers in the country is showing the benefits of our pure-play strategy through the strength in our absolute RevPAR quality, our uniquely high margins and our RevPAR and EBITDA growth.

We are moving forward in what is expected to be a long recovery cycle and we are encouraged that the earnings potential of our portfolio will grow dramatically in 2013. We’ll have completed the majority of our planned renovations by the end of the first quarter, and all of our development activity is scheduled to be completed by year end.

Our pure-play portfolio is comprised of primarily young or recently renovated hotels; uniquely positioning the company to capture additional embedded growth opportunities inherent in our portfolio, and continuing to drive sector-leading EBITDA growth in the coming years.

Our fourth quarter results clearly support our thesis, and show the benefits of our portfolio investments.

Last night we reported that our fourth quarter consolidated and same-store RevPAR was up 12.8%, and 10.9% respectively, driven primarily by gains in our average daily rates. We were pleased, despite the initial disruption from hurricane Sandy, and the closure of the Holiday Inn Express in Lower Manhattan for all of the fourth quarter, that our quarterly results exceeded even our upwardly revised guidance from early December.

We reported very strong RevPAR growth in our New York City urban and Manhattan portfolio of 14.6%, and 11.5% respectively. Both portfolios significantly outperformed their comparable market RevPAR performance by 620 and 520 basis points respectively.

This out performance demonstrates our ability to continue to capture a disproportionate share of the market’s corporate and leisure demand over our peer sets.

We are particularly encouraged by our fourth quarter results, as our strength confirmed our point view that the weaker third quarter results in New York were due in large part to a momentary pause, and what has proven to be an uneven, but continuing recovery cycle nonetheless.

We had anticipated and communicated that the transient booking pace was pointing to a strong fourth quarter, and based on our current forward booking pace, we expect that the first quarter will exhibit similar strength.

The New York outlook as we move forward remains quite positive. The city’s job growth is expected to outpace the national rate in 2013, with many economic generators driving demand. This includes a significant office square footage coming online over the next few years, which would result in job creation. New York City also remains the most visited destination by International tourists, and we continue to see strong growth from a variety of international markets, which should continue to be a tailwind for New York City for the years ahead. And the growth in the technology sector has become, and continues to grow as an incremental and significant job creation engine.

Building on a two-quarter trend, ten of our top 15 properties by EBITDA contribution had occupancy of approximately 90% or higher, and 13 of the 15 produced primarily ADR driven RevPAR growth in the fourth quarter. This trend provides us further confidence that we’ll continue to see ADR driven RevPAR resulting in higher margins into the cycle.

In the quarter, we were also very pleased by the industry-leading contributions from our Boston and West Coast portfolios, and the out performance of the Metro New York, New Jersey hotels.

Boston produced RevPAR growth of 7.7%, and the majority of this growth was driven by increases in ADR. Boston’s economy is supported by diverse businesses including financial services, education, technology, healthcare and related sectors to support consistent demand in ongoing rate growth.

Despite a weaker convention calendar in 2013, we’re forecasting strong transient demand at our Boston hotels for the year, and are also benefiting from renovation capital investments at several of our Boston hotels across the last two years.

Our West Coast portfolio consisting of our newly renovated Hyatt House hotels in Northern California and Scottsdale, and in addition to our Courtyard in Los Angeles had 21.6% RevPAR growth with 8.6% coming from raise.

Several of the Hyatt House properties underwent significant renovation in late 2011, and the early part of 2012, and we are clearly seeing the benefits of these investment. In Los Angeles, we achieved RevPAR growth of 18.1% driven by an increase of 9.3% in ADR.

The results from our West Coast portfolio provides us additional confidence that pricing power is back in these markets, which we have started to experience in the back half of 2012.

Since that time, we’ve continued to benefit from this pricing traction and minimal supply growth, and we expect this dynamic to continue into next year, and we are forecasting a very strong growth in our West Coast portfolio for 2013.

In Washington D.C. as expected and in line with the market, our hotels had a challenging quarter. The election and weak congressional calendar resulted in a weak group and transient demand during the quarter, and the market was further hindered by displacement from Hurricane Sandy without the resulting post-storm pickup we saw in other markets.

With the Presidential inauguration and Congress back in session with a more aggressive calendar, along with the majority of our renovation activity being completed in 2012, our expectation for the first quarter, and the full year 2013 is for renewed strength in D.C.

