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Hersha Hospitality Trust (NYSE:HT)

Q4 2013 Earnings Conference Call

February 26, 2014 09:00 ET

Executives

Peter Majeski - Investor Relations

Jay Shah - Chief Executive Officer

Ashish Parikh - Chief Financial Officer

Neil Shah - Chief Operating Officer

Analysts

Smedes Rose - Evercore

Andrew Didora - Bank of America

David Loeb - Baird

Bill Crow - Raymond James

Ryan Meliker - MLV & Company

Anthony Powell - Barclays

Chris Woronka - Deutsche Bank

Nikhil Bhalla - FBR

Operator

Good morning, ladies and gentlemen and welcome to the Hersha Hospitality Trust Full Year and Fourth Quarter 2013 Earnings Conference Call. Today’s call is being recorded. At this time, all participants are in a listen-only-mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions)

At this time, I would like to turn the conference over to Peter Majeski of Hersha. Please go ahead, sir.

Peter Majeski

Thank you, Gwen and good morning to everyone participating today. Welcome to Hersha Hospitality Trust’s full year and fourth quarter 2013 conference call on Wednesday, February 26, 2014. Today’s call will be based on the full year and fourth quarter 2013 earnings release, which is distributed yesterday afternoon. If you have yet to receive a copy, please call us at 215-238-1046. Today’s call will also be webcast. To listen to an audio webcast of today’s call, please visit www.hersha.com within the Investor Relations section.

Prior to proceeding, I would like to remind everyone that today’s conference call may contain forward-looking statements as defined within Section 27A of the 1933 Securities Exchange Act, Section 21E of the 1934 Securities Exchange Act, and as amended by the 1995 Private Securities Litigation Reform Act. These forward-looking statements reflect Hersha Hospitality Trust’s trends and expectations, including the company’s anticipated results of operations. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the company’s actual results, performance or achievements of financial provisions to be materially different from any future results, performance, achievements or financial positions. These factors are detailed within the company’s press release as well as within the company’s filings with the SEC.

And with that, it is now my pleasure to turn the call over to Mr. Jay Shah, Hersha Hospitality Trust’s Chief Executive Officer. Jay, you may begin

Jay Shah

Thank you, Pete and good morning to those participating this morning. I am joined today by Neil Shah, our Chief Operating Officer and Ashish Parikh, our Chief Financial Officer. I will start today’s call by discussing our portfolio positioning and capital recycling initiatives throughout the year and I will finish by providing an overview of our full year and fourth quarter operating results in specific market and sector commentary. Ashish with then provide detail on the fourth quarter’s financials and our outlook for 2014. And after Ashish concludes, Neil, Ashish, and I are available to address any questions that you may have this morning.

The full year and fourth quarter of 2013 as well as the year-to-date in 2014 have been active from a strategic standpoint as the company successfully concluded the sale of 16 non-core assets while delivering on our commitment to recycle capital and invest in higher growth assets on the West Coast and Miami. During these periods, we directed substantial efforts of streamlining the portfolio via dispositions, selectively expanded the portfolio through acquisitions in core markets, which resulted in materially improved RevPAR quality and successfully delivered a brand new property in Manhattan’s Union Square submarket and a complicated development project on Miami Beach.

Collectively, our actions highlight the company’s strategic focus, our unique capabilities and our ability to quickly respond to opportunities and changes in the market. Looking back on 2013, this flexibility allowed the company to refine and transform the portfolio into a pure play superior quality urban transient portfolio with exposure to the highest demand gateway markets in the United States. We feel that these characteristics differentiate Hersha from both the real estate value and operational efficiency perspective allowing the company to leverage growing transient demand characteristics of the current lodging cycle and effectively position the company for growth in 2014 and beyond.

