Sunstone Hotel Investors Management Discusses Q4 2013 Results - Earnings Call Transcript

| About: Sunstone Hotel (SHO)

Sunstone Hotel Investors (NYSE:SHO)

Q4 2013 Earnings Call

February 21, 2014 12:00 pm ET

Executives

Bryan Albert Giglia - Chief Financial Officer, Senior Vice President, Member of Portfolio Management Committee and Member of Investment Committee

Kenneth E. Cruse - Chief Executive Officer and Director

John V. Arabia - President, Member of Portfolio Management Committee and Member of Investment Committee

Marc A. Hoffman - Chief Operating Officer and Executive Vice President

Analysts

Chris J. Woronka - Deutsche Bank AG, Research Division

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

Lukas Hartwich - Green Street Advisors, Inc., Research Division

Ryan Meliker - MLV & Co LLC, Research Division

Andrew G. Didora - BofA Merrill Lynch, Research Division

Anthony F. Powell - Barclays Capital, Research Division

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

David Auerbach

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

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the fourth quarter and full year earnings conference call. [Operator Instructions] I would like to remind everyone that this conference is being recorded today, Friday, February 21, 2014, at 9:00 a.m. Pacific Standard Time.

I will now turn the presentation over to Bryan Giglia, Chief Financial Officer. Please go ahead.

Bryan Albert Giglia

Thank you, Sarah, and good morning, everyone. By now, you should have all received a copy of our fourth quarter earnings release and our supplemental, which were released yesterday. We also posted a new presentation that can be found on our website. If you do not yet have a copy of any of these, you can access them on our website at www.sunstonehotels.com.

Before we begin this call, I'd like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our prospectuses, 10-Qs, 10-Ks and other filings with the SEC, which could cause actual results to differ materially from those projected. We caution you to consider those factors in evaluating our forward-looking statements.

We also note that this call may contain non-GAAP financial information, including EBITDA, adjusted EBITDA, FFO, adjusted FFO and hotel EBITDA margins. We are providing that information as a supplement to information prepared in accordance with generally accepted accounting principles.

With us on the call today are Ken Cruse, Chief Executive Officer; John Arabia, President; and Marc Hoffman, Chief Operating Officer. After our remarks, we will be available to answer your questions.

Before I turn the call over to Ken, I'd like to remind everyone that with the beginning of 2013, we adopted calendar quarter reporting period for our 10 Marriott managed hotels similar to the rest of our portfolio, which also reports on a calendar basis. In 2012, reporting for our Marriott managed hotels was based on a 13-period fiscal calendar. As a result of this calendar shift, our Q4 2013 revenues, net income, adjusted EBITDA and adjusted FFO have 20 less days than in Q4 2012. Because of this comparison, our Q4 -- our comparisons to Q4 2012 are not meaningful.

With that, I'd like to now turn the call over to Ken. Ken, please go ahead.

Kenneth E. Cruse

Thanks, Bryan, and thank you all for joining us today. On today's call, I'll start by reviewing our fourth quarter and full year earnings report. I'll then discuss some of our portfolio quality improvement plans, and I'll highlight leading indicators for our portfolio. Next, John will discuss several finance initiatives aimed at improving our corporate flexibility and enhancing our total shareholder returns. Following John's comments, Marc will review our operations in detail and will highlight certain asset management initiatives. Bryan will then go over our balance sheet, liquidity and guidance for the first quarter and full year before I wrap up our prepared remarks with a discussion on our priorities for 2014 and beyond.

To begin, our portfolio continued to perform reasonably well in the fourth quarter. Ongoing improvements in demand, coupled with solid growth from many of our newly acquired and recently renovated hotels, offset by isolated negative events such as the government shutdown and softness in Chicago and New York, resulted in moderate top line growth in the fourth quarter.

Our comparable hotel RevPAR grew by 3.5% over the fourth quarter 2012, which was in the midpoint of our guidance range. Our comparable ADR grew by $2.80 to $188.01, while our occupancy increased by 150 basis points to 77.3%. We achieved significant occupancy gains on our Renaissance Washington, D.C., our Hyatt Regency Newport Beach and our Hyatt Regency San Francisco. Our moderate top line growth to push our adjusted EBITDA and adjusted FFO per diluted share to the high end of our guidance range.

I should reiterate that, as Bryan noted, our absolute comparisons to Q4 2012 are somewhat distorted. Specifically, while our absolute margin figures imply a 90-basis-point reduction, our Q4 hotel EBITDA margins, absolute margin comparisons were impacted by several unique and one-time factors in the fourth quarter. Specifically, in addition to the Marriott calendar shift, our fourth quarter was impacted by roughly $650,000 of full year 2013 real estate tax increases, which comped over $1.3 million of full year 2012 real estate tax credits. Taking out the noise, we estimate that our normalized hotel margins would've improved by roughly 50 basis points in the fourth quarter.

Shifting to the full year, as details of the full year 2013 are provided in our release, 10-K and supplemental. I'll just touch on a couple of key takeaways from our report. First, as with our fourth quarter, our adjusted EBITDA and adjusted FFO per diluted share once again came in at the high end of our guidance range, while our RevPAR growth rate was 4.5%. This was not in itself record breaking. Many of our operating statistics are at or approaching record levels.

Specifically, on a same-store basis, our portfolio occupancy rate is now 2 percentage points above prior peak and our portfolio of RevPAR is essentially at prior peak levels.

Turning to our balance sheet. In 2013, we improved our consolidated debt plus preferred to total capitalization by nearly 9 percentage points, from over 46% at the beginning of 2013 to just over 37% at the end of 2013. And over the last 2 years, we've reduced our leverage by 29 percentage points. Notably, we delivered total shareholder returns of 66% over this same time period. This clearly underscores the fact that when carefully administered, a lodging REIT can materially deleverage while delivering strong shareholder returns.

Shifting to our ongoing program to improve the quality and competitiveness of our portfolio, I'll spend a moment on our 2014 capital expenditure plan. Our capital investment budget calls for between $120 million and $140 million of capital investments into our hotels. This is generally in line with our total portfolio investments over the last several years.

I'll comment now on some of our higher profile projects. First, with respect to the Boston Park Plaza, our plan is to improve the competitiveness of this well-located, but sorely undercapitalized hotel through a phased comprehensive renovation program. Our repositioning plan aims to improve the overall guest experience from the current 2.5-star quality level to 3.5-star quality, which we believe is the right competitive positioning for this hotel, given its location in the Back Bay market and the relative positioning of other existing hotels in the market.