In Miami, the renovations on the Courtyard Miami Oceanfront are still anticipated to deliver in the fourth quarter with construction on schedule. With renovations becoming more extensive, the impact on the hotel was apparent in the fourth quarter as RevPAR fell 3.7%. The renovation will add a 93-room Oceanfront tower that will meaningfully contribute to our results when the work is done. And we’re pleased that we’re able to maintain our operating levels despite the significant and disruptive work currently underway.

In 2013, we’re committed to maximizing our EBITDA growth across the entire portfolio. First, our renovation activity is coming to a close throughout the majority of the portfolio in the first half of the year, except for the Rittenhouse and the Courtyard Miami, which we discussed earlier.

In 2013, we will be showing significant EBITDA growth as a result of the development activity we have undertaken that will come online in 2013.

We’ll have three new hotels in the highest valued market in the country, Manhattan representing almost $225 million of bases. One is located in Union Square in the Midtown South submarket, and the other near the New York Stock Exchange.

The third and most recently acquired development hotel is a 205-room Hilton Garden Inn, which is located in Midtown East, near the corner of 52nd Street and Third Avenue in one of the strongest submarkets in Manhattan.

We have significant internal growth embedded in our current portfolio well beyond these development projects that will contribute for years to come. Going forward, we will seek additional external growth selectively, taking advantage of all the opportunities that enable us to deliver incremental total returns.

The other strategic initiative we’ll continue to pursue is capital recycling opportunities within our portfolio. We have demonstrated our intention to sell hotels that have growth rates below our portfolio average, and are otherwise non-core to our strategy. This will generate a capital that we’ve effectively reinvested in the younger hotels with stronger growth, and use the proceeds to reduce our debt at some cases as well.

Despite the macro headwinds and resulting anemic GDP in the environment, we continue to record growth that is significantly higher than that of the general economy and of our peers. We currently have a favorable supply/demand outlook, and anticipate that will continue for several more years.

With our balance sheet in the strongest position it has ever been, and a purpose-built portfolio starting to demonstrate the cash flow strength we had anticipated, we are confident that Hersha is well positioned to drive strong shareholder value.

Now, let me turn to Ashish and have him provide some more details on our operating results and financial position. Ashish?

Ashish R. Parikh

Thanks, Jay. I’ll start by providing some additional detail on our operational results, transition over to the balance sheet, and end with our outlook for 2013. On a consolidated basis, our hotels realized a RevPAR increase of 12.8% driven by ADR growth of 7.8%, and portfolio-wide occupancy of 75.2%, up more than 330 basis points from the prior year.

On a same-store basis, portfolio RevPAR increased 10.9% also driven by an ADR growth of 6.4%, and a 310 basis point increase in occupancy to 75.6%. This ADR driven growth led to margin expansion of 360 basis points for the quarter, and produced same-store EBITDA margins of 43.6%, the highest fourth quarter EBITDA margins in our history.

As Jay had mentioned earlier, we feel that we’re starting to hit an inflection point in our portfolio’s lifecycle which will allow us to fully maximize the cash generating potential of our assets. I think this is best exemplified by the results of our Manhattan portfolio for the quarter.

For the fourth quarter, our Manhattan portfolio realized RevPAR growth of 11.5% driven by ADR increases of 9.7%, occupancy growth of 155 basis points to 93%. Occupancy for our same-store Manhattan portfolio for all of fiscal year 2012 came in at 90.5% almost 500 basis points higher than Manhattan City wide occupancy. These occupancy levels clearly allow our revenue managers to drive incremental rate, and point to the inherent demand and sellout nights that Manhattan continues to realize.

The ability to optimally revenue manage these transient-focused hotels allowed our Manhattan portfolio-wide EBITDA margins to reach an all-time high of 53%, a full 250 basis points higher than our already impressive 2012 fourth quarter margins of 50.5%.

If the takeaway from all of this is the ability of our portfolio to generate almost 50% more cash flow from every dollar of revenue as compared to the peer median for the lodging REIT sector.

We have a young portfolio with already strong margins that still has meaningful runway as it reaches stabilization. Approximately, 40% of our EBITDA is forecasted to be generated by hotels that are less than five years old, and we have several new hotels coming online in 2013.