In December, we closed on the sale of 12 of the 16 non-core hotel portfolio and as recently adjusted as yesterday closed on the last of the remaining four properties in the non-core portfolio. The sale of these 16 hotels generated approximately $136 million in net proceeds and reduced our secured mortgage debt by approximately $79 million. The combination of the non-core portfolio sale marks the company’s exit from several markets that are likely not to possess the same long-term growth trajectories and allows us to focus on our core urban markets as well as higher growth opportunities on the West Coast and in Miami.

Since 2008, the company has disposed of approximately $440 million in assets while strategically acquiring approximately $1.2 billion of hotels in our target markets. The net result of this activity is RevPAR that is in line with full service rates in addition to improved hotel EBITDA margins and enhanced EBITDA growth potential making the portfolio net asset value far more apparent. We have always viewed the non-core portfolio sales a few step process with the sale the first step and the deployment of proceeds generated from the sales as second step.

During the fourth quarter we also made significant progress on redeploying proceeds by agreeing in November to purchase the 122 room Hotel Oceana in Santa Barbara, California for $42 million. This acquisition will be funded with a portion on the net proceeds from the non-core sale and includes the assumption of approximately $25 million in mortgage debt. We expect the acquisition of the Hotel Oceana to close by the end of the first quarter of 2014 with the purchase subject to a variety of closing conditions in the receipt of lender consent. The hotel is located on two oceanfront acres and within walking distance of downtown and the purchase of the hotel exemplifies the investment characteristics that we target in an acquisition. A high quality independently managed hotel driven by significant transient demand and high barrier to entry market for new hotel development in the United States.

We are pleased to have purchased the Hotel Oceana at a very attractive going in cap rate of 8.6% based on trailing 12 months net operating income as of December 2013, which evidences the hotel’s outstanding operating metrics. Occupancy at the hotel as of December 2013 was 92% with ADR of $214 for RevPAR of $197 outperforming the competitive set on the occupancy and RevPAR basis. These operating statistics are in line with those exhibited by our Manhattan hotels and we are confident that with some strong asset management fine tuning we will be able to drive performance even higher at the hotel. We are excited to be entering the Santa Barbara market with the acquisition of this quality asset as Santa Barbara is one of the highest RevPAR leisure markets in the United States. Combined with our properties in Los Angeles, San Diego and the Bay Area the company will benefit from strong growth fundamentals from these key markets on the West Coast.

Additionally, in late December we closed on the purchase of two Autograph Collection hotels in Miami, South Beach. The combined purchase price for the 75-room Blue Moon and the 70-room Winter Heaven was $50.9 million. The acquisition of the South Beach autograph portfolio was funded with cash on hand and with a portion of the net proceeds generated from the non-core portfolio sale. Both properties are superior quality and benefit from significant transient demand in one of the country’s highest growth gateway markets. The hotels underwent a comprehensive $9 million renovation just prior to our purchase which was completed in mid-2013 and are located in the heart of the South Beach Art Deco District. The geographic proximity of the two hotels would facilitate scale efficiencies in the management of the properties particularly in the areas of revenue management, accounting, IT and direct sales.

As part of Marriott’s Autograph Collection, the hotels retained a unique independent character allowing us to drive rate while leveraging Marriott’s powerful distribution capabilities. The purchase of the two South Beach autographs represented a unique opportunity to acquire two fully renovated properties in a highly desirable South Beach market and solidified the company’s presence in Miami. Combined with the Cadillac Courtyard oceanfront Hersha now controls the majority of Marriott branded room inventory in the Miami Beach sub-market.

Continuing with Miami, in early January we officially opened the 93 room tower at our Cadillac Courtyard Miami beach oceanfront. The history of the project dates to November 2011 when we first acquired the feasible interest in the historic Cadillac Hotel, which occupied entire block of oceanfront property with additional buildable rights for a purchase price of $95 million. We built a modern new tower uniquely designed to create 93 ocean-view balcony rooms on the beach. The new tower also includes additional meeting space, a brand new fitness center, structured parking and a second swimming pool with rentable cabanas and function space, true value-add elements to the hotel project. The successful delivery of this project is a testament to the capabilities of the experienced Hersha development team that was able to execute and deliver this complicated project. We are very pleased with the final product and look forward to harvesting returns from the new tower in the coming year.

