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LaSalle Hotel Properties (NYSE:LHO)

Q3 2013 Earnings Call

October 17, 2013 10:00 am ET

Executives

Kenneth G. Fuller - Treasurer

Michael D. Barnello - Chief Executive Officer, President and Trustee

Bruce A. Riggins - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Secretary

Analysts

Joshua Attie - Citigroup Inc, Research Division

Ryan Meliker - MLV & Co LLC, Research Division

Andrew G. Didora - BofA Merrill Lynch, Research Division

Thomas Allen - Morgan Stanley, Research Division

Smedes Rose - Evercore Partners Inc., Research Division

Patrick Scholes

William A. Crow - Raymond James & Associates, Inc., Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Ian C. Weissman - ISI Group Inc., Research Division

Chris J. Woronka - Deutsche Bank AG, Research Division

Wes Golladay - RBC Capital Markets, LLC, Research Division

David Loeb - Robert W. Baird & Co. Incorporated, Research Division

Nikhil Bhalla - FBR Capital Markets & Co., Research Division

Operator

Good day, and welcome to this LaSalle Hotel Properties Third Quarter 2013 Earnings Call. As a reminder, this call is being recorded.

At this time, I would like to turn the call over to Mr. Ken Fuller. Please go ahead, sir.

Kenneth G. Fuller

Thank you, Aaron. Good morning, everyone, and welcome to the Third Quarter 2013 Earnings Call and webcast for LaSalle Hotel Properties. I'm here today with Mike Barnello, our President and Chief Executive Officer; and Bruce Riggins, our Chief Financial Officer. Mike will provide an overview of the industry, discuss our third quarter results and activities and talk about our outlook for the fourth quarter 2013. Bruce will provide additional details on our third quarter performance and our balance sheet, then we'll open the call for Q&A.

Before we start, please take note of the following: any statements that we make today about future results and performance or plans and objectives are forward-looking statements. Actual results may differ as a result of factors, risks and uncertainties, over which the company may have no control. Factors that may cause actual results to differ materially are discussed in the company's 10-K for 2012, quarterly reports and its other reports filed with the SEC. The company disclaims any obligation or undertaking to update or revise any forward-looking statements.

Our SEC reports, as well as our press releases are available at our website, www.lasallehotels.com. Our most recent 8-K in yesterday's press release include reconciliations of non-GAAP measures to the most comparable GAAP measures.

And with that, I'll turn the call over to Mike Barnello. Mike?

Michael D. Barnello

Thanks, Ken, and welcome everyone to our third quarter call. The industry's performance was encouraging during the third quarter. We continue to experience advantageous supply and demand dynamics, providing a favorable environment for operators, which helped our results.

During July and August, supply increased less than 1%, which is also our expectation for September. From a demand perspective, the quarter played out pretty much how we anticipated. The leisure-oriented months of July and August saw a demand growth of 2.5% and 3.1%, respectively. And we expect demand to be positive for September as well. As a result, industry experienced growth in both occupancy and ADR for the quarter as a whole.

On a macro level, before economic indicators that we track continue to provide generally encouraging data. The latest consumer confidence figure was positive and the indicators remained near its highest level in more than 5 years.

As of the end of August, unemployment ticked down slightly to 7.3%, in line with its lowest levels since 2008. Corporate profits grew in the second quarter, however, growth expectations for corporate profits in the third quarter have come down over the past 3 months.

Employments, our fourth economic indicator, have remained steady throughout the quarter and continue to reflect an overall high level of business. We continue to benefit from a strong operating environment, which has led to positive results for the third quarter above the high end of our outlook.

Now, we'll return to our portfolio results. Excluding the Park Central in New York, which is the largest hotel we owned, was under substantial renovation during the quarter. Our portfolio RevPAR grew 5.1% in the third quarter, with ADR growth of 2.6% and an occupancy increase of 2.5%.

During the quarter, our RevPAR growth, excluding Park Central, was the result of solid performance in both the group and transient segments. Transient rooms increased 3.4% and ADR growth was 2.5%. While our group rooms declined 1%, group average rate improved 3.6%. Our group transient mix was 29% group and 71% transient during the third quarter.

When we look at our annual mix adjusted to include our newest acquisitions and to add back the Park Central displacement, the group is approximately 28% versus 72% transient. Excluding Park Central, our portfolio hotel EBITDA margin improved by 36 basis points to 36%. While our margins were on the high end of our expectations, it is worth noting that they were negatively impacted by a significant year-over-year increase in our property taxes. Third quarter property taxes increased $900,000 or 9.3%. When excluding the property taxes, our expense has increased less than 1% on a per occupied room basis. As such, our portfolio delivered solid EBITDA, leading to strong corporate adjusted EBITDA growth of 15.3% to $94.2 million. We are pleased with the result of our portfolio, which, again, were above the high end of our outlook by all metrics.

When we look at our third quarter booking activity, we're encouraged with the trends we have seen. Our entire portfolio's total revenue on the books for the balance of the year is up 6.6%, compared to being up 5% at the time of our July call. Transient revenue in the books is 11% higher than last year and group was up 2%. Our 2014 pace is also strong, with our portfolios group revenue on the books of 13%, comprised of an 8% increase in room nights and 5% rate improvement. Our 2014 pace, excluding Park Central, is equally encouraging, with total group revenue on the books 10% higher year-over-year, comprised of a 6% increase in rooms and 4% rate improvement.

Now, I'm very excited to provide you with an update on our Park Central and WestHouse renovations. The Park Central Hotel is complete, with all 761 rooms renovated and placed back into service. All public spaces, including the Park Central's lobby, meeting space, restaurant bar and the grab-and-go outlet are complete. We are also making tremendous progress on WestHouse and are nearing completion. The vast majority of the guestrooms have been renovated. And we anticipate the completion of the hotel's lobby by the end of November.

Through the impressive efforts of Park Central's management team and the strength of the improved product, EBITDA displacement during the third quarter was only $200,000. Year-to-date displacement is $8 million and our expectation for full year displacement is $9 million to $10 million.

In addition to a strong quarter operationally and tremendous progress on Park Central and WestHouse, we are very pleased with our acquisition activity this quarter. We acquired 4 assets for a total of $304 million. 3 of the assets are in San Francisco, which has experienced outstanding performance as a result of very limited supply and strong demand. The first 2 of our acquisitions, the Harbor Court and Triton Hotels, are very well located assets within the San Francisco market. Their performance has been great to-date and we purchased them at a high yield. The trailing 12-month NOI cap rate was 8.5% at the time of purchase. The Serrano, also in San Francisco, is well located next door to our Hotel Monaco, just up Union Square. And we expect to capitalize on the opportunity to grow the profit margins substantially.

The fourth asset is the Southernmost Collection in Key West. This represented a fantastic opportunity to acquire an irreplaceable resort in a market that offers all the characteristics we look for, including strong demand, limited supply and high nominal rates. Specifically, Key West features the very limited existing supply, nearly no supply underdevelopment and consistent year-round demand, which includes lots of repeat clientele.

We shared in our press release, announcing this acquisition, that supply growth has increased less than 1% per year on average since 1992. We also showed performance of Key West relative to that of the U.S. industry over various cycles and during recessions. We would encourage you to refer to the press release we issued at the end of August for the figures we're referring to, as we found them to be truly impressive.