We believe our phasing plan will minimize renovation disruption during what we expect to be 3 very strong years in the Boston hotel market. Not only will the hotel not be shut down during any portion of our renovations, we, in fact, expect minimal revenue disruption ranging from just $1 million this year to a maximum of perhaps $3.5 million during the peak rooms renovation planned in the winter of 2016.

We've posted a more detailed summary of our renovation programs for both the Boston Park Plaza and the Hyatt Regency San Francisco on our website. So I'll briefly summarize some key details today.

For Phase 1 of the Boston Park Plaza renovation, we are in the process of investing roughly $18 million to $19 million to upgrade the hotel's elevator -- elevators, façade, roof and HVAC systems. This phase directly addresses some of the primary guest complaints of the hotel, including insufficient HVAC systems and poor Internet connectivity.

Phase 1 also entails work required to lease approximately 30,000 square feet or 75% of un- or under-occupied retail space located within the hotel. We believe the tenants we've selected will nicely complement the guest experience we're in the process of creating. Specifically, we have executed new leases with Hermes, who will occupy a 5,500-square-foot retail store on the first floor, and with Strega restaurant group, a local operator of leading Boston restaurants who will occupy a 5,900-square-foot restaurant on the first floor.

We are on pace to have both tenants up and running during the second half of 2014, and we are also in the process of finalizing lease terms with a national fitness operator to occupy approximately 19,000 square feet of additional leasable space on the first floor and basement level of the hotel. We expect to have this tenant in place between Q4 2014 and Q1 of 2015.

Future renovation phases include reinvigorating the lobby and existing meeting space and converting second-level office space into new meeting space, which is scheduled to begin in December of 2014 and be largely completed by March of 2015. A year later, we will complete a full, albeit routine, guest room and corridor renovation, which is scheduled to begin in the fourth quarter of 2015 and continue into the second quarter of 2016. Again, we will complete most of the renovation work during the seasonally slow winter months, resulting in very limited disruption of -- for a renovation of this scope. Once completed, we expect our total investment in this well-located, high-quality fee-simple asset to be between $320,000 and $330,000 per key.

In the meantime, we expect the hotel to deliver RevPAR growth of between 6.5% and 8.5% in 2014 after adjusting for expected renovation disruption.

Shifting to the Hyatt Regency San Francisco. We acquired the Hyatt Regency San Francisco in December of 2013 with the game plan of immediately renovating the guest rooms to improve the competitive positioning of the hotel. In January, we began a $17 million rooms renovation, which will address the hotel's guestrooms and suites, bathrooms and corridors. Given the seasonality patterns in San Francisco, we expect just $1 million to $2 million of renovated [indiscernible] revenue displacement this year, which was included in the estimated 24 -- 2014 EBITDA we provided when we announced the acquisition. In fact, the renovation has been underway for the last month, and 96 new rooms have already been put back into service. Even with the renovation in full swing, RevPAR for the hotel has grown by 6.6% this year to date through February 17. We are projecting between 5% and 7% RevPAR growth for the Hyatt Regency San Francisco in 2014.

Additionally, we're in the process of investing approximately $5 million to renovate the DoubleTree Times Square hotel lobby and expand its fitness center. We've also installed a new revenue-generating digital marquee sign, which was up and running before the Super Bowl.

During 2014, we also expect to invest approximately $40 million to complete routine guestroom, bath and public space renovations, many of which began in the fourth quarter of 2013 and are expected to be substantially completed during the first quarter of 2014. Specifically, we will be completing the rooms and public space renovation of our Hilton Garden in Chicago by the end of March, as well as a complete rooms renovation at the Renaissance Long Beach, also in March. We have completed the full rooms and ballroom renovation at the Renaissance Orlando, and we plan to do a room's renovation and small [indiscernible] Lobby at our Hilton New Orleans. We will also renovate the bathrooms and meeting space in our Renaissance Washington -- I'm sorry, the ballroom and meeting space of our Renaissance Washington, D.C. throughout the year as space is available to minimize disruption.

Taken as a whole, we expect to incur between $2 million and $4 million of renovation revenue disruption in 2014, well below the $10 million of revenue disruption we incurred in 2013. Meanwhile, as expected, the hotels that we renovated in 2013 are generally ramping up well. For example, through February 17th, our Hilton Times Square, which was under renovation during the first quarter last year, is showing a 53.7% increase in RevPAR year-to-date.

Finally, we expect to invest approximately $15 million to $20 million throughout our portfolio in 2014 on return-focused energy and systems investments. Our energy investments range from ECM motors in 75% of our hotel rooms, income-automated guestroom temperature controls, variable frequency drives to entire hotel LED light bulb replacements. We're also installing low flow toilets and we're also doing complete chiller/boiler system overhauls in many of our hotels.

Through this initiative, we are not only making our portfolio more green, we expect to realize returns ranging from the low teens to upwards of 30% on these investments.

In part, due to the energy projects that we have completed over the last year, our energy cost per occupied room decreased by 5.8% in the fourth quarter of 2013 and decreased by 4.6% for the full year of 2013 as compared to 2012.

Turning now to leading indicators. You're seeing a number of trends across our portfolio that point toward continued moderate growth. On the macro front, U.S. employment continues to slowly improve. Industrywide, business transient and negotiated account trends both continue to improve as well. And one of the best leading indicators for our business is group of booking productivity. Group booking productivity, which we define as all future group room nights booked during a specific period. Notably, our same-store group productivity for the full year 2013 increased by 2.6% over the full year 2012. Keeping with the theme, while 2.6% growth is not itself eye-popping, it is important to note that we're talking about improvements over already record level group same-store productivity for our portfolio.

As a result, our 2014 group pace, defined as group revenues on the books for the current year, is now the strongest it has been in the past 5 years. Specifically, while our 2014 group pace was slightly below trend several quarters back, our 2014 group pace is now up approximately 4% of our 2013 pace the same time last year. When considering the very high occupancy level of our portfolio, we expect that our solid 2014 group base will help to further improve the business transient pricing power of our hotels. Accordingly, we expect our RevPAR and earnings growth to accelerate in 2014. That said, as Bryan will discuss in a moment, we see no reason to be aggressive in our full year guidance at this time. As we've typically done, we've set a guidance range that we believe is realistic and attainable. We will make every effort, of course, to outperform our guidance range.

And we're out of the gate strongly thus far in 2014. In January, our portfolio generated RevPAR growth of approximately 6.5%. And with that, I'll now turn the call over to John to discuss some of our current finance initiatives.