As our young assets continue to ramp up through this cycle, and with the majority of our renovation activity scheduled to be completed by quarter end, we feel confident in our portfolio’s ability to outperform its competitive set.

Turning to our balance sheet, our strategic and capital initiatives over the past few years now provides us with significant financial flexibility and our access to the capital markets has allowed us to meaningfully reduce our weighted average cost of capital.

During the quarter, we completed a new senior unsecured credit facility, which reduces our weighted average cost of debt, while allowing us to garner the benefits and flexibility provided by an unsecured revolving, and term-loan facility.

As of year end 2012, we had drawn $100 million in our term loan facility, and we drew another $50 million in January to refinance existing debt at a cheaper cost of capital. We also finished 2012 with approximately $70 million of investable cash, no borrowings on our $250 million unsecured credit facility, and one small loan maturity of $8 million in 2013.

We’ve also simplified the balance sheet by purchasing or selling the majority of our joint venture assets, and by reducing our exposure to development loan. We only have two development loans outstanding at this time, and based upon the recent pay downs and the anticipated opening of the high Union Square, we anticipate that all of our development loans will be paid off in 2013.

With respect to our capital plan, we spent approximately $28 million on capital expenditures in ROI projects in 2012, and for 2013, we anticipated our capital spend to be in the range of $27 million to $29 million.

And as previously mentioned, the majority of our work on our 13 ongoing renovation projects is currently underway, and is scheduled to be completed by the end of the first quarter as it is seasonally the weakest quarter for the majority of our portfolio.

These renovation projects are proving to be far or less disrupted during this quarter than we had expected as our performance suggests. Nonetheless, we are bringing closure to the extensive renovation programs, we’ve had in place the past few years, and look forward to leveraging the investments to produce incremental growth to the portfolio.

I’ll finish with our outlook for 2013. We continue to experience strong year-over-year trend, and the first quarter is benefiting from an increase in business transient demand, capital investments in prior years, ongoing recovery efforts related to Hurricane Sandy, and the inauguration in Washington D.C.

The overall New York City results and specifically our year-to-date trend have been very strong and helped to lessen some of the renovation-related disruption that we’ve undertaken at our JFK and Manhattan hotels during the quarter.

As you’re all aware, the first quarter is by far the least impactful quarter for Hersha, but we’re encouraged by the overall strength of our market and our portfolio’s out performance within our markets.

Year-to-date our same-store portfolio RevPAR is up 17%, and we believe that the inauguration and Sandy related displacement had added on approximately 500 basis points of RevPAR growth for the quarter-to-date figures.

Our guidance ranges and estimates will continue to be volatile due to the uncertainty of the timing and ramp up of our development assets, and the ongoing uncertainty of macro events including the impact of travel-related disruption associated with the federal budget sequestration.

For the full year 2013, we expect total consolidated RevPAR growth in the range of 5.5% to 7.5%, and 5% to 7% on a same-store basis. We anticipate ongoing industry leading margins with consolidated hotel EBITDA margin expansion of 25 to 50 basis points, and 25 to 75 basis points on a same-store basis.

As we have in the past, we will continue to monitor the pace and performance of our portfolio, and we’ll continue to provide adjustments through our guidance if necessary to keep it meaningful as we progress further into the year.

That concludes my formal remarks, and I will now turn the call back to Jay.

Jay H. Shah

Okay. Thank you, Ashish. Operator, we can open the line for questions?

Question-and-Answer Session

Operator

(Operator Instructions) We’ll go first to David Loeb with Baird. Please go ahead

David Loeb – Robert W. Baird

Good morning, gentlemen. Pretty impressive results; have a couple of topics I want to hit. Can you start by talking a little bit about the development market in New York, and what you’re seeing in the pipeline? And I’m particularly interested in the impact of the slow down, permitting following with Sandy, and also the resurgence of the multi-family market.

Neil H. Shah

David, this is Neil. Those are good topics to discuss. I think we’ve always discussed just the uncertainty of the development timeline in New York City. And that uncertainty has been there even before Sandy or even five, seven years ago, there was just a long development cycle there, and a lot of things that can go wrong or can cause delays.

But post-Sandy, there has been not only more kind of permitting bumps in the way, and just getting people and regulators out to the site, but there’s also been a lot of issues just with supplies, and with electrical hook-ups in the likes.