The market has a consistent track record of outperforming and we are very excited to have acquired this unique asset located around the Atlantic Ocean. While the previous owners did a great job with the asset, we've hired an institutional quality operator, Highgate Hotels, to run the property, and we are implementing our institutional asset management best practices and we expect these changes to have a very positive impact on the results.

Now, before I turn to our outlook, I'd like to briefly discuss sequestration and government impact. Over the past couple of quarters, we have provided updates on sequestration impact and we have reported minimal disruption. We did not see any sequestration impacts during the third quarter either, only to have the government shutdown right as we enter the fourth quarter. Last night, after our press release was issued, the government announced plans to reopen today. The shutdown was no doubt disruptive, but we hope one-time in nature. So far, we've seen about $1 million of cancellations for October and thankfully, nothing beyond that.

All of that said, we think it's worthwhile to point out some D.C. statistics at this point in the year. Despite our D.C. portfolio being down 2.5% RevPAR for the quarter, those hotels were in a strong 87.3% occupancy during the third quarter and our year-to-date D.C. RevPAR is up 3%.

I'd also like to point out some differences between the D.C. CBD and MSA data. The overall Washington, D.C. CBD experienced a 6.4% demand improvement in August, compared to a 0.5% decline in the Washington MSA, and a 3.1% increase for the U.S. hotel industry. Year-to-date through August, the Washington, D.C. CBD experienced a 2.4% demand increase, which is the same as the overall U.S. lodging industry demand during the same period. That compares to a 0.9% decrease for the D.C. MSA. Comparing the D.C. CBD to the MSA, provides an equally stark variance in the RevPAR year-to-date. Through August, D.C. CBD RevPAR increased 4.6%, compared to the MSA, which had a 0.9% RevPAR decrease during the same period. Anyone relying solely on the MSA data is not seeing the full picture relative to the downtown performance.

Lastly, on D.C., while L.A. show does have a concentration in this market, our percentage of EBITDA coming from the D.C. market is now at 16%, which is significantly down from the 22% level only 18 months ago.

Turning to our outlook for the fourth quarter, we expect the economic environment to continue to be positive, with steady demand and limited supply allowing solid RevPAR gains. When we exclude Park Central, we expect fourth quarter RevPAR to increase 3% to 5%. We expect our entire portfolio, including Park Central, to generate adjusted EBITDA of $71 million to $75 million and adjusted FFO per share of $0.52 to $0.56.

In terms of our full year outlook, as a result of our acquisitions and strong third quarter performance, we're raising the midpoint of our range. Our outlook now is based on portfolio RevPAR growth, excluding Park Central, of 5.1% to 5.6% and hotel EBITDA margins increasing 80 to 90 basis points. Including Park Central, RevPAR would range from an increase of 2.5% to 3% and margins would increase 30 to 40 basis points.

Our portfolio currently generates industry-leading hotel EBITDA margins and our asset management team continues to work with our operators to keep expense growth at bay and run as efficiently as possible. We had another quarter of outstanding performance in this regard and we'll continue to strive to perform in this manner throughout and beyond 2013.

As such, the range for adjusted EBITDA has increased to $298 million to $302 million and the range for adjusted FFO per share is $2.28 to $2.31.

Now, Bruce will provide some additional details about our third quarter performance and update on our balance sheet. Bruce?

Bruce A. Riggins

Thank you, Mike, and good morning, everyone. As mentioned, our third quarter RevPAR increased, excluding Park Central, was 5.1%. Our convention hotels this quarter were the strongest, with RevPAR growth of 7.2%. This growth was comprised of a 3.9% increase in ADR and occupancy improvement of 3.2%.

RevPAR for our urban portfolio, excluding Park Central, increased 4.6%, with occupancy up 2.8% and ADR improvement of 1.7%. RevPAR at our resorts increased 4.2%, due mostly to ADR, which increased 4.1%, while occupancy improved 0.1%. Seattle is our strongest market during the third quarter, as RevPAR grew 17.3% due to an 11.2% increase in ADR and a 5.5% improvement in occupancy.

San Francisco was also very strong in the quarter, with a RevPAR increase of 13.2%, comprised of a 10.5% ADR improvement and 2.5% growth in occupancy. While Sandos had RevPAR growth of 9% this quarter, as occupancy grew 7%, and ADR rose 1.9%. Boston had a strong quarter, with RevPAR growth of 8.2%, primarily driven by occupancy increasing 6.2% and ADR growth of 1.8%. San Diego RevPAR rose 3.1%, with an ADR increase of 6.5%, partially offset by an occupancy decrease of 3.2%. Chicago saw an increase in RevPAR of 2.2%, with an ADR increase of 3.3% and a 1% decline in occupancy. Philadelphia RevPAR fell 2.4%, with occupancy growth of 4%, and an ADR decline of 6%.

As expected and mentioned during our second quarter earnings call, Washington, D.C. had a difficult quarter, with a RevPAR decline of 2.5%, comprised of a 0.7% increase in occupancy, offset by a 3.3% decrease in ADR. Both Philadelphia and Washington D.C.'s results were impacted by tough citywide comparisons.

New York was our weakest market overall, due to the impact of the Park Central renovation. As such, RevPAR declined 4.3%, with occupancy decreasing 13% while ADR was up 10%. Excluding Park Central, our New York hotels were strong this quarter, with RevPAR increasing 5.9%, driven by a 7.7% increase in ADR and a 1.7% occupancy decline.

During the quarter, our best-performing properties were the Alexis and Deca in Seattle, Amarano and Le Montrose in Los Angeles, the Marriott Indianapolis, Hotel Monaco in Villa Florence in San Francisco and Lansdowne Resort in Leesburg, Virginia.

Excluding Park Central, total revenue for the quarter improved 4.4% and food and beverage revenue rose 0.6%. Our hotel EBITDA margin was 36% in the third quarter, an increase of 36 basis points from the prior year. Our corporate adjusted EBITDA increased $12.5 million or 15.3%, compared to last year. Our adjusted FFO per share was $0.76, compared to $0.68 last year, a 12% increase.

September 30, we had total debt outstanding of $1.5 billion, at an average interest rate for the quarter of 3.8%. As of quarter end, total debt to trailing 12-month corporate EBITDA, as defined in our senior unsecured credit facility, was 4.6x, which translates to an interest rate on our credit facility of LIBOR plus 200 basis points. When adding back the displacement at Park Central, our leverage ratio would have been 4.5x.

We did not sell any stock under the ATM program in the third quarter. As to the end of the third quarter, we had 312 million of capacity on our credit facility and 39 of our 45 hotels are unencumbered. We continue to have substantial liquidity with which to execute our business plan.

With that, I'd like to turn it back over to Mike to close out our prepared remarks.

Michael D. Barnello

Thanks, Bruce. To sum it up, we're pleased with the results of the third quarter, the progress we've made with Park Central and WestHouse projects and the acquisitions we made, bringing our portfolio to a total of 45 hotels.

We remained very encouraged by the performance of the industry and the supply picture and we continue to believe we're in a positive and sturdy portion of the cycle.

That completes our prepared remarks. Bruce and I would now be happy to answer any questions you may have. Aaron?

Question-and-Answer Session

Operator

[Operator Instructions] We'll first go to the side of Joshua Attie.

Joshua Attie - Citigroup Inc, Research Division

Can you talk about the balance sheet strategy? You're carrying a substantial balance on the revolver, as you've used it to fund acquisitions, do you have a desire to transition that to more permanent financing?