John V. Arabia

Thank you, Ken, and good morning, everyone. Today, I'll provide greater clarity on our anticipated 2014 dividend, as well as provide an overview of 2 financial tools recently put in place, including an ATM share issuance program and a share repurchase authorization. We believe that our dividend policy, as well as the implementation of these financial tools, will enhance total shareholder value by: one, providing greater optionality to efficiently reinvest operating cash flow back into our portfolio and to meet our corporate objectives; two, raising incremental capital in a cost-efficient way when our share price fully or more than fully reflects the value of our portfolio; and three, capitalizing on periodic dislocations in the equity markets through the repurchase of our own shares.

First off, I'll provide more clarity regarding our dividend policy. Today, we announced a continuation of our $0.05 per share per quarter cash common dividend. As many of you are aware, our taxable income attributed to common shareholders is expected to increase from roughly $0.10 per share in 2013 to an estimated $0.50 to $0.60 per share in 2014 based on our current earnings guidance.

The significant increase in taxable income is largely attributed to: one, exhausting the majority of our NOLs; two, a reduction in the preferred stock dividend as a result of eliminating the Series A and Series C preferreds in early 2013; three, capturing the income from the non-ownership stub period of our 2013 acquisitions; and four, the anticipated increase in aggregate property level earnings.

In order to satisfy our distribution requirements, we expect to pay a substantial topper [ph] dividend in the fourth quarter of 2013, which may be structured as an all-cash dividend or as a combination of cash and stock subject to IRS rules. Later on in the year, we intend to make the determination of the level and composition of the year-end dividend based largely on our capital requirements and the enhancement of our corporate objectives including our long-term leverage initiatives.

Based on yesterday's closing share price of $13.38, our projected taxable income implies a full year yield of between 3.7% and 4.5%.

Now let me turn to the implementation of various finance tools intended to provide us with greater financial flexibility. We have concurrently put in place a $150 million ATM share issuance program, as well as a $100 million share buyback authorization. To be very clear, as of today, we do not intend to use either the ATM or the share buyback program at the current stock price. Rather, these financial tools simply give us the option of raising incremental capital to boost liquidity when our shares are trading at a premium to NAV or to buy back our stock when our share price is considerably lower than the inherent value of our portfolio.

With a strong balance sheet, ample liquidity and a well-staggered debt maturity schedule, we expect to periodically and opportunistically utilize these commonly used financial tools to efficiently take advantage of various opportunities as they arise.

With that, I'll turn it over to Marc to discuss our fourth quarter and full year 2013 operating results and our thoughts on the current operating environment.

Marc A. Hoffman

Thank you, John, and good morning, everyone. Thank you for joining us today. I will review our portfolio's fourth quarter and full year 2013 operating performance in greater detail. All hotel information discussed today, unless otherwise noted, is for our 28-hotel portfolio, which excludes Boston Park Plaza and is adjusted for the Marriott calendar change.

For the fourth quarter, our comparable RevPAR was up 3.5% to $145.33, with a 1.5% growth in ADR and the 150-basis-point improvement in occupancy. During the fourth quarter, 8 of our hotels generated double-digit RevPAR growth, including our Renaissance D.C., Marriott Long Wharf and JW Marriott New Orleans. From a total room segmentation standpoint in Q4, group revenues were flat year-over-year, driven by a 2% increase in ADR and a 2% decrease in group rooms.

Our New Orleans hotels had a great group and transient rate growth due to strong citywides during the fourth quarter. Other hotels with good group rate growth in the fourth quarter were the Renaissance D.C., and Marriott Long Wharf.

Q4 transient only room revenue increased 4.8% to last year with a 2.2% increase in ADR and a 2.5% increase in room nights. During the fourth quarter, our comparable portfolio had 560 sellout nights, or 21.7% of the Q4 room nights. This is an improvement over the 522 sellout nights we achieved during the fourth quarter of 2012. This is the highest number of Q4 sellouts for our portfolio in the last 5 years.

As our hotels have established better base business through groups in contracts, our operators have focused on increasing transient revenue through rates with mix shifting and compression. A few key revenue management reference points for Q4. Our premium room revenue improved 9.6%. Our corporate negotiated ADR grew 3.2%. And finally, our discount room segments grew ADR 9.8%, with discounted room nights increasing 6.1% as our operators effectively shifted our business mix into both higher-rated segments and a higher-rated discount segments.

For the full year 2013, our comparable portfolio RevPAR was up 4.5% to $148.20, which was negatively impacted by $10 million of total revenue displacement or 120 basis points. For 2013, 4 of our hotels generated double-digit RevPAR growth, led by the Renaissance D.C., which had an unprecedented year with great in-house group growth driven by the new rooms product.

A key revenue management highlight for the full year 2013, our premium room revenue improved 7.5%, driven by a 6% increase in rooms. Our corporate negotiated ADR grew 4.2%. Our discounted room segments grew ADR 8%, with discounted room nights increasing only 1% as our operators effectively shifted our business mix into both higher-rated segments and higher-rated discount segments.

Overall, for full year 2013, our portfolio had a 7% increase in sellout nights as compared to 2012. This was the fifth consecutive year of growth in sellout room nights.

As we have stated over the last few quarters, our operations have focused on increasing transient revenue through aggressive revenue mix management changes. Interestingly, these mixed shifts appear to have been accomplished largely without negatively impacting our occupancy rates.

Full year 2013, our 28-hotel comparable portfolio is up plus 2.6% in group room production for all current and future years, driven by significant group bookings at several of our hotels, including the Sheraton Cerritos, Marriott Quincy and Hilton San Diego Bayfront. We continue to see strong continued group trends throughout our portfolio.

Our 4 2013 major renovation hotels were plus 12.3% in group production for the full year, driven by an over 50% increase in group room production post renovations.

We continue to seek opportunities to improve the portfolio profitability. As we mentioned on all of our calls since 2013, energy continues to be a significant focus of the company. We continue to implement various energy savings initiatives, as Ken discussed throughout the portfolio.

To that end, our energy cost per occupied room decreased 5.8% in the fourth quarter and decreased 4.6% for the full year 2013 as compared to 2012.

As we continue to implement these energy savings programs, we are targeting returns ranging from the low teens to 30% our unvested capital. Looking forward to 2014, our current 2014 group pace for all 29 hotels has increased to 3.8%, driven largely by growth in occupied room nights. Our portfolio is being negatively impacted by our Renaissance Washington, D,C., where group pace stands roughly 10% below last year's record pace.

We expect D.C. to have significant impact on our portfolio all year due to the difficult comp over a phenomenal 2013, and due to the very soft market that D.C. is expected to have in 2014.

Our 4 major 2013 renovation hotels are heading into 2014 with group pace up 34.2%, driven by a 25% increase in rooms and a 7.5% increase in ADR.

Now let's spend some time talking about a few of our key markets in 2014. We expect 4 of our markets, Washington, D.C., Chicago, New York and New Orleans, to somewhat lag our portfolio in terms of 2014 growth.