Just two days ago, on Monday, we announced that the company entered into a definitive agreement to sell the Hotel 373 located in Midtown, Manhattan. The contemplated transaction is favorable as we had expected. The 70-room hotel is being sold to an offshore investment group for $37 million or approximately $529,000 per room demonstrating the intrinsic value of Hersha’s hotels in New York City. The sale price value of the hotel at $1,680 per square foot and based upon 2013 operating metrics represents an economic capitalization rate of 5.2% and a hotel EBITDA multiple of 17.3 times. The sale of the hotel is further indication of Manhattan’s highly sought-after real estate and the strong demand in interest level we have witnessed from domestic and international equity groups seeking to acquire cash generating real estate assets in top gateway markets in the United States, with Manhattan still remaining the most sought-after and desired market of any of our domestic gateway cities. The transaction is expected to close during the second quarter of 2014 and is subject to customary closing conditions.

We believe the sale of this asset will help the market more actively value our real estate, especially in New York and in turn help close the gap between what we believe to be a significant disconnect between the private and public market value of our portfolio’s assets. I would also like to note that we will continue to evaluate opportunities to sell hotels in all of our markets to continue to recycle capital and to take advantage of the significant demand that presently exists from both domestic and private equity funds as well as offshore investment groups.

Now, switching gears to full year and fourth quarter results. Our streamlined portfolio concentrated in high RevPAR gateway markets allowed us to drive strong ADR and leverage on an improving economy, while attracting a higher percentage of business in leisure transient travelers and a growing base of international travelers. For the full year 2013, RevPAR increased 4% to a record $143.30 on an annual basis compared to $137.78 in 2012. As a result of the sale of the non-core assets, acquisition of growth assets and improved performance, the overall portfolio RevPAR quality improved by 16.3% in 2013 over 2012.

ADR for the hotel portfolio increased 2.6% to $179.70 while occupancy increased 112 basis points to 79.7%. Hotel EBITDA for the hotel portfolio increased $7.8 million or 6.7% to $124.5 million in 2013 compared to 2012. As a whole, 2013’s operating results reflect improved RevPAR quality due to the portfolio shipped to higher growth markets as a result of dispositions, selective acquisitions, repositionings and the delivery of development projects, which help provide a strong springboard for growth as we entered 2014.

Fourth quarter results, which as mentioned on our third quarter call, were affected by the federal government shutdown in October and the difficult comparisons in our New York portfolio experienced due to Hurricane Sandy relief efforts, which if you will recollect, drove outperformance in our property during the fourth quarter of 2012. The impact of both of these one-time events was significant during the quarter. As a result, the portfolio’s RevPAR declined 1.6% to $148 with occupancy increasing 31 basis points to 78.6% and ADR declining by 2%.

The company’s best performing market in the fourth quarter of 2013 was Boston, where RevPAR increased 10.1% supported by ADR growth of 6.5% and occupancy growth of 247 basis points. The market benefited from the positive impact of the World Series and larger room blocks, which created compression throughout the city. The Boston market was also aided by the performance in the newly repositioned Boxer Hotel, which helped to drive stronger group sales and higher rate of electronic distribution.

Fourth quarter 2013 RevPAR at the hotel rose 32% compared to 2012. We expect the Boston market to be one of our stronger markets in 2014, although, the first quarter will include impact from renovations at our residency and in Framingham. Another strong performer during the fourth quarter was the West Coast portfolio where RevPAR increased 4.4% with ADR up 2.8% and occupancy growth of 107 basis points. The company’s Courtyard San Diego property help to drive growth benefiting from renovations completed earlier in 2013 while our two Bay Area properties benefited from ADR improvements from aggressive 2013 rate negotiations with Eleanor and national accounts.