Michael D. Barnello

When we think about balance sheet strategy, overall, the revolver is just a piece of it. So, as you know, we redid the revolver not quite 2 years ago. So it's got not quite 3.5 years remaining on it. So it's got plenty of time in terms of term and it's a very cost-effective debt vehicle for us. So from our perspective, we like the revolver. It's actually one of the reasons we did it and did it the size we had. So when you think about it from 2 perspectives, composed of capacity and timing, we're comfortable. Right? From a capacity perspective, we have a substantial amount on the line, but we also have a lot of capacity left on the base level of the line, but we also can accordion up to $1 billion if we needed to. On the same time, because we have over 3 years left, it's not something that is an immediate focus for us at the moment. With that said, we're constantly looking at what to do from a balance sheet structure perspective. But that encompasses everything, all forms of debt, secured and unsecured, the term loans, as well as the equity components on the preferred and common side. Does that answer your question?

Joshua Attie - Citigroup Inc, Research Division

Yes, it does, and that makes sense. But -- if you talk about how has your thinking changed over the last 12 months? A year ago or towards the end of last year when you bought the Liberty Hotel, you had a lot of capacity on the line, but you chose to fund it with equity and stocks at a higher level today. Now, you seem more willing to use the line, so I guess what's -- maybe just explain what's changed over the last 12 months? And why the kind of shifted in the desire to use the floating rate debt?

Michael D. Barnello

Well, it's interesting you point that out because the years that we're going in to are a little different, primarily because of the Park Central. So if you rewind to the end of 2012, when we were about to buy the Liberty Hotel when we raised equity, what we had was we were obviously very comfortable with our leverage level at that time, but we knew that the Park Central numbers were going to be impacted by displacement. As you recall, our displacement range was $8 million to $12 million, so we didn't really know where it was going to shake out exactly. So from a perspective of debt to EBITDA, we knew that debt to EBITDA just because the Park Central was actually going to increase, even though temporarily because of that renovation. Where we are right now is actually the opposite, okay? We're 4.6x debt to EBITDA. And we know that the debt to EBITDA is actually going to go down, for the opposite reason, because Park Central is going to come out of renovation, and will improve and not have the displacement we had this year. So really on a pro forma basis, our debt to EBITDA when you adjust for the displacement for Park Central, it's really 4.5x. So that's the biggest difference. And when we think about it, historically, we've always said that we want to be 5x debt-to-EBITDA or lower. And if you look at our historical year end numbers, which are actually in our Investor presentation, you'd see that where we are today is pretty much the normal position. We've been higher, we've been lower, but this is pretty average.

Operator

And we will next go to the side of Ryan Meliker.

Ryan Meliker - MLV & Co LLC, Research Division

Just a couple of quick things here. With regards to 4Q, last quarter on the call, you talked about the fact that you expected 4Q to be a stronger quarter. You highlighted the IMS coming back to D.C. Your group calendar looking a little bit stronger in 4Q. And now, your guidance per RevPAR growth in 4Q is plus 3% to 5%, excluding the Park Central, versus 5.1% in the third quarter, excluding the Park Central. So can you talk to us about what's changed? Is it entirely the $1 million in cancellations during by the government shutdown? Or is there something else going on?

Michael D. Barnello

Thanks, Ryan, good morning. You hit the nail on the head. When you -- the things you mentioned are entirely true, we had grander expectations for the fourth quarter for D.C. and it was primarily driven by October. So, as we mentioned last time, October was going to experience 3 things that we're going to attribute to a significant out-performance. First, you mentioned IMF, which did happen, that happened last week and it was a strong performance. Second, last year, Congress had canceled a week of their congressional calendar and they had done that in September -- the end of September of '12, so that hurt us last year. And then the third comparison, which we were hopefully going to do well against, was that last year Sandy impacted D.C. significantly, not physically of course, thankfully, but from a business perspective, really the last week of October was pretty damaged. And so when we had those comparisons before the government shutdown, we were expecting to have October be one of the best months of the year and it'll still be strong. I mean it's still going to be a positive month, it's just not going to be as strong as we had planned for. So a good bit of it is that when you think about it from the rest of the quarter, Ryan, there's really -- there's nothing else, it's not like we're seeing anything different than we've seen before, but that's the one thing that threw us sideways last month.

Bruce A. Riggins

Ryan, another thing to point out, the third quarter was stronger than we previously thought. We thought it would be -- the midpoint of our range was 3.5%, and obviously it came in at 5.1%.

Ryan Meliker - MLV & Co LLC, Research Division

Right, okay, that makes sense. And one other quick question. I read in the commercial mortgage article weeks ago that the owners of the Shutters and Casa Del Mar are currently looking for new debt. Do you have any idea -- do you have any expectation on what's going to happen with your $72 million mezz loan? Are you expecting to have that capital returned to you? And if so, when?

Michael D. Barnello

Well, it's a good question. The way it works right now is the loan matures in May next year and they can pay us off as early as sometime in January. And they're smart guys, they're good guys, they're working on what they need to do on their side. We said this before to many of you guys individually and on calls, we think about the range of outcomes. We think it's the highest likelihood is that we get paid off, until the money comes back. Now as far as being granular and telling you exactly what happens, I can't tell you exactly. But if I was betting, I think I'd go with the odds that we end up getting paid down on that.

Operator

And next, we'll go to the side of Andrew Didora.

Andrew G. Didora - BofA Merrill Lynch, Research Division

Mike, just wanted to touch on San Francisco. Right now, you are obviously, pretty active in the quarter buying 3 assets there, plus the market help drive. I saw the upside in the 3Q numbers, I guess can you just give us a sense sort of what continues to surprise you in the market? And maybe can you help us get a sense of how you see this market evolving over the next few years? I guess, first, from the demand side, and then, given the strength, is there any expectation that supply could begin to come on in the market?

Michael D. Barnello

When thinking about, for me, the supply and demand perspective, we feel good about both. Demand has been strong and steady. And supply, really, there hasn't been any in the last couple of years. There's been very little announced over the next 5 years, and things we've said in the past that are still true is that if we had to fast forward 5 or 6 years from now, San Francisco might have the least supply growth of all the markets that we're involved in, that's because it's very difficult to find space to build and once you do find it, it's difficult to get all the necessary permits to do so. So from that perspective, it's one of the reasons that draws us to the market overall. When you think about the demand, demand has been study, and really, I don't think there's any surprises per se. I mean, San Francisco has been leading the charge from our portfolio this year. Our expectation remains that it will do so. It will be one of the leaders next year for primarily that reason. I mean it comes down to being that simple. So the supply and demand is tilted so much in the operators' and owners' favors and we're just trying to take advantage of that.

Andrew G. Didora - BofA Merrill Lynch, Research Division

And then my second question here is just in terms of -- I know it's early on in the corporate rate negotiation season. I guess, do you have an indication from any of the brand companies just in terms of the types of increases they're looking for in '14 and then specifically for you guys on the Park Central, how are the rate negotiations progressing there relative to your expectations? And how has the corporate response been to the new product?