So there’s I think what is often already a pretty long drawn out development cycle has been stretched even further by Sandy.

So for projects that we’re planning to, that we’re, and we felt – have experience this with our own projects, hotels that were anticipating, opening late last year or the beginning part of this year are finding at least to kind of a quarter delay in that expectation.

Overall, with the Manhattan supply picture, it continues to be something that we monitor very closely. As you know, we go kind of on a quarterly basis through each of the projects, and the development around the island. And as he mentioned, it continues to be something that is significant and something that does influence our strategies out in the field, as well as our kind of acquisitions appetite in New York.

But overall, our expectation for supply in New York City for the coming year is about 3% in 2013, and that compares to some of the consultants that are probably in that 4% to 6% range, and the main difference there is that we believe that the timing of new supply a lot of the consultants – they haven’t built up enough delays in the pipeline.

I think last year, for 2012 versus Star, we found that in actuality there was probably 1,200 rooms that were over counted for 2012. And so we do see some of those come in 2013, but the expectations for other consultants for 2013 openings, we see in 2014, and the like.

So something that’s significant 3% to 4% kind of supply growth in New York City across the next several years is significant, especially relative to historicals. But still is outpaced pretty significantly by demand. Our expectation for demand across those three years is closer to 6% CAGR.

And I’d also mention that as you brought up, the residential market has been continuingly, across last several years it’s just increasingly attractive for developers to turn to like was, any part of the cycle they push for just multi-family apartments. Today there is a very vibrant condominium market again emerging in Manhattan.

I think, it’s been reported that three large assets throughout Manhattan that were recently on the market for sale have been purchase by a condominium converter in all three of those relatively larger hotels, the 300 plus room hotels in established markets and Manhattan will be going residential.

So, we have not built-in, in our expectations a significant kind of drop-off in existing inventory of hotel rooms, but I think that is likely across the next several years. And so that gives us some positive news in the face of outlook, is historically high supply. Does that answer your questions, David?

David Loeb – Robert W. Baird

Yeah, that’s actually very helpful. I have an operational question as well. [Mike Penela] on one of the sale call said that they are just – there is still lot of sell out nights, but it’s harder to push rates on those. Can you give your perspective, I mean, you ran 90% occupancy in Manhattan higher than that in the fourth quarter. Can you just give your perspective on, I guess, the elasticity of rates in Manhattan on sell out nights and in your other markets?

Neil H. Shah

I’ll take a shot at it. I think, our strategy in New York and in most markets is to focus on smaller assets, high quality kind of premium brands that are keeping up with current taste and preferences of consumers, and in sub-markets that we know very well, that we know will, or we expect to outperform broader Manhattan metrics, and then we’re investing in assets that have a real operational business plan to also outperform it’s competitive sets. And so I think having smaller boxes and newly built hotels does allow us to capture more market share in compression environments. And, so far we’ve been able to continue to see that experience throughout New York. I think it’s just kind of the size of the hotels and our location and submarkets that allow us to drive that continued outperformance.

David Loeb – Robert W. Baird

Okay, great. Thank you.

Operator

We’ll go next to Nikhil Bhalla with FBR.

Nikhil Bhalla – FBR Capital Markets & Co.,

Yeah. Hi, good morning everyone.

Neil H. Shah

Good morning.

Nikhil Bhalla – FBR Capital Markets & Co.,

Good morning. Just in terms of, obviously you heard a lot about sequestration, and the potential impact on lodging overall. Do you have any thoughts on how if sequestration were to happen would actually impact your kind of hotels?

Jay H. Shah

Nikhil something we talk about and look into as best as we can, there’s just not a lot of visibility on it. What we do know is that sequestration is likely to hit about 15 major agencies. And we realize that of those 15 agencies, for instance, let’s talk about Department of Defense. If there was, if there’s going to be an impact of layoffs, most likely you’re not going to feel all of it in Washington, you’re going to feel it kind of across the Board and across the country, because if there was a layoff of civilian population, 80% of the civilian population works for the DoD, works outside of the District of Columbia in the region and so it probably would be something that would be spread out quite a bit.