New group business at the Hyatt House Pleasant Hill and longer term in-house group stays at the Hyatt House Pleasanton. We also expect our West Coast portfolio to perform well in 2014 on the renovations at our Courtyard Westside, Los Angeles during the first quarter will offset some of the positive momentum we’ve seen in the West Coast markets. Prior to passing it all to Ashish, I’d like to reiterate that the progress made on the strategic front was significant, not only during the fourth quarter but throughout 2013. We refined and reposition the portfolio exiting lower growth markets materially improved the quality of our RevPAR while entering in bolstering our presence and dynamic high growth market such as Southern California and South Florida.

We feel strongly that the company’s portfolio is in great shape and we’re well-positioned with our strong growth in 2014. Beyond the short-term noise is a long-term value proposition based on incremental EBITDA growth potential as a result of recently acquired and repositioned asset such as the Autographs, the Cadillac’s new tower in the Hotel Oceana as well as new development projects coming online such as The Hilton Garden Inn 52nd Street and The Hampton Inn Pearl Street in Manhattan. Collectively, this is a significant asset base that will be delivering new EBITDA and provides Hersha with a unique opportunity to drive growth in outperformance. We remain confident in our focus in nimble strategic model and in the inherent asset value of our portfolio.

With that, I will turn the call to Ashish who will discuss the quarter’s financial performance. Ashish?

Ashish Parikh

Thanks. As Jay has provided significant commentary on operating results across our core markets, I will provide a little bit color specifically on our New York and Washington DC portfolios. Balance sheet activity can conclude my portion of the call by providing full year 2014 guidance for our total portfolio with regard to RevPAR growth and EBITDA margins. As Jay discussed one-time non-recurring negative effects from Hurricane Sandy released efforts and the federal government shutdown affected fourth quarter performance. A consolidated New York City portfolio’s RevPAR declined 4.4% to $220.87 at ADR contracted 3.5% to occupancy fell 1% to 92%.

In addition to ADR contraction in New York, our margins were further impacted by the significant shift in segmentation and customer mix. Last year storm related business was very high margin in nature as it was primarily extended today’s business with limited conditions in travel agencies and included over $600,000 of cancellation penalties with no associated costs. Should be noted that during the fourth quarter of 2012, our New York City portfolio significantly outperform the market with RevPAR growth of 14.6% driven by an ADR increase of 11.3% and occupancy growth of 262 basis points as we benefited just proportionally from the recovery and relief efforts.

In order to provide more relevant comparison of our fourth quarter results, we’ve compared fourth quarter 2013 to fourth quarter 2011 thereby eliminating Hurricane Sandy effects. Based upon a comparison of these periods, our New York consolidated portfolio reported RevPAR growth of 10.8% driven by 8.4% ADR increase and a 200 basis points rise in occupancy. For the same period, the more specific Manhattan portfolio reported similar RevPAR growth driven by a 9.7% increase in ADR and a 120 basis points rise in occupancy.

Notwithstanding the difficulty of the fourth quarter, we remained bullish on the overall strength of New York given its multiple demand generators, strength of the local economy of robust office development market, increasing at international tourism and not to mention the real estate market seeing significant price appreciation as evidenced by our recent announcement of the sale of Hotel 373. As some of the difficult comparisons related to Hurricane Sandy begin to abate and as business trends improve, 2014 portfolio transfer of Manhattan hotels have been encouraging. Year-to-date Manhattan results have been positive with the portfolio reporting strong occupancies approaching 86% and RevPAR growth on a same store basis of approximately 8%.

With regards to Super Bowl, we did see some benefit as a result of the greater New York, New Jersey metropolitan area hosting the event. But the overall impacts on our results from Manhattan were negligible. And we attribute approximately 50 to 75 basis points of our year-to-date RevPAR gains to incremental business from the Super Bowl and its related activities while the majority of the RevPAR gains are attributable to stronger transient demand in the city.