Michael D. Barnello

Sure. Yes, it is early. It's a long process, I mean, it starts, or you know, sometime in September, when our teams start talking to their accounts for the next year. And sadly goes on really until January, until a lot of these get locked down. At this point, we don't have many accounts signed up throughout the entire portfolio, we have, as you know, 20 different brands and operators we'll work with. So they're all doing different programs with their corporate accounts. I would tell you that the general direction is similar to the last 3 years, in which we're expecting there to be in the 5% to 10% rate increases for the corporate accounts. And they're obviously starting at different levels for different accounts depending on their volume and location, needs, et cetera. So, I think that's going to be a good thing overall. When we -- actually I'll just add some color to it, I think our corporate rates are up not quite 7% for the first 3 quarters of this year, to give you some idea of how it shook out. When we think about Park Central and WestHouse, it's a little bit of the same story. I mean we don't have the rates locked down for the [indiscernible] accounts, but when you're asking about how the feel is in terms of the tours, is that everything is going very positive. Our guys, the guys at Highgate, we have 2 teams, we have a team running WestHouse, and a separate team running Park Central, they're doing a fantastic job with the hotels and service to bring a lot of groups through and it's overwhelming positive reaction to both renovations. So our expectation is that we'll get a lot of accounts signed up for next year. But it is too early to tell right now.

Operator

And next, we'll go to Thomas Allen.

Thomas Allen - Morgan Stanley, Research Division

Just on 3Q, you guided to adjusted EBITDA of $85 million to $88 million, move forward $94 million, how much of that was kind of out-performance of your legacy properties versus the new acquisitions?

Michael D. Barnello

So about $3 million was the acquisitions. So if you need to break it up, approximately $91 million from legacy hotels and $3 million from the new deals.

Thomas Allen - Morgan Stanley, Research Division

Okay. And when we think about 2013 total guidance and the midpoint of the range increased by about $10 million renovation disruption is $1 million lower, can you break out the other $9 million between the new acquisitions and then out-performance?

Michael D. Barnello

Sure. Renovation disruption is really about $0.5 million lower from the midpoint, so if you think about it that way, right. And when you think about it from the acquisitions versus legacy, I mean we're not really breaking it down the fourth quarter, Thomas, but the numbers we gave out from an EBITDA basis when we were -- when we bought these hotels, the 4 hotels combined was about $22 million of EBITDA. They're not perfectly aligned seasonally, but if you prorated that, it's not -- it gives you a general direction of what the fourth quarter looks like, so in the $5-ish million range. Does that makes sense?

Thomas Allen - Morgan Stanley, Research Division

Yes, totally.

Operator

Next, we'll go to the side of Smedes Rose.

Smedes Rose - Evercore Partners Inc., Research Division

Most were answered, but I just wanted to ask you, your disruption in the third quarter at the Park Central was pretty minimal, and even though you brought down the full amount of disruption expected for the year, what happened in the fourth quarter to make it even at your new lowered amount, I guess, if it was only $0.2 million in the third quarter?

Michael D. Barnello

Well, it's a good question when you think about it from the definition of displacement. When we think about displacement disruption, it's a hard thing to give you exact numbers on because the real comparison that we look at that you guys I think are expecting is what the delta year-over-year in terms of performance. Right? So if we did make $1 million one year, we made $900,000 the next year, we had a $100,000 displacement. Well, that's the way we look at it. And that's the way we've always announced any of those displacement numbers. The reality is, in theory, you could have had a lot more rooms out of order, but you charged $100 more than you thought. And you still had a lot of displacement, but you were able to offset it by additional rates. So the third quarter is a good example of that. It really just was that because the teams of both properties did a great job mitigating the loss in terms of the rooms out of order, getting rooms back earlier than they thought in terms of the Park Central side and charging as much as they could when there was business, they were able to minimize the loss to about $200,000. So that's how we look at it. It's hard to say exactly it was $180,000 displacement and was $20,000 difference of what you would have done year-over-year, but that's how we try to slice and dice it.

Smedes Rose - Evercore Partners Inc., Research Division

And then you I think have said previously that the Times Square average daily rate is around $275 and your goal was to get the Park Central around that rate. I mean from what you've seen so far, do you have any -- I mean, would you expect to be over that? Or what's kind of your thoughts on how fast you can get to that rate?

Michael D. Barnello

So yes, we mentioned a number of times, and we -- actually it is in the Investor presentation, that the Times Square average daily rate was $275 about for the year end 2012. So the number is actually a little higher year-to-date '13. And at that same time, the Park Central is running about $220. So about a $50 gap between us and the average Times Square hotel. At the same time, the average Manhattan hotel was about the same rate as the average Times Square hotel, about $277, I think. So the same delta. And we have been saying that once we're renovated, the concepts, from the most simplistic perspective, is that we believe we have an above-average location near Central Park in Times Square, and we believe that once this renovation is done, we're going to have an above-average physical product. So it's not unreasonable for us to think that we could get to the -- at the average rate or higher over time. We've also said that it does take some time to ramp up, the previous question dealt with our corporate rates and obviously, we're awaiting to see how those lock up for the next couple of years -- for next year. But we've said the Park Central ramp up is about 1 to 3 years depending on the strength of New York overall. And we still think that's the case. But we do think that's an achievable target between the product, the location and the fact that we shrunk the hotel down from Park Central, the old Park Central being 934 rooms, now being just 761 rooms.

Operator

And we'll next go to the side of Patrick Scholes.

Patrick Scholes

I wonder if you could talk a little bit more about your expectations for New York City, especially after the Super Bowl, it looks like the Super Bowl is going to make the first quarter absolutely fantastic. But your thoughts for the rest of the year, for next year?

Michael D. Barnello

Sure. As far as New York is concerned, I mean, we're long-term bulls on New York. I mean we think that, if you look back at the history of how New York hotel investment's done, barring anything done goofy to the property itself in terms of an encumbrance, investing in New York has proved very worthwhile. We continue to believe that as the hotel numbers continue to improve, as well as the different pockets in Manhattan continue to evolve and be better neighborhoods, better places where people want to come in and stay. That said, there's a supply issue that everybody has been talking about in New York for '14 and '15. And are we concerned about it? The answer is, sure we're aware of it. But if there's one market in the country that's been able to absorb the supply, it's been New York. In fact, the supply in New York has grown the last 3 or 4 years. And despite growing, the demand has continued to step up and outstrip the supply growth. Now, that can't happen forever, but we're very comfortable that the demand growth will continue to come in and support the supply growth. When you think about it, it's coming from other areas outside Manhattan, where people may or may not want to stay. And if they can get a chance to be in Manhattan, they're going to start coming downtown. Areas like the -- whether it's Queens or Brooklyn, parts of New Jersey, those places may suffer a little bit more because of the supply in New York. When you think about Super Bowl, we're optimistic that Super Bowl will be a good event for us next year. I don't think it's likely to be the type of event in much smaller markets, comparing and contrasting Indianapolis a couple of years ago, which had basically, at the time, 10,000 or 12,000 rooms, where you had 80,000 seats at the stadium to sell for a major event. That became a huge event for those 5 days for the city. When you compare that to New York, will it be a great event to have in February, an otherwise nondescript weekend? The answer is yes. But when you compare the amount of rooms that are available just in Manhattan and the surrounding areas and if you go south down to Philadelphia, you have tons of hotel rooms, way more than 100,000 hotel rooms to serve about the same number of people coming in for an event. So it's unlikely the compression will be as strong as it would be in smaller venues.

Operator

And we will next go to the site of Bill Crow.

William A. Crow - Raymond James & Associates, Inc., Research Division

Mike, Park Central, quick question on that, if I walk in there today, do I notice a different clientele? Or is it still kind of the wholesale European guest with the large suitcases? Or has that changed yet?