I think other than that just generally talking about the government sector in our business if that’s the question, I mean, we don’t do a lot of groups, so we’re not going to suffer from reductions in association meetings and large convention, but they’re not conventions, but large group meetings by these 15 agencies, but it would be, there might be a curtailment of travel and that would probably hit our government sector a little bit.

Outside of Washington, we don’t have a significant reliance on the government sector. I mean I would imagine that its, if you were take an average cross the portfolio, it’s probably less than 2% of our revenues. So, even if you imagine 50% reduction in that you are talking about maybe a hittable 1% of revenue which would, is not insignificant, but in a growth cycle like we’re in, we feel fairly confident that we’d be able to find other offsetting demand generators to backfill it.

But it’s just very hard to know. I wish I could tell you more. We’ve got all these pages of information, but they don’t really say anything. It’s all, they are all potentialities and until we have clarity from Washington on what’s going to happen, we won’t be able to really plan for it.

Nikhil Bhalla – FBR Capital Markets & Co.,

Sure. And just a follow-up question on your margins on the same-store hotel side in terms of guidance of 25 to 75 basis points increase, would you give us some color on how you determine that particular range on a 5% to 7% RevPAR growth guidance?

Ashish R. Parikh

Nikhil, Sure. This is Ashish.

Nikhil Bhalla – FBR Capital Markets & Co.,

Hi Ashish.

Ashish R. Parikh

When we look at our margins for 2012 for same-store they were just in excess of 40%. And when we look at that 5% to 7% RevPAR growth, it is tilted toward ADR, but we built in a little bit of conservatism there on margins because of anticipated increase in property taxes and insurance for next year. Right now it’s still little too early to see where insurance comes in, but I think its safe to say that with Sandy and some of the other national disasters that people are kind of circling around to kind of high single-digit or even double-digit type of insurance growth number. So we’ve tried to build that in our 25 to 75 basis points.

Nikhil Bhalla – FBR Capital Markets & Co.,

Got it. Thank you very much.

Operator

(Operator Instructions) We will go next to Andrew Didora with Bank of America. Please go ahead.

Andrew Didora – Bank of America-Merrill Lynch

Hi. Good morning guys.

Jay H. Shah

Good morning.

Andrew Didora – Bank of America-Merrill Lynch

Jay just it seems like 2013 your acquisition activity won’t be at the level that it was in years, done a good job just in terms of both increasing the quality of the portfolio and pruning some non-core assets. I guess with now you are talking about the – you seeing the inflection point in the cash flow of your portfolio now. So do you think there could be an opportunity to increase the dividend this year and what kind of pay out ratio did you feel is reasonable at this point of the cycle and at this point of cycle of your portfolio. Thanks.

Jay H. Shah

Sure. Andrew, we have always said that we probably, raising the dividend wouldn’t even be something I think that the Board would consider unless we were inside of 50% pay out ratio. Okay? Now, and if we get there, I think it is something that will be discussed. I have mentioned it before and I think it’s the Board’s it really is the Board’s decision. But the Board’s view has always been to raise the dividend. It’s been a big part of our tradition and our strategy. But to raise it when we feel like – that that show of strength and that additional value we are paying out is going to yield us some value in stock price.

I think through the year as we kind of consider it and if our metrics make paying out a dividend something that we feel is prudent to do, we would probably take a look at it. But we probably want to do it in a market where there would be some value for increasing it. At our current we’re sort of 4.5, maybe even higher 4.6, 4.7% yield. We are one of the highest payers in the sector. And if we are going to get some value for raising it, we would consider if it was prudent to do it. But if it’s just paying out additional cash rather than using it for reinvestment we would probably think twice about it.

Andrew Didora – Bank of America-Merrill Lynch

Okay. Thanks helpful. That’s all for me. Thanks.

Jay H. Shah

Great.

Operator

We will go next to Ryan Meliker with MLV & Company.

Ryan Meliker – MLV & Company

Good morning guys.

Jay H. Shah

Good morning, Ryan.

Ryan Meliker – MLV & Company

Just a couple of quick things, first of all, with regards to the New York City portfolio and the outperformance relative to the market, I think you said 620 bps and 520 bps respectively. Was that, is that relative to your comp set or was it your comp sets that outperformed, your submarkets was outperformed or was it just that your properties are managed the best and in the best locations and they are driving higher rates and occupancy than everybody else?