Washington, D. C., as an overall market, is expected to be flat to negative in 2014. PKF's most recent forecast for upper-priced hotels indicates a 0.4% reduction in RevPAR, driven by several different factors including the impact of inauguration in 2013, the lack of growth in major citywide conventions and the decline of many citywides, which particularly impacts the city center hotels, continued uncertainty in the government travel allowances, government group restrictions, and finally, the addition of new supply in D.C., led by the opening of the new 1,175 room Marriott Marquis scheduled to open in May.

Because our Renaissance does more group and convention driven business, and last year was a record year for in-house group of this hotel, we expect our hotel to underperform the market in 2014 by a couple of hundred basis points.

We remain very bullish on Washington, D.C. in the long term, especially with stronger citywide years in the outer years of 2016 and 2017. Specific to our hotel, we expect the completion of the city center mixed use project, located at the front door of our hotel, will bring an upsurge in transient demand for the D.C. Renaissance.

Shifting to Chicago. As an overall market is expected to be positive, but the market is still absorbing the recent increase in supply. Citywides are expected to be up marginally, but the addition of new supply is limiting the hotel's ability to grow rate as they absorb the new inventory in the city. In Q4 2013, according to Smith Travel Research, the upscale train track in Chicago declined a negative 6.5% in RevPAR, while our Hyatt Chicago declined minus 5.7%. Our Embassy Suites increased 1.2% and our Hilton Garden Inn declined 12%.

Our Hilton Garden Inn saw a significant impact from the opening and continued ramp up of the White Lodging triplex. Our Hyatt Chicago is being impacted by the lack of significant growth in citywide conventions and the new supply. The hotel has seen a very good ramp up in the last 6 months and has exceeded our underwriting and revenue for 2013. However, hotel profitability is ramping a bit slower than originally anticipated. That said, we remain confident that the hotel will continue to build market share over time.

We believe that New York as an overall market will have minimal growth due to the new supply, both in New York City and in our Times Square market. We did experience a better-than-anticipated lift from Super Bowl in 2014, and our Hilton Times Square will outperform the market due to the renovation displacement and ADR growth we experienced in 2013.

Specifically, RevPAR at our Hilton Times Square is up 53% year-to-date through February 17th, yet RevPAR at the DoubleTree is only up 4%. We expect rate growth for our DoubleTree Times Square to moderate this year as the market continues to assimilate new supply.

Again, long term, we see the New York market as one of the top hotel markets in the country, and we believe the premier locations of our 2 assets will continue to improve over time.

Finally, the last of our markets, where we expect some softness in 2014, is New Orleans. Our JW Marriott New Orleans performed phenomenally during the Super Bowl last year and as a result of mega citywides that were in the market. Our hotels are expected to have a difficult comparison to the outperformance they had with these special events. The Super Bowl alone positively impacted the JW's full year RevPAR by approximately 380 basis points, and 2014 has 3 fewer major citywide conventions on a year-over-year basis.

Now for the markets where we expect above average growth in 2014, Boston, San Francisco and Orlando. Boston as an overall market is expected to perform very strong in 2014. The city will see an increase of 4 citywides compared to 2013. In addition, there is limited supply growth across the market, which is combined with peak occupancies in several hotels, is expected to lead to strong rate growth. We've projected our 3 Boston hotels to deliver between 6.5% and 8.5% in combined RevPAR growth in 2014, including the limited renovation displacement at the Boston Park Plaza.

In San Francisco, we expect to have a very strong performance in 2014, with RevPAR being one of the top markets in the nation. While the number of citywides are flat, the number of rooms per citywide is forecasted to increase, as well as the continued growth in technology demand and transient demand. While our hotel will be slightly impacted by the guestrooms' renovation in the first quarter, the remainder of the year, we expect to see growth in both transient and group. We expect our San Francisco Hyatt Regency to deliver between 5% and 7% RevPAR growth in 2014.

The Orlando market continues to experience strong growth in demand. Our hotel expects to have significant growth in group rooms, driven from stronger citywide year in 2014 than 2013. We expect our Renaissance Orlando to deliver between 7.5% and 9.5% RevPAR growth in 2014.

Looking beyond 2014, we believe our portfolio is well positioned to outperform for the duration of this cycle. In 2015, some of the markets where we expect strength will be Orlando, where our hotel's 2015 pace is up 20%; Chicago, where citywides increased to 37% from 35% in '14 and 34% in '13; New Orleans, where citywide room nights are up 16%; and at the San Diego Bayfront where our hotel's rate pace is up 8.3%. In 2016, we expect to see good growth in Washington, D.C., San Diego, New Orleans, San Francisco and Boston.

Let me turn now to Bryan to review our liquidity and guidance. Bryan, please go ahead.

Bryan Albert Giglia

Thank you, Marc. I'll now turn to our balance sheet and give an overview of our liquidity and overall leverage profile. With respect to our liquidity, we ended the year with approximately $194 million of cash, including $89 million of restricted cash. In addition to our cash position, we have an undrawn $150 million credit facility and 13 unencumbered hotels. During 2013, these unencumbered assets collectively generated approximately $70.6 million of EBITDA.

At the end of the year, we had $1.5 billion of consolidated debt and preferred securities, which includes 100% of the $232 million mortgage secured by the Hilton San Diego Bayfront. Adjusting for the debt attributed to our minority partner in this asset, our prorata debt balance is currently $1.46 billion, which consists of entirely well-staggered, non-crossed mortgage debt and preferred securities. Our debt has a weighted average term to maturity of 3.7 years and an average interest rate of 4.86%. Our variable rate debt as a percentage of total debt stands at 29.3% and we have no debt maturities through early 2015.

We are comfortable with our current leverage profile and our ability to continue to achieve our long-term credit milestones. Consistent with the track record we built over the past several years, we expect to further improve our balance sheet and increase our financial flexibility in a methodical and shareholder-friendly manner as the lodging cycle continues.

Now turning to guidance. A full reconciliation of our current guidance can be found on Pages 17 to 19 of our supplemental, as well as in our earnings release. As noted, with our major 2013 renovations now complete and with a solid base of group rooms on the books, we expect to see acceleration in the pace of our RevPAR growth in 2014 and beyond. That said, as Ken noted, we see no reason to be aggressive in our full year guidance at this time. As we've typically done, we set guidance -- we set our guidance range in a range that we believe is realistic and attainable.