The Washington DC market continued to exhibit weakness and was severely impacted by the federal government shutdown in October in addition to the continued effective sequestration. While our DC urban portfolio reported 2.6% RevPAR growth in the quarter, our DC metro portfolio was more heavily affected due to a greater reliance on government related business and reported a 12.4% RevPAR decline which was entirely rate driven and resulted in significant margin loss during the quarter. First quarter 2014 results for our Washington DC portfolio will remain weak due to the market strength in the first quarter of ’13 as a result of the presidential inauguration. However, we are starting to see some signs of stabilization in the DC market with some rate and occupancy growth after the end of the first quarter. In addition, we will be held by easier comparisons after the first quarter as a full effect of sequestration didn’t start until the second quarter of 2013.

Transitioning now to some of our assets that are in the ramp up stage, our Hyatt Union Square continued to perform well and is ramping up according to expectations. During the fourth quarter the property reported 86% occupancy, in line with the hotel’s competitive set with ADR exceeding $350. Based upon our 2014 EBITDA estimate and the purchase price of the asset and our purchase price for the asset we approximated that the asset will be valued and approximately seven cap rate by the end of its first full year of operation. We remain very bullish on our EBITDA potential for this asset. Believe that we are carrying the asset as a significant discount to market value based upon our purchase price.

Another asset that is in ramp up is our Courtyard San Diego property, which is benefiting from the completion of all renovation activities and the strength of the market. This property reported 24.4% of RevPAR growth during the fourth quarter is off to a strong start in the first quarter. San Diego has witnessed a nice pick up in group demand this year and the convention calendar looks strong through 2017.

In terms of our capital expenditure activity for 2013 we spent approximately $42.9 million in CapEx during 2013, approximately $33 million related to property improvement plans and maintenance CapEx, $8.5 million on ROI projects and an additional $1.7 million on Hurricane Sandy related repairs. With the majority of the capital – with the company’s capital improvements completed across the last two years, we estimate our total capital spend will decrease significantly in 2014. We are currently projecting the total capital spend on property improvement plans and maintenance CapEx to approximately $18 million to $20 million with approximately 50% of this capital to be spent by the end of the first quarter of 2014. During 2014 we have only two major ROI projects ongoing the with The Rittenhouse spa and salon renovations anticipated to be completed by the end of the second quarter and the Residence Inn Coconut Grove project anticipated to start in the middle of the second quarter with completion by the end of the third quarter. We anticipate the total spend on these ROI projects to approximately $10 million.

In terms of our balance sheet as of December 31, 2013, the company maintained significant financial flexibility with approximately $36.3 million of cash and cash equivalent and a fully undrawn $250 million senior unsecured revolving line of credit. As of December 31, 100% of the company’s consolidated debt is fixed rate debt or effectively fixed through interest rate swaps and caps. Company’s consolidated debt – total consolidated debt has a weighted average interest rate of approximately 4.91% and with weighted average life to maturity of approximately 3.5 years.

Now, moving on to the company’s expectations for 2014, it should be noted that going forward we will be providing RevPAR and EBITDA margin guidance for the total consolidated portfolio only as the total portfolio and same store numbers are no longer as divergent. Our 2014 guidance includes the Hotel Oceana, which is expected to close by the end of the first quarter and the addition of The Hilton Garden Inn 52nd Street and The Hampton Inn Pearl Street, which are both expected to open in the second quarter of this year. Our expectations also exclude the results from the anticipated sale of Hotel 373 and do not building any unidentified property acquisitions or dispositions.

Industry consultants and most peers expect RevPAR to increase within the 4% to 6% range supported by moderate GDP growth, continued demand growth driven by corporate transient and international travel in addition to limited new supply growth. As we have mentioned previously, the first quarter will face tough comparison from last year’s Presidential inauguration, continued effects of Hurricane Sandy, ongoing renovations and the Easter calendar shift and we expect it to be our most challenging quarter in 2014, but we are encouraged that year-to-date, our portfolio RevPAR is up 4.8% with improving fundamentals in several of our markets as we head into the more robust spring season.