Michael D. Barnello

First of all, if you walk into the hotel, the hotel has been -- it's been a transformative renovation. It really looks fantastic. I would encourage anybody who's in town to take a peek. You can certainly see all those spaces very easily walk up to the mezzanine level. The spaces are fantastic. As far as the quality of the clientele, that's a tough question to answer. I mean, our perspective is that if you have the money to pay the rates, then you're welcome in our hotel. And we have a lot more public spaces in terms of seating people to actually to use the facilities. So I think there's more people. And when you think about what we're doing for the Park Central in terms of segmentation, as you shrink the 20% of the room count from 934 to 761, our goal is to actually shrink the lowest rated customer, that's the goal. So, in theory, the people who were paying the lowest amount of money are not people who are actually at the Park Central anymore. To answer your question a little differently, when we think about the corporate consumer, the goal there is to get lot more of that business at the WestHouse side because if you recall, Park Central overall was doing less than 4% of its business through corporate negotiated rates and with all the businesses that are nearby, we think that the number could be substantially higher. And to do that on the WestHouse side, is something we're aiming to do. And because that lobby is not open yet, we're not seeing that change there. Even though a lot of the rooms at the WestHouse are being sold today. The entrance is not through the WestHouse, they're still being sold as Park Central rooms. So I think that if you ask the question a quarter or 2 from now, I think the answer will be yes.

William A. Crow - Raymond James & Associates, Inc., Research Division

Okay, perfect. And then, finally, on the -- or at least on Park Central, the disruption relative from renovation, the change, the delta, was that a positive impact in the third quarter or fourth quarter when you were kind of laying out your budgets?

Michael D. Barnello

It's really -- it's probably more the third quarter. The disruption was only $200,000.

William A. Crow - Raymond James & Associates, Inc., Research Division

Right, okay. Philadelphia, you said occupancy was up, if I heard it right 4% -- percentage points, ADR down 6, what was the driver there for that unusual mix?

Michael D. Barnello

Citywide for us. They're usually kind of the same story as with Washington.

William A. Crow - Raymond James & Associates, Inc., Research Division

But your occupancy was up pretty good though, right?

Michael D. Barnello

Yes, and that actually happens in a number places, I mean, comparing and contrasting D.C. overall. It's actually happened in a number of quarters, where we're able to get the mix, but it's just not coming in from the citywide. So as an example, we had a citywide in 1 year and the rates were $259. And we don't have a repeat, and especially in the third quarter were a lot of it is leisure business. You can get the business because now you have availability, but you're not getting it at a corporate or at group rates, so you're getting it at a much lower rate because it's people's own money. And so that's what we saw happened on the Philadelphia side.

William A. Crow - Raymond James & Associates, Inc., Research Division

Okay. Two more quickies. When do you think you're going to have a handle on what the impact of ObamaCare will be on your margins?

Michael D. Barnello

That's a tough one, Bill. We have -- we may have mentioned a number of times, we have a lot of operators working for us and they're all doing a great job of trying to pull this all together. I know Al and his team have conference calls with all the operators every couple of months to go through, sort of figure out what this is going to mean and every operator has a little different spin on it because they all have different insurance programs, so I don't have a great number for you, all I can tell you is we're working on it. And I think that's been true about everybody I've asked that is in the hotel business or everybody I've asked that's not in the hotel business, I don't think we will have a solid sense to what the cost is going to be right now.

William A. Crow - Raymond James & Associates, Inc., Research Division

Finally for me, Mike, you've been willing to share your forward-looking opinion on the D.C. market, really, for several years now and been maybe a little more optimistic than other folks. How do you see D.C. shaping up for '14?

Michael D. Barnello

Well, for '14, there's some things that are out there that are factual, right. So you know that the biggest thing D.C. is going to have to wrestle with is the Marriott Marquis coming online in May. So it's going to add a bunch of supply for the last 8 months of '14. And then on a run basis, a little bit more of '15 until it anniversaries out. The citywides -- when you look at the citywides, overall, if you get to count all of them, they look flat. If you look at the bigger citywides, the ones that create a better compression and better rates, they actually are a little stronger. So if you kind of look, I guess, the citywides within the citywides, if you will, it looks better. So we think that because of those things, we think that -- we'll probably say the same thing about D.C. in '14 and we've said the last couple of years, we think it will okay. And it will be one of our top performers from a market perspective, overall. But we feel okay about it and obviously, the longer term we like it. And I compare and contrast that to other markets that we do think will be on the higher side of average next year. And we said it before, we think it's -- the West Coast is going to lead the charge. And we still think that's the case next year really because of the supply-demand fundamentals. And then we look at the East Coast, particularly D.C., in terms of the supply there. And then we mentioned New York earlier in the call, they have the supply issues also. So those will be the markets that have to overcome that. Now, once that happened, our feeling about D.C. is actually very encouraging because the real biggest supply hit is that Marquis. But once you get that taken care of, it is difficult to build in D.C. because of the height limitation. And we think the outlook will be much stronger beyond the Marquis opening.

Operator

And will next go to the site of Jeff Donnelly.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Mike, I'm just curious, what do you feel the chances are that you can recoup some portion of the million dollars of lost government business now that they're sort of back in business?

Michael D. Barnello

Well, some will be recouped, it won't be recouped in October. I'll give you an example. I mean, the trial for Apple and Samsung was supposed to start 2 weeks ago; 2 non-government companies. Unfortunately, the trial was being led by a federal judge. And that judge wasn't working. So that got canceled. It didn't get rescheduled this year, it's got a reschedule for February. So in an example like that, business is going to come back. Will all the business come back? The answer is I doubt it. Some people who would actually had to come in or were coming in for -- to visit museums and had their weekends planned. Will they come back next year? Hard to say. I think so, it does comes back, Jeff, there's no way to put it -- a number on it and there's certainly is no way to know when because some people wanted that October for their own personal business meetings and some people wanted just to visit and they may come back another, I guess, equal weather period time, either next year or even -- or next spring.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

That's helpful. And I'm curious, LaSalle had once owned an asset in Key West, I think it was about 10 years ago, you guys sold the Holiday Inn down there. And I think the decision to sell it, as memory serves, it was -- you guys are sort of weighing the decision of trying to avoid a major renovation program. Were there broader concerns at that time just because -- given the Key West market or maybe it's greater reliance on, I guess I would say, leisure travel and maybe weather exposure than your typical asset? I mean, how do you think about that as it relates to your recent acquisition?

Michael D. Barnello

Even though Key West is a very tiny island, a very small market with about 4,800 rooms as a whole market, the Holiday Inn you are referring to, it had a very tough location. In fact, if you're driving in from the Keys, the first -- you made a first right when you just came on the island, that was where the Holiday Inn was located. The Southernmost, by contrast, is really on the -- with the one end of the Duval Street. Duval being the main street in Key West, kind of anchored on both sides by very nice hotels. On one side, the sunset pier, a number of hotels are there, where on the other side with us, the 2 Waldorf Astoria, Casa and Reach -- Casa Marina and Reach hotels. And they're much more popular parts of town, Jeff. So on one side, you have, I guess, better areas where people want to be. When you think about things like the risk you mentioned regarding weather, we spent a lot of time looking at this and there was a lot of interesting statistics that came up, I mean, what we shared, a number of the stats on supply/demand RevPARs from Key West in our press release, both we were taken by couple of things. I mean, first, during recessions, Key West has outperformed the country handily, which we thought was pretty impressive. And the second thing was that when you look at the times where actual hurricanes actually hit, the impact was perhaps different than what many people think and let me give you some stats on that. So in -- there have been 4 hurricanes -- 4 hurricane years that hit Key West since the mid-90s. In the first, of '98, the U.S. RevPAR was up 3.3% and Key West was down 1.6%, so the impact in 1998. In 1999, we had Hurricane Irene hit, the U.S. up 2.7%, Key West up 5.9%. So basically, double the U.S. In '05, U.S. had 3 hurricanes hit, and the U.S. at 8% and the Key West was up of about 3%. So there was impact there. And then '08, we had Hurricane Fay hit. The U.S. was down 2% and Key West was down 1.7%. So 2 of the 4 years actually Key West did better than the U.S. despite hurricanes hitting. Now, this is the numbers that we have, but when we couple those data points with the data points of how Key West has done over the 25 years, it became pretty compelling when we look at this investment.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