For the first quarter, we see RevPAR growing between 5.5% and 7.5%. We expect first quarter adjusted EBITDA to come in between $44 million and $47 million, and we expect first quarter adjusted FFO per diluted share to be between $0.12 and $0.14. The midpoint of this range implies 44% growth in our adjusted FFO per share in the first quarter. Our full year 2014 adjusted EBITDA guidance ranges from $275 million to $295 million and our full year adjusted FFO guidance ranges from $1.04 to $1.15 per diluted share. At the midpoint, this indicates an 18% increase in FFO per share as compared to 2013.

With that, I'll now turn the call back over to Ken to wrap up.

Kenneth E. Cruse

Thank you very much, Bryan. I'll discuss industry fundamentals and our corporate priorities before opening up the call to questions. The lodging recovery that began in December 2009, remains strongly on track. Consistent with our prior comments, we expect continued gradual improvement in the lodging industry fundamentals for the next several years albeit at a more measured rate of recovery than during prior cycles. While we are seeing pockets of new hotel supply in certain of our markets, particularly in New York, Chicago and Washington DC, the trailing 12-month U.S. lodging demand to supply growth rate spread is roughly 1.7 percentage points in favor of demand, which is well above historical norms. This is a positive indicator for the health of our industry, which we expect to persist for some time. Based on the supply pipelines we monitor, we believe the industry will continue to experience lower overall new hotel supply additions than it has during prior cycles for the remainder of the current recovery.

Meanwhile, we expect to see continued growth in demand for upper upscale hotel rooms across our portfolio as the ongoing rebound in employment, corporate profits and improving consumer and business sentiment continue to fuel higher-rated travel, especially in the major U.S. markets where we have hotel investments.

With constructive industry fundamentals as a backdrop, I can summarize our 2014 priorities very succinctly by stating that we plan to stay the course. Specifically, as we continue to navigate the middle years of what we believe will be a prolonged period of growth for the lodging companies, our long-term goal is unchanged, build shareholder value by improving the quality and scale of our portfolio, while gradually deleveraging our balance sheet. Over the past several years, we have demonstrated that our long-term goal is not a contradiction. With discipline and foresight, a lodging REIT can create meaningful shareholder value while deleveraging its balance sheet.

Moreover, with our portfolio now operating at all-time high occupancy levels with very strong average daily rates, our ability to efficiently translate incremental revenues into profit growth continues to improve, and we have grown incrementally more positive on our outlook for 2014 and beyond.

With that, we thank you for your time today and for your continued interest in Sunstone. Before opening up the call to questions, I'd like to invite everyone on today's call to our Investor Day that we have scheduled for April 9, at our Hilton Times Square. Details for this event can be found on our website or on the press release we uploaded this morning.

And with that, let's open up the call to questions. Sarah, please go ahead.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Chris Woronka of Deutsche Bank.

Chris J. Woronka - Deutsche Bank AG, Research Division

On the property tax issue, thanks for showing us the impact of that in the fourth quarter. But what's kind of your outlook there and how much is it going to impact your margins? I know we've heard a lot of things from your peers about California being an area of big increases, and maybe, you can just give us your outlook for property taxes there and cross portfolio?

Kenneth E. Cruse

Sure, Chris. Look, property taxes have been a focus of ours for a long time and we've seen periods of pretty good wins on the property tax front. And then, in cases like we had in the fourth quarter, we've had some property tax appeals go against us. Over time, we think that our aggressive approach to how we manage property taxes will result in better-than-average trends there, and I don't see us projecting property taxes meaningfully, outpacing other expense streams. I will say the last year property taxes increased on a POR basis by about $1.20, which was one of the most significant moves that we saw of any of our expenses across our portfolio. But again, that was what we believe are isolated events, and I would expect as our ongoing appeals efforts come to fruition over the course of this year, you may very well may see some changes in that.

Bryan Albert Giglia

Chris, this is Bryan, just to add to that. The time it takes and during the appeal process, we've been working, especially in California, we've been appealing the Hilton San Diego real estate tax from when we acquired the hotel and just received some -- a refund for prior years on that, but the lead time on the appeals are -- can be up to 4 years, 3, 4 years. So while these rates go up, we fight them and appeal each one, but the lead time and the lag it takes to get those funds back or get a new valuation, it takes a while.

Chris J. Woronka - Deutsche Bank AG, Research Division

Got you. And just a follow-up on that, is it a case of purely the valuations are going up or are the rates going up as well?

Bryan Albert Giglia

We're seeing -- we see a bit of both across the board. It's pretty even between the 2.

Chris J. Woronka - Deutsche Bank AG, Research Division

Okay. And just on acquisitions, you guys, I guess have a dot in moving the property in most of the major markets certainly, kind of, the top 10 that we look at. To the extent that you have an appetite for acquisitions and you can find something at the right price, are you more likely to, kind of, look at a few new markets? Or would you prefer to go deeper in places like San Francisco and Boston?

Kenneth E. Cruse

Chris, we've been pretty fortunate on the acquisitions front. Cycle to date, the deals that we've closed, we're very pleased with. I'd say as the cycle continues to mature we'll be incrementally, even more disciplined than we have been around acquisitions. So depending on where the equity markets are, and depending on where the competitive bid process is for acquisitions, you may see us be slightly less acquisitive going forward. Markets that we're looking to continue to build on an allocation to, we do like San Francisco. Again, you see some prices that are -- that were also trading at well north, but we were able to acquire the Hyatt Regency Embarcadero. We like our price point there. We don't necessarily like the price point at which we're seeing other hotels trade. But we will continue to monitor that market. We like Seattle. We'd love to build out a better base in Portland. We like Hawaii, although we're seeing some changes right now in the tax environment there that are probably going to keep us on the sideline, at least for the near term. And then aside from that, we'll continue to look at Gateway markets, so there are allocation to Boston, New York, DC, I think we've got a pretty good balance to allocation at this point on the major East Coast markets.

Chris J. Woronka - Deutsche Bank AG, Research Division

Great and just a quick follow-up on that dividend. So it sounds like a special in the fourth quarter, but how should we think about that $0.05 for a quarterly run rate? Is it pretty much, assured you're just going to keep that? Or could some of that special effectively kind of bleed into a higher quarterly run rate?

Kenneth E. Cruse

So Chris, I'm going to shift over to John in a second, we spend a lot of time on the dividends. We've got a very considered viewpoint on what a dividend is and what it is not for a capital-intensive business like ours. So at this point, we do expect to maintain a $0.05 cash quarterly dividend. As we said in our notes, in the release and in our comments today, we will make a determination in the fourth quarter as to the constitution and size of the fourth quarter dividend. I wouldn't consider it a special dividend. That is the $0.60 that we've talked about in our release, that is run rate taxable income for the -- for what our portfolio is generating today. We would expect that amount to grow over time. So one way or the other, that dividend is going to -- we're required to make those dividends. That dividend will be there, and will likely grow. So we'd caution you not to think of that as a special dividend but rather than -- rather a fourth quarter -- a larger fourth quarter dividend than the first 3 quarters.