Ashish R. Parikh

Hey, Ryan, how are you doing? This is Ashish. We look at that as a combination of really what -- to build on what Neil talked about, our ability to revenue manage these transient based hotels and we don’t have a lot of group layered into these hotel, so when we see market dynamics changing, we can adjust our pricing strategies and our occupancy levels very quickly. So I think a lot of what we – a lot of our outperformance is based upon our ability to revenue manage.

Ryan Meliker – MLV & Company

But I would suspect that most of your comp sets are also select service hotels that aren’t focused on group et cetera, can you give us any color on what your – did your penetration increase relative to your comp sets materially, due to your Hersha’s specific revenue management or was it just more of that you are in the right assets at the right time in the cycle?

Ashish R. Parikh

I think Ryan it’s from the fourth quarter numbers, I believe that the Manhattan overall was around 6, 6.5%. I think our comp sets were around 8% to 8.5% power comp sets in our submarkets and then our performance was around 11%. So there’s a – we’re gaining index in most of our submarkets and our submarkets are better than just Manhattan as a whole.

Ryan Meliker – MLV & Company

Yes.

Jay H. Shah

Ryan, I guess, it’s always been apart of our thesis that in addition to owning assets in very strong markets where the dynamics are favorable, we do as part of our business plan expect to be to bring operational advantage to the assets, so through our asset management program and our revenue management program we do pay a lot of attention and we leverage some of the positive attributes of these assets that we have which is their size and market positioning. And so I think that’s what’s leading to the out performance.

Ryan Meliker – MLV & Company

Now, I think that’s helpful. And then just with regard to New York development are you touched upon some of it with response to David’s questions. Are you seeing delays regarding Hurricane Sandy that maybe are in fact are – in what do we call the consultants estimates right now. Have you seen any slowing over the past three months that is a typical at this stage of development processes?

Ashish R. Parikh

Yes. I mean it’s a little bit more just anecdotal just from as we visit some of these sites. But absolutely we do believe it’s hard to see inside four walls of a building necessarily, but from what we’ve experienced ourselves, what we’re hearing from consultants to the industry it’s very significant delays both on just city officials being able to come and do inspection but also then getting certain critical generators and electrical equipment.

Ryan Meliker – MLV & Company

Got you. When you say significant delays, are we talking three months or we’re talking maybe as much as long as a year could be based on back up.

Ashish R. Parikh

Yeah, I mean it really depends on where they were in the place like where in Manhattan and how they affected they were and then two, ahead of where they were in progress of their building. And there are – there’s definitely a lot of horse stories in lower Manhattan where 9 to 12 months delay wouldn’t be surprising, but that is not the norm. I think kind of a quarter to two quarters by the norm if you are taking a kind of Manhattan, overall Manhattan view on supply.

Ryan Meliker – MLV & Company

Okay. That’s really helpful. I think that’s a good color. And then one last house-keeping question, can you just give us an update on the tower in Miami, is that proceeding and do we have a scheduled opening date?

Jay H. Shah

Yeah Ryan, that the construction there is progressing quite well. They are topping off probably in the next week or two. So sort of the riskiest part of the construction will be behind us which is the foundation and superstructure, so that’s good news. By April 13th they will have a building closed up to the extent that they can reopen the pool which is good for the operating fundamentals of their hotelier pool being close for the last few months and has been a bit of a – is not a good fact. So that will be done.

But it is moving along very well. We are pleased I think we have a good relationship with the very strong local architect and we have a builder there that has done other work along the beach and is real familiar not only with site conditions there, but also with the subcontracted community. And so we’ve been able to move through there with few delays.

Ryan Meliker – MLV & Company

What is the kind of opening schedule?

Jay H. Shah

That we will deliver late third quarter early fourth quarter of 2013.

Ryan Meliker – MLV & Company

Okay. Great. That is what I wanted to know. Wonderful. Congratulations on a really strong quarter. That was great.

Jay H. Shah

Yes. Great. Thank you, Brian.

Operator

(Operator Instructions) We will go next to Bill Crow from Raymond James.

Bill Crow – Raymond James Financial

Good morning, guys. Nice quarter.

Jay H. Shah

Hey, Bill. Hi.