That's helpful. And maybe just sticking with a weather question. Maybe just a reminder, can you quantify for us how much Hurricane Sandy might distort comparisons for D.C., New York and Boston? You mentioned earlier that Sandy was sort of bad for D.C. because I think it caused a lot of the folks to avoid traveling there, but Sandy never hit there. In New York, it really kind of depends on, I guess to say, where you were. And Boston might have been a push. I'm just curious what your sense is on how it will influence comps in this quarter?

Michael D. Barnello

It did have a different effect on different markets. So, if you'll recall, our timing was -- that we released our third quarter earnings with our fourth quarter outlook right before Hurricane Sandy hit last year. We revised our outlook before NAREIT because we just got hit with the hurricane and we saw all the bad impact. So you saw, I mean, 20 of our hotels or at that time, 40 hotels were located in the East Coast that were all affected from D.C. through Boston. And so when you look at the markets, D.C. got hit the hardest and really didn't get recover, they lost basically an entire week. Boston and Philadelphia didn't get hit as much. And then, interestingly, New York got hit very hard the first week. You're right, it depended on where you were. So Park Central, they didn't close, but we lost our steam for about 3 or 4 days when, if you remember, the crane was dangling from the Park Hyatt for about 4 or 5 days until they secured it and they shut down the area around in terms of steam. So we had an impact there. The Roger was actually closed because they had no power and the Guild has no power, but they stayed open for 4 or 5 days. So that was the immediate impact. Now, the impact afterwards was that because our hotels actually reopened, a number of them did very well. Park Central got a lot of FEMA business and American Red Cross business. And so if you guys recall, our New York RevPAR was up 11% in the fourth quarter. And that was something that surprised us going into the quarter and certainly surprised us post hurricane because we had no idea displacement was going to be that long -- that much or that long. So that's how it looked. And when you look at the rest of the markets you mentioned, I mean, D.C. actually suffered because of the D.C. was down in the fourth quarter last year, as a result of this. And that was one of the things that we were are hoping for a bounce back. And we will get it to some extent, in the -- at the end of October this year because hotels that normally run at this time of the year, in the 80%, 90% occupancy, and last year running in the 30% to 40% occupancy.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

And actually, just one last quick one. Do you feel like you saw any kind of lift in San Francisco from when the America's Cup was there?

Michael D. Barnello

I think that when we talked to our general managers, they all felt good it was there. It wasn't a typical type of major event where you could put fences around things and say there's a 5-day minimum and charge a substantial rate increase. They didn't necessarily see that, but they did see business coming, going throughout the year to set up. So there was incremental business, but I'm not so sure that anybody would say it meant x percent of the business for the year.

Operator

And we will next go to the site of Ian Weissman.

Ian C. Weissman - ISI Group Inc., Research Division

Most of my questions have been asked and answered, but just quickly on the $1 million of lost business. It sounds to me like it's entirely D.C. Was there any other markets where you experienced fallout from the government shutdown? Or was this strictly a D.C. issue?

Michael D. Barnello

It was like 99% D.C., Ian. I mean, if there was a couple of transient cancelations elsewhere, I wouldn't even consider them. It was entirely D.C.

Ian C. Weissman - ISI Group Inc., Research Division

Do you think that's specific to you guys? Or is that just generally speaking across the entire sector?

Michael D. Barnello

That one's hard to answer. I don't know, but we've been tracking it for the last couple of weeks and we got an update a couple of days ago. And so thankfully none of our properties have seen anything. So I don't know if that's true for the rest of the country, it's just true for us right now.

Ian C. Weissman - ISI Group Inc., Research Division

Okay. And finally, just quickly, a follow up on the balance sheet, do you guys -- I mean, your leverage is higher than you typically run, do you have a target leverage ratio for 2014?

Michael D. Barnello

Well, the target doesn't change from year to year. And we have said that we want to be 5x that EBITDA or lower, and we've never really gotten to the point where we've been 4.99. And if you look at the history of where we've been, it's -- it would have never gotten to the 5x. So, what we have not said, today, we're at 4.6, we want to be at x by the midpoint of 2014. We haven't done that.

Operator

And will next go to site of Chris Woronka.

Chris J. Woronka - Deutsche Bank AG, Research Division

I think you mentioned earlier that the group revenues on the books for '14 are up 13%. Can you kind of remind -- I mean, how did '13 play out versus your expectations? I mean, I'm trying to figure out of that 13%, how much do you really think will come through just based on your experience this year?

Michael D. Barnello

Sorry, Chris. Were you talking about '14?

Chris J. Woronka - Deutsche Bank AG, Research Division

Yes, so what you have on the books were '14, I mean, we could go ahead and assume that your group revenues will be up 13%, or we could assume that they've built -- end up being up less than that, I mean, what -- just based on how -- where you were this time last year and how it flowed through '13, what -- where do you -- how much of that do you think will come through? I mean, how comfortable are you with the double-digit increase, that you'll end up with that next year?

Michael D. Barnello

When we look at our group, it's a little trickier. So I always try to caveat by saying we're not a big group house, right? So we did mention earlier that when you annualized the acquisitions and Park Central displacement, we're about 28% group, so not a big group house. Second, when you will look kind of under the hood of our properties, it's not a lot of the properties that actually even make up 28%, 5 or 6 properties dominate those -- that pace, which is West Michigan Avenue, Westin Copley, Indianapolis, San Diego Paradise Point, Lansdowne; they make up the bulk of that. So when you look at us, we always give you those facts, but I'm not so sure they're indicative of what anybody else is seeing because it's such a small sample size. When you look at the data that we just gave out, it was up 13%, we give it out because people want to know where we're pacing and obviously, we track it. But we look at both pieces, right? The 8% increase in room, that's -- a lot of times that could be a timing issue because it's a small sample size. The 5% rate improvement, that's obviously something we feel good about and obviously, that should hold. But as we get closer to the end of the year, we'll know a little bit more because at that time, we have about 50% of our business on the books -- our group business on the books at any given year. And the question is very different depending on the market. So let me give you a little bit more color on that. So, in Boston, for example, Boston's going to have a fantastic citywide story next year. There's a huge increase in citywides. And so, I'm guessing everybody else's booking pace is strong in Boston as well. You see very little new supply coming online. In fact, just a couple of small limited service hotels opening up in Boston. So supply and demand will be in sync for Boston. When you look at the booking pace for Boston, our booking pace is up, but now we have to ask yourselves how much more we actually want to increase it. Because you can take a lot of group business, but you might end up being -- sending away some of the transient business that is much more lucrative, so you have to be a little more thoughtful as it comes closer to the dates to figure out what you want to take from a booking pace perspective. So -- and every market is a little different, some markets we want might to take a little bit more because the booking pace might look a little stronger because of the rest of the markets don't look as -- most of the segments in the market don't look as strong. Does that help?