John, do want to have some more?

John V. Arabia

No, I think that's it. Chris, as Ken said, we will maintain a very stable cash dividend of $0.05 per quarter. And then as the year goes on, we will continue to evaluate the size and composition of the topper [ph] dividend as we've been calling it. And just keep in mind, as Ken said, but I'll add emphasis to, the total distribution requirements as we get further into the economic recovery, that number should increase -- is likely to increase fairly meaningfully year-over-year.

Operator

Your next question comes from the line of David Loeb of Baird.

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

A couple of questions on capital allocation -- capital spending. Can you talk a little bit about what you're going to do with $5 million on the Renaissance, DC? I thought you'd really done everything there with the big overall. Why the $5 million more now?

Kenneth E. Cruse

So Renaissance, DC is simply the meeting space. As you know, that's a large group hotel and we are in the process of working on all the ballrooms, all the meeting space level and getting that up to consistent quality level with the rest of the rooms.

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

So was that just not done as part of the previous?

Kenneth E. Cruse

Correct.

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

Okay, interesting. And can you just give us an update on your thoughts on the rooms tower in San Diego?

Kenneth E. Cruse

Update on the thoughts on the rooms tower in San Diego?

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

Yes, doing another rooms tower [indiscernible]...

Kenneth E. Cruse

I'm sorry, David, are you asking about our existing hotel?

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

I'm asking about the possibility of adding the rooms tower to your existing hotel.

Kenneth E. Cruse

We are, not at this point, contemplating adding a rooms tower to that hotel. There is a process underway in San Diego for the expansion of the convention center, which is working through an appeals process. And we've got an option there. And as we sit here today, we have not exercised that option and we'll make a determination probably in the next 18 months or so, if we're likely to proceed.

Operator

Your next question comes from the line of Lukas Hartwich of Green Street Advisors.

Lukas Hartwich - Green Street Advisors, Inc., Research Division

I'm just curious what your yield estimate is on the retail portion of the Park Plaza?

Kenneth E. Cruse

Sure. And actually, the yield is pretty consistent with what we talked about when we announced the acquisition. When we announced the hotel acquisition, we talked about 43,000 square feet of underutilized or unutilized retail space in the hotel. As we talked about today, we've got 30,000 square feet of that space earmarked for lease up over the course of this year and into the beginning of next year. And so right now, we're seeing somewhere between $1.5 million and $2 million of rental income on the space. Our build out is a relatively small percentage of the total Phase 1 budget for that space, but you have to also add our allocated purchase price to that square footage when you [indiscernible] with the yield. So we see these yielding better than the overall hotel, but not significantly -- not at the significant levels that you would expect based on the net cost. It's required to prepare the space for leasing, if that makes sense.

John V. Arabia

And just as a follow-on on that, that retail podium leased out is probably in the neighborhood of $30 million to $35 million of value is the way we look at it. And so when you backed that off from 1,053-room hotel, you can see that there -- unlike most hotels, there's considerable value in the real estate on that fantastic corner in the Back Bay. So take that into consideration when you think about our -- once we're done with the renovation, the total investment in the hotel.

Lukas Hartwich - Green Street Advisors, Inc., Research Division

That's helpful. And then just another quick one, do you have any, sort of, return expectations on the new digital sign at the DoubleTree in Times Square?

Kenneth E. Cruse

That's even more straightforward. We've lease that out over the next 3 years. And our total cost to build that sign was about $3 million.

Marc A. Hoffman

No the sign -- the cost of the sign was actually $1 million. There was a structural -- there were some structural things we were doing and the buildings didn't relate to that and the leased up is in the neighborhood of $400,000 to $500,000 a year that we're going to be getting from a lease.

Lukas Hartwich - Green Street Advisors, Inc., Research Division

So 50% return?

Kenneth E. Cruse

Yes, cash on cash.

Bryan Albert Giglia

Yes.

Kenneth E. Cruse

Not including. I was including in the $3 million, some of the stuff that we did to the front door and the facade which is -- Marc's correct. The sign itself is only about $1 million investment.

Lukas Hartwich - Green Street Advisors, Inc., Research Division

That's a new sign, right? It's not a replacement of an older sign?

Kenneth E. Cruse

It's a replacement of -- if you're familiar with the hotel, there was a very dated sign. It said DoubleTree suites. It was a marquee, a lighted marquee sign. That's been replaced now with a complete LED video screen.

Marc A. Hoffman

Right, the old sign was non-revenue generating. The new sign is revenue generating.

Operator

Your next question comes from the line of Ryan Meliker of MLV & Co.

Ryan Meliker - MLV & Co LLC, Research Division

I appreciate all the color you gave in your prepared remarks with regards to how you're comfortable with your guidance range. I was just hoping further to hit up a little bit more, first of all, with regards to the Renaissance DC. Can you give us an idea of where your group revenue pace is for the portfolio, excluding that asset? You mentioned that asset was down about 10%. I don't know what component of overall group that property is right now?

Kenneth E. Cruse

Sure. So I will hand it over to Marc. Our pace overall for 2014, portfolio including Renaissance DC, is up 4%, and let me give it to Marc.

Marc A. Hoffman

Sure. Without the Renaissance DC, we're up plus 6%.

Ryan Meliker - MLV & Co LLC, Research Division

Right. So that's having a pretty big impact. And is the majority of the impact from the Renaissance going to be on the back half of the year after the Marriott opens? Or is it going to be gradual throughout the year?

Marc A. Hoffman

No, it's actually spread throughout the year, and we're actually up in pace in Q4 and a little down in Q3, and down slightly flat in Q2 and down a little bit in 1, so it's really spread out.

Ryan Meliker - MLV & Co LLC, Research Division

Got you. And then how is that property looking for 2014 with -- or 2015 with the new Marriott Marquis already open? Are you starting to see some nice uptick from new citywide conventions and things driving that at -- that the Marriott Marquis driving?

Marc A. Hoffman

Citiwides in Washington DC in 2015 are basically even, but the real strength comes in, in 2016 and 2017 where you're really starting to see good movement in citywides now that you have a gateway connecting hotel to the convention center.

Ryan Meliker - MLV & Co LLC, Research Division

So is that property likely to be a drag again in '15?

Marc A. Hoffman

I wouldn't use the term drag. We suspect it will see a slight RevPAR uptick from the down RevPAR this year, but it won't be strong. But we do expect strength, we do expect growth and strength really coming in '16 and 17 to that hotel.