As we look past the first quarter and its related challenges, we have a clear and in turn more positive view of 2014. As a result, we forecast full year 2014 total consolidated RevPAR growth in the range of 5% to 7%. For our consolidated hotel EBITDA margins, we expect margins to increase 25 to 75 basis points. And although the majority of our RevPAR growth is anticipated to be ADR based growth, EBITDA margins for 2014 will be impacted by the ramp up and stabilization of our three new development projects opening during 2014 along with increases in property taxes at several of our hotels.

For the full year 2014, we also currently estimate our total cash SG&A expense to be essentially unchanged from our 2013 expense of approximately $14 million. As we have discussed, our portfolio has been significantly upgraded over the past few years. During 2014, our portfolio will include full year contributions from our 2013 acquisition and major renovations on assets totaling $270 million as well as full and partial year contribution from 2014 acquisitions and developments totaling $280 million.

With the delivery of the new tower at the Cadillac Courtyard Miami Beach in early January, the expected delivery of our New York projects in second quarter all new developments undertaken in the previous three years will be completed. These recently acquired and development projects will contribute significant EBITDA in 2014. And combined these assets both new in ‘14 and opened for a partial year in ‘13 are expected to add between $18 million to $20 million of incremental EBITDA during this year and should help offset the majority of EBITDA loss from the sale of our non-core assets during the past year.

That concludes my formal remarks. And let me now turn the call back to Jay.

Jay Shah

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we will go first to Smedes Rose with Evercore.

Smedes Rose - Evercore

Hi, thanks. I wanted to ask you in your update in investor presentation, you have some work on your valuation (purchase) across your different markets. And I am wondering if you could just talk about what kind of cap rates you are applying maybe just sort of broadly across your more major markets?

Ashish Parikh

Yes, hey Smedes, hi, this is Ashish. What we are looking at from the standpoint of our – when we put our slides together were first off from a private market valuation standpoint, where assets are trading, we look at the quality of the assets that we have, we look at the markets, private market valuation based on comparables in the market. As we look at our cap rates and EBITDA multiples because so many of our assets are brand new and are in ramp up phase, we would look at the stabilized EBITDA that we expect these assets to be generating and place somewhere around a 13 times EBITDA multiple on that cash flow to derive our current NAV for the book volume.

Smedes Rose - Evercore

Okay. And then any thoughts on it seems like you are going to have some incremental cash after you have completed all the sales that are underway and extra cash flow given lower CapEx spending, any thoughts on the dividend or other uses of cash?

Ashish Parikh

Smedes, the dividend is always going to be a board decision and we will continue to look at whether or not the dividend warrants being increased or not. I think as we have mentioned in the most recent press release and on our comments today, I think we are currently with additional cash that we have available. We are going to continue to look for opportunities that are unique from an acquisition standpoint. And if we don’t find those, I think right now our stock is looking very attractive to us. We feel that it’s just rationally priced and it might be best use of our cash today to be buying back stock.

Smedes Rose - Evercore

Okay, great. Thank you.

Operator

And we will go next to Andrew Didora with Bank of America.

Andrew Didora - Bank of America

Hi, good morning guys. First question, Jay, given the pricing that you saw on your New York asset sales, does it make you want to bring maybe test the markets and bring anymore hotels to the market in New York or are you willing to stay at the course right now?

Jay Shah

Well, I think I will tell you, Andrew, as we look into 2014, our expectations for New York are strong. We are not expecting – we are expecting the New York to perform pretty well in the coming year. That being said, we were very encouraged by the anticipated deal on 373 and we look forward to closing on that. So what we will probably continue to do is keep our ears open and quietly sort of assess interest for assets that we have in the portfolio. I don’t imagine that we bring any significant portion of the New York portfolio to market formal process, but I think we will continue to poke around to see if there is interest.