Chris J. Woronka - Deutsche Bank AG, Research Division

Yes, that's very helpful actually. And just another one on the fourth quarter. I guess, one way to ask it is, do you think the acquisitions from fourth quarter of '12 and third quarter of '13, would you say that their RevPAR growth in the fourth quarter this year is going to be better than that of all other hotels kind of the legacy portfolio?

Michael D. Barnello

Well, if you look at the fourth quarter last year, it was L'Auberge and Liberty. And when we think about it, Boston is a little bit of an off cycle year this year despite the fact that we've had a good run. We felt we have but Boston's had a tougher citywide comparison. And in L'Auberge, it's really just outside of San Diego. When you look at the other 4 we just bought, originally, bought those hotels because they're in supermarkets in terms of supply and demand and so our expectation is that they would have stronger RevPARs than the legacy portfolio. So that is the hope. And when you think about it, San Francisco had a little bit of tougher time last year. Not because it was San Francisco, because we were renovating the Monaco, November, December last year.

So I would expect that your instinct is correct that we would get better performance out of those 6 assets.

Chris J. Woronka - Deutsche Bank AG, Research Division

Okay, great. And then just, finally, on the property taxes for the third quarter that little increase -- that increase, how much of that is related to acquisitions versus how much of it was kind of core? And how should we think about that going forward?

Bruce A. Riggins

Well, the property taxes are same-store, the $900,000 increase. Are you saying of the $900,000, how much was, I think, changed for the acquisition?

Chris J. Woronka - Deutsche Bank AG, Research Division

And also would that been all, say, that would have been all legacy portfolio, right?

Bruce A. Riggins

That's -- that's all of it.

Chris J. Woronka - Deutsche Bank AG, Research Division

Okay, and that -- is that -- is there something that in the third quarter, is that -- did you get a lot of resets? Or, I mean, should do we think about that as somewhat of a run rate less than that?

Michael D. Barnello

It's a very hard one for you guys to model because it's very hard for us to model. To give you some color, we have -- every quarter, we have a lot of appeals going on. At this moment, we have 26 tax years under appeal, it doesn't mean 26 hotels, it means tax years. And we don't know when those are going to get settled if at all. So if they get settled, they all get settled next quarter, we would see a decrease in our property taxes. That's unlikely to happen. But as we go on, some of them do get settled from time to time and it creates a lumpy model. So part of it is that -- part of it is, when you look at the changes, I mean, West Michigan Avenue had an increase. We saw increases at the D.C. portfolio, overall. But those are the markets that we saw changes on. And we had some refunds last year that hit the third quarter that obviously make for tough comparisons.

Operator

And we will next go to the site of Wes Golladay.

Wes Golladay - RBC Capital Markets, LLC, Research Division

Have you seen any improvement in the D.C. customer mix? And are there any pockets of strength within your D.C. CBD portfolio?

Michael D. Barnello

When you think about the customer mix, and that's really what's caused the change in the RevPARs, right? So if you just focus on the third quarter for a second, we're down 2.5%, while we were at 87.3% occupancy. That was a result of makeshift. So last year, we had citywides paying a higher rates, this time we have leisure customers paying the lower rate. So the occupancy is strong, but the rates are impacted. That's what we've seen. When you think about pockets of the CBD that have done differently, that happens from time to time. I'll give you a little bit of example. Relative to say, the IMF. I mean, the IMF is a huge event for the hotels who participate, but not every hotel participates. So for us it's primarily the subhotels [ph] takes advantage of that. And it's generally the higher-end hotels that feel that business, but it creates huge compression for the rest of the market.

Wes Golladay - RBC Capital Markets, LLC, Research Division

Okay. I guess with all this stuff going on in D.C, are there more politicians, I guess, staying there with lobbyists and lawyers, is that coming into the city with the debt deal and the shutdown? Did that pick up at all or...

Michael D. Barnello

Our guys are doing the best to mitigate the cancellations we saw, but I haven't heard of one specific group coming in to fill that hole, if that's what you're referring to.

Wes Golladay - RBC Capital Markets, LLC, Research Division

Well, I guess, I mean, wondering if more lawyers were coming into the city or lobbyists as a result of the shutdown and all the stuff that's going on in D.C. or is this just keeping them away?

Michael D. Barnello

Again, we're not -- I'm not hearing a specific type of clientele that's coming back right now. If you're talk about just the last month, they've been filling in with anything they could get to offset the last minute cancellations. But, again, I'm not hearing one group dominating that story.

Wes Golladay - RBC Capital Markets, LLC, Research Division

Okay. And looking at the shutdown, how long do you think it will take to -- for the numbers to impact, when we look at the STR weekly data, to, I guess, filter through the numbers, will it be the end of October, then we should be on a good runaway?

Michael D. Barnello

Well, the cancellations that we got, when you think about if it's group and transient, the group canceled because they couldn't come in because they were -- their events got canceled because there were somehow tied to the government. When you say about the -- and that lot has passed. We do have the transient who canceled. Could some of that be rebooked now that the government has opened and if any of the monuments were open, I suppose it could. When you think about the stars, I would think that when you get through October, you'd be in good shape from a shutdown comparison. We haven't seen any impact beyond October. I don't know about anybody else, but we haven't seen anything beyond October. Now, bear in mind, Wes, that we said earlier we expected October to be a fantastic month, it's really one of the best months of the year. And our expectations for us is that October is still going to be a very positive month. It's just not going to be as strong as it was, basically by this million dollars. So I'm not so sure you're going to see some of the numbers you guys are expecting in that weekly Smith Travel number. [indiscernible] in the CBD. If you're looking at the MSA, I don't know what to tell you there.

Wes Golladay - RBC Capital Markets, LLC, Research Division

Okay, yes. I was just wondering if there's any pockets of weakness due to the booking windows for the leisure traveler, if we may see some of it filter though November. Just wanted to get your opinion on that. But it looks like you think that October will be the brunt of the damage from the shutdown.

Michael D. Barnello

I would think.

Wes Golladay - RBC Capital Markets, LLC, Research Division

Okay. And then finally, looking at balance sheet, have you guys assumed any issuance of long-term debt in your current guidance? And where could you borrow that today?

Bruce A. Riggins

We have not assumed any changes to the capital structure. So on the -- it would depend on whether it's unsecured or secured. We would have the ability to probably go out and tackle onto our existing term loans, obviously, similar pricing or potentially, slightly lower. We really haven't been out in the market looking at secured debt, obviously, the 10 year has moved up from where it was earlier this year. So it's higher than some of the deals we've seen, but really have not been out in the market. We, obviously, have a significant number of unencumbered properties. So we'll continue to evaluate both unsecured and secured options.

Wes Golladay - RBC Capital Markets, LLC, Research Division

Is it safe to assume you'll carry some line balance until you get a resolution of your mezzanine investment?

Bruce A. Riggins

That will carry some line balance?

Wes Golladay - RBC Capital Markets, LLC, Research Division

Yes, I have some debt on your line until you get a resolution of your mezzanine investments so you could just take the proceeds of the mezzanine and pay down the line?

Bruce A. Riggins

Right. But, I mean, obviously, we're at 460 now. So a much higher balance than what we would get from the proceeds but if we did get paid off that will be used to pay down the line.

Operator

And next we'll go to the site of David Loeb.