Kenneth E. Cruse

And then Ryan, you also have to think or understand that the redevelopment of the city center site that used to be the old convention center is in its final stages right now. That whole $1.8 billion redevelopment effort is at our front door. So we see a great deal of transient demand uplift as that project comes online. So yes, the Marquis is going to come on, definitely will have an impact on our hotel this year as we talked about. But overall, we love the street corner that we're on in Washington DC. And as Marc was just saying, the long-term prospects for our asset in that market are very positive.

Ryan Meliker - MLV & Co LLC, Research Division

Great, that's helpful. And then just with regards to New York City and your 2 assets in Times Square. Smith Travel Research are totally now put out an article about Midtown West Times Square you're seeing rates up 90% over the Super Bowl weekend. Any color on how you hotels performed, and what that plus 53% for the Times -- for the Hilton would've been excluding the Super Bowl and what the DoubleTree at plus 4% would be excluding the Super Bowl?

Kenneth E. Cruse

Sure. Let me start off and I'll hand it over to Marc for more specifics. I think, if you remember, to our last call, we mentioned that we didn't see the Super Bowl as having a noteworthy impact on our New York hotels. Number one, the state patterns weren't as constructive as we'd seen in other markets nor was the -- because nor was the room space small enough to have the Super Bowl make a big impact. We talked about New Orleans where our JW Marriott in New Orleans had a 3.8 percentage point improvement in RevPAR in the full year as a result of the Super Bowl. We did not see that kind of an uptick in New York, but we did see better-than-anticipated trends at both of our hotels. Marc, if you want to give some more specifics on...

Marc A. Hoffman

Yes, we'll have to get back to you with the exact specifics without Super Bowl impact. But in general, we did have a good Super Bowl week. But as Ken said, if you sort of take a look at what's occurred over the last 4 or 5 years in that market or, 3 or 4 years around the same time frame, it was not hugely impactful to Times Square because Times Square is so strong in general.

Ryan Meliker - MLV & Co LLC, Research Division

Yes, I've noticed [indiscernible] a big of an impact on New York as well as [indiscernible] alike New York. New Orleans just given the size, but given Smith Travel Research's analysis saying that Times Square, it [indiscernible] saw 100% increase in rate. I was just wondering if you guys saw anything close to that.

Marc A. Hoffman

No, well, over the 3-day period, we had very good rate growth, but nothing like a 100% rate growth.

Operator

Your next question comes from the line of Andrew Didora of Bank of America.

Andrew G. Didora - BofA Merrill Lynch, Research Division

Ken, I guess one of the themes we've been hearing on a lot in a lot of conference calls of late has been the strength of the West Coast. San Diego is the one market that you really never hear cited. Can you maybe talk about what you're seeing in that market and what your outlook is for the rest of this year and into '15?

Kenneth E. Cruse

Sure. No problem. We talked about Boston, San Francisco and Orlando as being bright spots across our portfolio this year. San Diego, as far as citywides go this year, you're basically flat. You are going to see an uptick in 2015 and then some very nice trends in 2016 and 2017. So overall, we think San Diego is going to have an okay year this year, followed by some pretty positive long-term indicators beginning in '15 and beyond.

Andrew G. Didora - BofA Merrill Lynch, Research Division

Great. And then just final question for me is just as we get later in the cycle now, do you continue to see some opportunities to sell some assets right now, as the cycle continues?

Kenneth E. Cruse

We have done a reasonably good job of pairing out some of our legacy hotels from the portfolio. There's still 2 or 3 hotels or 3 or 4 hotels within our portfolio that would be sale candidates over the remainder of this cycle. Just as we're going to pursue acquisitions with, I think incrementally more caution and diligence, we'll do the same thing with asset sales, but certainly, you could see us look to sell maybe 3 or 4 hotels over the next 18 to 24 months.

John V. Arabia

Andrew, John Arabia, just really quickly piggyback on to Ken's comments. I think it's important to keep in mind the strength, the recent strength and improving strength of the CMBS markets and how that will potentially impact demand for hotels from private equity, particularly some hotels that might not be core urban. So I think that, that gives us an opportunity to selectively, over time, take a look at the portfolio and potentially dispose of incremental assets. But as Ken said, I think we've done a very, very good job of pruning the portfolio to what is a high-quality portfolio.

Operator

Your next question comes from the line of Anthony Powell of Barclays.

Anthony F. Powell - Barclays Capital, Research Division

Just a quick question on the Boston Park Plaza retail. Is there an opportunity to monetize the retail away from the hotel, given some of the transactions we see in the retail market?

Kenneth E. Cruse

Yes, Anthony, very good question. There are very well, may be, at some point in the future. Right now, we like the idea of owning the consolidated interest in this asset. As we talked about on the call, our long-term vision for this hotel is pretty exciting. There's an clear opportunity, we believe to upgrade the quality of the hotel, and in the process, upgrade the nature of the retail and the other tenants that are located in the building. Once that's come to full fruition, and we've realized the benefits of that, there could be a scenario where we look to have off the retail and monetize that at a higher price point than what the value it would be trading, valued at within our portfolio. Right now that we like controlling the entire operation.

Anthony F. Powell - Barclays Capital, Research Division

And just to follow-up on the group trends, I think you and others in the industry have seen very strong production for '14 and beyond. How was your in the quarter, fourth quarter group bookings in the fourth quarter? And how do you expect that to trend within this year?

Kenneth E. Cruse

Sure, I'll start off and then I'll hand it to Marc. The fourth quarter group bookings were softer than what we had seen in prior quarters. And I don't think -- I would encourage you not to read a whole lot into that. We talked about our productivity for the full year as increasing almost 3%. We see those trends continuing into 2014. But fourth quarter was a little bit softer on the overall group booking trend. In part, this is once again, the numbers are in part skewed because of the Marriott calendar shift. So Marc, do you want to give some more specifics on this?

Marc A. Hoffman

Yes. For the full year, we were very strong and were positive, but the fourth quarter shift with Marriott having 20 less days in group production makes a change.

Operator

Your next question comes from the line of Bill Crow of Raymond James & Associates.

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

Most of my questions have been answered, but one of the things we don't see a lot of is share repurchases in the hotel REIT sector. And I understand it's just another weapon in your arsenal you may never use it. Can you tell me what might trigger its use, and maybe, John, this is for you, given your prior employer? Is this an NAV-driven thought process? Is it a discount to the peer set? Is it some sort of discount to replacement cost? At what point would you anticipate going forward with this?