Bill Crow – Raymond James Financial

My question, Jay for you is that last year, the last couple of years you entered both Los Angeles and Miami great core markets, but haven’t really established a larger beachhead in either market. Is it a good trade off to think about trading out of New York assets or two, given some of the concerns there and given your concentration and looking to get more aggressive in these other markets to at least get some sort of economies or larger presence in those markets or is it worth keeping one hotel in each of those markets?

Jay H. Shah

Bill, both Los Angeles and Miami, one of the reasons we were comfortable entering those markets aside from them being very strategic and have an attractive dynamics was that the assets that we’ve bought there – were of the decent scale. They were big enough to justify having a beachhead of a singular hotel. And so we are still comfortable with that.

These assets are large EBITDA producers and they are both doing well. I think growing in those markets is something that we would certainly like to do and we have continued to look for opportunities and just haven’t found an additional entry points there to add on incrementally to what we have. But we will continue to do that.

Whether trading out of a New York asset right now and redeploying that into those markets, I don’t know – that might be a trade-off – that might be a trade-off that we would make if we saw pricing in New York transactions become extremely robust and I think we talked about that before.

And that day is very likely to come where New York starts pricing itself at a significant premium as we liquidity in the transaction markets continue to grow this year. And so we will certainly consider that. I don’t know if necessarily in our mines were linking up sale or something in New York with additional purchases in Miami or Los Angeles, but we are kind of assigning individual weight to each, but it is significant weight. I mean we do think about both of those.

Bill Crow – Raymond James Financial

All right. Then one other question. New York, it was apparent that acquisition costs were exceeding construction costs. That was the kind of the first market to show that. You seem to beat that given your early entry into the market. Are there other markets you are seeing now where the same is happening where we’re seeing development cost and construction cost come in below what the transitional market is?

Jay H. Shah

Development costs coming in below the transactional market. It’s always just how much cost you assign to the development process maybe, and what kind of charge you take on that. But just broadly speaking price per key of assets in San Francisco is – are higher than the cost of building it, but it’s the time and effort required in building those hotels is very significant and not necessarily reflected in their transaction at the end of their development process some times.

So, I think market-by-market there are gateway markets around the United States where the acquisition price is higher than the cost of development. But in those same markets, the cost of development should reflect how uncertain and how costly that that process might end up being, it’s not just what the bid you get from the builder, it’s what is cost to get it done. So, I think that there are gateway markets around the U.S. that are getting pricing above replacement costs.

Bill Crow – Raymond James Financial

Yeah. Okay. We’re trying to look at what supplies – what’s going to happen to supply here, we know there’s plenty of money splashing around out there and some of your peer REITs have gone to brokers and talked about takeout financing on perspective new development. So, it’s just feels like we’re sitting here on a ledge watching new supply ramp up a little bit. So, that was the reason for question. I appreciate the commentary guys. Thank you.

Operator

And our final question is a follow-up from David Loeb with Baird. Please ahead.

David Loeb – Robert W. Baird

One more and it’s a sort of a follow-up on what Bill asked. You explored selling somewhat mature assets in New York; I guess it was about a year ago, it that back on your mind, would you consider selling one like 373 or another one that’s sort of ahead of stabilization and ramp up?

Jay H. Shah

Yeah, almost definitely and I’m glad you’re asking that question, cause I might not have made that clear when Bill asked. We were down the road significantly with an asset in New York and we would have been very pleased to sell it. It would have been a terrific outcome for the REIT. Pricing was attractive. I think we would have put a nice mark on the portfolio and then the Hurricane Sandy hit. And it’s kind of just -- it made the deal blow away, no pun intended. But the idea of selling something at an attractive premium for the REIT is something we’ll look at. That particular asset was -- there was interest in it. So, if that kind of opportunities arises, we’ll certainly pursue it again.

David Loeb – Robert W. Baird

Great. That might have been a better than pun than Bill’s beachhead on Miami Beach. Great. Thank you for that.

Jay H. Shah

Okay, great. Thanks.

Operator

And having no more questions, I’ll turn the conference back over to the speakers for any additional or closing comments.

Jay H. Shah

Well, I’ll thank everyone for joining us this morning. We’re in the office if any questions occur to anybody on the call, please feel free to dial us up this afternoon. Again, thank you for being with us and we’ll look forward to updating you with our progress. Thank you, operator.

Operator

And ladies and gentlemen, that does conclude today’s call. Thank you for your participation.

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