David Loeb - Robert W. Baird & Co. Incorporated, Research Division

A lot of questions and nobody has asked about acquisitions. Mike, we've been hearing from CEOs, you included, that there just aren't a lot of hotels on the market that are interesting markets for you. What's going on? And how is -- what's the state of your pipeline? And when do you think that begins to change?

Michael D. Barnello

You're right, it's the first question about acquisitions. The pipeline when we look at it, is probably at one of the thinnest levels that it's been in a while, but that doesn't mean it's 0. And from our perspective, we're pretty narrowly focused on the market and types of hotels that we're looking at. So having a couple of hotels to look at is actually okay. And if you rewind to last year at this time, the pipeline was perhaps at the same spot, and at the time we didn't know we were going to do L'Auberge and Liberty and yet, the fourth quarter we closed on a $0.25 million of assets that came up. Nothing to ask much right now but with the end of September, early October. So it doesn't take much to change from not having a lot of deals in the pipeline to having enough because we're not that kind of group that buys 20 or 30 hotels a year. We've definitely bought a handful to this, 5 or 6. As far as when that changes, that's hard to say. Obviously, the brokers are working feverishly to try to get as many properties sold as they can. What I would tell you is that the pipeline that I'm referring to is really more in our markets. There are lot of properties out there for sale. They might not be markets that suit us or they might not even be types of properties that suit us. So there are a lot of transactions that could still take place. When we think about what's going to happen next year, it always seems like deals come up and they come up for the logical reasons, either estate planning or a fund has gotten down the property too long or partners are bickering or the property needs capital. And so we're optimistic that will continue maybe not so much at the end of '13 but will continue into '14 and beyond.

David Loeb - Robert W. Baird & Co. Incorporated, Research Division

And do you think, in -- terms of your appetite, do you think that's more likely to be kind of turnaround or margin revenue plays or more market plays?

Michael D. Barnello

Well, I'd like to think that it's specific to the hotel relative to all those factors right? So we look at how much of the turnaround, how much is margin play, what's going on in the market when we do the underwriting. It's not just the timing of the overall U.S. market in one full swoop. Otherwise, we would've bought anything we could get our hands on in 2010. We're trying to be really rifle shot-focused on the types of properties that we're buying, and we'll continue to do that. So when we -- if we like the market and we have flexibility in terms of whether it's management or branding, that might be something that would be attractive to us, is there a turnaround play, how long is the turnaround play, and what's the risk associated with that, then that might be something we move forward to. But we're not targeting any one of those things. We're not saying, it will be nice to have some turnarounds or it will be nice to have some deals we can move the margins on. For us, it's about finding the right hotel and the right market location because obviously, it's real estate business before the hotel business and if we find those, then -- at the right price, then we'd like to acquire. If we can't, we'll be patient.

David Loeb - Robert W. Baird & Co. Incorporated, Research Division

And at the risk of asking the most obvious, if you found a couple hundred million, would you feel compelled to fund those with equity, given where the leverage is today?

Bruce A. Riggins

So every use decision on our capital comes with an offsetting source decision and it's something we talk about all time, and I know you guys have asked the question a lot. It does depend on the type of asset and the size. I mean, you asked specifically about a large deal. I mean, if we found a couple of hundred million dollar asset, tomorrow we would like to -- likely to have a need for equity would seem logical. But the particulars do matter, I mean, are you at a 2 cap or you buying at a 12 cap, neither one of those seem likely, but if you are, then particulars of -- what it means from EBITDA and certainly, your debt-to-EBITDA do come into play. So that's something we would factor in. And certainly if it's not quite as large as you mentioned, that's something that we could obviously consider doing through the ATM over time. And that's something we'll look at. So we have a lot of choices in terms of what we can do to fund acquisitions. And that's something we look at really kind of week in, week out depending on what the potential uses are for equity. And, as people mentioned before, one thing that we do know is that there will be some kind of actual item on is the cost of on Shutters. So there is a high chance that we get paid off on that. And I can't tell you with any certainty exactly when that happens, likely between January and May when the windows open. But if that happens, that does bring some cash into the fall and lowers debt-to-EBITDA, providing more capital for acquisitions like you talked about. So there's lots of things to think about and not just if you find a deal then you need to raise equity.

Operator

And we will next go to the site of Nikhil Bhalla.

Nikhil Bhalla - FBR Capital Markets & Co., Research Division

Just a quick question on the margins for our Park Central. I recall that at the peak, I think, back in 2008, the margins for this hotel were very, very high as much as probably 49%, any sense of where the margins stabilize once this hotel's fully ramped up?

Michael D. Barnello

Now, we don't have a good number for you right now. We -- the models changed as you can imagine, before it was 934 rooms and one type of property and it would obviously run much more simply. Now, we've broken it into 2 hotels, the margins will be different for both and so I'm not so sure that it will give you a clear comparison, meaning if we had run the property the same way and just did a minor renovation, I think, the 49% comparison might be a good one because we're just -- we did a Band-Aid approach to renovation and therefore, when you get back to the old margins. Here, since, we've transformed Park Central and we're hoping to get a much higher rate, that's one place to look and obviously, the margins there should ramp up handily over time because that is still a very efficient operation. On the WestHouse, our expectation is that it's going to be even higher rates than the Park Central and that the margins and the occupancy will be lower than the Park Central ran and the margins would probably be a little lower than what the Park Central shook out although more profitable on a per room basis. So comparing just the 49 is not going to -- it's not going to be apples-to-apples.

Nikhil Bhalla - FBR Capital Markets & Co., Research Division

Got it. And just in terms of your original underwriting or the way you had before, the great differentials you've talked about between the Times Square market and where your hotel was. Is that still holding? Do you feel a little bit better today? Or do you feel kind of the same as you did before?

Michael D. Barnello

We feel, I think, better a couple levels. One, the numbers we gave out before for the delta were based on 2012 numbers. And if you recall, a lot of people thought that '13 wasn't going to be a very good year for New York and New York's had a good year so far. So that Times Square rate and overall Manhattan rate, well, while we're not done with the end of the year is going to be higher. So to get back to that average rate, well, it leaves us to more room to grow so we feel better about the opportunity. And then now, having been through the lion's share of renovation, we feel fantastic about the product. I think even better than we thought going into it. I mean, I think a lot of people would agree with the comment that the Park Central, when you see the physical spaces, it turned out a lot better than anybody even imagined it could be. So, I think we're kind of bolted on, on that side. Our expectations are the same on the WestHouse, although we're not doing the public spaces yet, so we haven't seen that side of it. But I think if you take a walk through there, you might feel the same way.

Operator

And we will next go to the site of Patrick Scholes with a follow-up question.

Patrick Scholes

One more question here. You had talked about a good -- a very strong pace of bookings for 2014. How would that progress during the most recent quarter? Did you see it start to accelerate as the quarter went on? Or had been consistent? Or did it get slightly less good as the most recent quarter went on?

Michael D. Barnello

Patrick, I think it went up slightly. It wasn't meaningful, I mean, but we've had a good pace for the beginning of the last quarter. I don't think we talked about '14's pace last quarter, but it did improve a little bit. But it didn't go from 0 to 60, if that's what you're asking.

Operator

And at this time, there are no additional questions.

Michael D. Barnello

Terrific. Well, thanks, everybody. We appreciate you taking the time to listen to us on the quarterly earnings call, and we look forward to seeing a lot of you guys at NAREIT next month. Thanks, everyone.

Operator

This does conclude today's program. You may disconnect at any time.

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