John V. Arabia

Yes, Bill, it's John. Relative to peers, it really doesn't matter all that much when you're arbitraging between public and private pricing. It's really discount to NAV, and it would have to be notable discount to NAV considering, as we all know that NAV is not a pure science, so to speak, but we do feel comfortable that we know the value of our portfolio, albeit one that those values are changing based on what's going on in the world. I will tell you it's not simply a discount to NAV, rather we need to take into consideration our corporate objectives, our liquidity and our balance sheet objectives. But, I think you said it well, Bill. This gives us another tool or another weapon for us to go out and create shareholder value, if there is significant dislocation in our stock, and the best investment for our shareholders represent -- is our own shares. So at the current share price, as I mentioned in our prepared remarks, as of today, the share repurchase program would not be used, but let's see what happens going forward, and we're ready to take advantage of those opportunities.

Operator

Your next question comes from the line of David Auerbach of Esposito Securities.

David Auerbach

Most of my questions have also been answered, but I just have 2 thoughts. You mentioned some of the cities that you guys were looking at for opportunities, if the price was right. So just looking at the portfolio, I guess, if you had to pick 2 or 3 specific locations that you might want to take a look at or if you could get involved in. Where would those be, like Seattle, Atlanta, Denver, just curious? And then also your thoughts on the preferred, possibly floating a new issue, where the current preferred is at and I'll hang up and listen.

Kenneth E. Cruse

All right, David, thanks for the question. Again, markets that we would consider making investments in, we like all the gateway markets in the U.S. where we currently have assets. We feel like our allocation is pretty full and markets like Chicago and Boston at this point. But we'll continue to look at markets like Seattle. We would like to get a little bit bigger presence in San Francisco. We wouldn't mind doing more in Portland and certainly, could do more in LA and in San Diego as well. As far as your question on the preferred, as you know, over the last year, we've retired a considerable chunk of our existing preferreds. We have about 115 million of preferreds outstanding at an 8% yield. It's an interesting security for us, but overall, given our continued focus on gradual de-leveraging of our portfolio, we're probably in the near term, at least unlikely to issue new preferreds. The current tranche that we have outstanding is not repayable at par until -- when is it 2016? -- 2016. So at that point, it's likely to stay outstanding until that point.

Operator

Your next question comes from the line of Nikhil Bhalla of FBR.

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

Just a question on the Hilton reward points. I recall, hearing from you a quarter or 2 ago that, that was an issue in New York. Is that still an issue for you?

Kenneth E. Cruse

You refer specifically to what issue?

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

Yes, this is regarding the Hilton reward points. I remember, I think a quarter or 2 ago, you talked about seeing some headwinds because of that in your assets in New York. I was just wondering if the reward points or monetization of those reward points is still an issue.

Kenneth E. Cruse

Absolutely. I think, I didn't hear that piece of the question upfront, but thanks for asking that. Clearly, as we stated that few months ago, the Hilton's devaluation of their rewards point and the change in the overall system for our hotels in Times Square, as anticipated, had a very meaningful impact on those hotels in the -- over the course of 2013 and certainly, in the fourth quarter when those shoppers weekends kick in. In 2013, we saw an overall reduction in redemption room nights, for example, at our DoubleTree Times Square. Basically, the redemption room nights were cut in half. In 2012, they ran about 24% of our total revenue. 2013, they were about 12% of our total revenue. If you look at our supplemental, you can see the impact of that change on our -- on the performance, especially the DoubleTree, and in particular, it shows up on the margin trends. That's one area where, I believe, I called out in my comments at the beginning of the call that, that change alone had a fairly significant impact on that hotel's ability to yield out its room space over the course of the fourth quarter, kind of, coming to a head in the near -- in the timing -- I'm sorry, the New Year's eve timeframe. That's baked in at this point. While the rules, certainly, are subject to change again in the future, our expectation is that the run rate that we had in 2013 is likely to be consistent with what we're seeing going forward for the hotel. As we've done in the past, we continue to work with our operators to come up with more sophisticated and direct revenue management strategies to maneuver within the current [indiscernible] environment.

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

So just to dig out a little bit further, would that suggest that your Hilton Times Square hotel could clearly, year-to-date, you've talked about over 50% RevPAR growth. Could that see continued impact for the remainder of the year as well as the DoubleTree? Or would you say that Hilton Times Square, given all the renovations is probably a little bit better positioned now for the rest of the year versus the DoubleTree?

Kenneth E. Cruse

Yes, 2 things there. The Hilton Times Square, which is located at 42nd and has a different rooms product than what you've got at the DoubleTree, which is the big suite product, the Hilton Times Square does -- does less rewards redemptions than the DoubleTree, in fact in 2013, the change in revenue that was generated through rewards redemptions was much, much less pronounced, it was about 2 percentage points of total revenue it went from 10% of total revenue in 2012 to about 8% in 2013. So less impactful there, for sure. I will say the renovations work that we completed over the course of 2013 in the Hilton does even more to help that hotel be competitive against the existing hotel base absent the ability to yield out the rooms with the rewards system. So, I think, we're in good shape there. We think we're in good shape in both hotels, but it was unfortunate to have to take a little bit of a step back on the revenue management strategies during 2013.

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

Got it. And just one follow-up question for John, here. John, would you just reconcile for us the SG&A this year versus last year?

Bryan Albert Giglia

Nikhil, it's Bryan. We guided this year to overhead -- cash overhead of approximately $20 million, $21 million, it's about roughly $1 million higher than where we were last year on a run-rate basis.

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

Okay, and then the noncash part is probably around $6 million or so?

Bryan Albert Giglia

It's $6 million, yes. And that's the stock amortization piece.

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

Okay, great. Sorry, one last question for John, here. John, you referenced the CMBS market and how that could be instrumental in maybe setting a part of the portfolio here. My sense is you are thinking more from a standpoint of like selling a chunk of portfolio. When we think of CMBS debt, we tend to think applicability more on the larger downside rather than single one-off assets. Just wanted to, kind of, get a sense of what you thought there?

John V. Arabia

I'm sorry, I hope I did not imply that because that's not our intention to sell off a chunk or a large portfolio, as you say. My comment really was the CMBS market has markedly improved, and you're seeing loan values upwards of 80% in some situations on stabilized assets. Clearly, that cheap capital, I think, will advantage private equity buyers who just have a different view on leverage. And I think it'll also fuel continued increases in overall hotel values. So my point really was the overall pendulum that has strongly in favor of REIT acquisitions in over the past few years, that pendulum, I think, is swinging a little bit more towards in favor of private equity. And to the extent that it could help us, to the extent that we -- over the next few years -- nothing immediate over the next few years look to divest a very small number of our hotels.

Operator

There are no further questions at this time. Please continue.

Kenneth E. Cruse

Great. Thank you very much, everyone for joining us today, and we look forward to seeing many of you at our Investor Day, again it is scheduled for April 9 at the Hilton Times Square. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.

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