Andrew Didora - Bank of America

Great. And this one for Ashish, I appreciate the help at the end of your prepared remarks just in terms of the EBITDA contribution expected from some of these new openings, can you give us a sense of what kind of 2013 EBITDA would have been just on the core portfolio post the Blackstone portfolio sale just to give a sense for what we should grow your current portfolio from?

Ashish Parikh

Sure. I think that we look at the Blackstone that grows the assets that we still – they generated roughly $18 million of EBITDA last year. So if you take into account our total EBITDA for the year left $18 million.

Andrew Didora - Bank of America

Okay. So that will give us the run rate to grow your current portfolio off of them and add in everything that you have going on in ‘14 that should get us to a stabilized ‘14 number?

Ashish Parikh

And you everything going on in ‘14 and then we had some partial year acquisitions in ‘13 as well. So you just did annual prices.

Andrew Didora - Bank of America

Understood. Okay, thank you.

Ashish Parikh

The big ones being Union Square and the Courtyard San Diego.

Andrew Didora - Bank of America

Right, okay. Thank you.

Ashish Parikh

Yes.

Operator

We will go next to David Loeb with Baird.

David Loeb - Baird

Couple of questions. Ashish, I guess I have to disagree with your conclusion that same-store and consolidated are similar, you have had a lot of asset sales, you have got new hotels coming in. Can you just give us a little more insight or maybe give us some reconciliation on what same-store would have been for the fourth quarter, same-store RevPAR and what it would be for the guidance?

Ashish Parikh

Yes, absolutely. For the fourth quarter, same-store would have been lower by about 200 basis points. For the guidance, it will be lower by about 100 basis points.

David Loeb - Baird

Okay. I missed those schedules in the supplement. So maybe you could think about putting them back. And Jay or maybe Neil, Jay, your stock is fairly cheaply valued you did mention the disparity between public and private, is there really any chance you can find an acquisition that will give you the kind of return potential that you can buy by buying a portion of your own portfolio through buybacks?

Neil Shah

Sure. David, I could address please from the acquisitions point of view. We are in the marketplace looking at different opportunities, but you are absolutely right, it is when you compare it versus our portfolios pricing today, it is difficult to find very compelling acquisitions. They do exist though. And so, Santa Barbara is a good example of an asset that will in our first year produce a higher than an 8% yield for us. So there are some opportunities out there, but our pipeline is not as deep as it has been in prior years. And so we are seriously looking at buyback opportunities.

Jay Shah

Yes. And going back to the buybacks, David, this is Jay, as Neil mentioned we keep our eyes open for strategic acquisitions, but they are becoming far more scarce, I think buying back our stock in addition to just being a strong value in being able to buy at a what we consider to be a very attractive cap rate. Just from an IRR standpoint when we consider, getting past the first quarter and the type of EBITDA delivery that we are going to have in the second and third quarter, I think we are going to see on a very short-term basis some attractive appreciation. So I think we would agree with you that buying back stock today is a very, very attractive alternative for uses for our cash.

David Loeb - Baird

Okay. You said a little less reluctant than you did earlier when you were talking about acquisitions?

Jay Shah

You mean to buyback stock?

David Loeb - Baird

Yes.

Jay Shah

Yes. We are not reluctant to buyback stock at all. I think we are very positively inclined towards it.

David Loeb - Baird

Great, okay. Thank you.

Operator

And we will go next to Bill Crow with Raymond James.

Bill Crow - Raymond James

Thanks. Good morning guys. Two topics. As we think about the quarters playing out, I was a little surprised that RevPAR, I think quarter-to-date is up 4.4%, 4.5%, given that you have a 12% comp from last year, how much of that was the Super Bowl boosting the results over that time period? And do you think you stay solidly positive in the first quarter you obviously have an easy comp in the fourth quarter coming up? So how do we think about the progression here?

Ashish Parikh

Hey, Bill. This is Ashish. We are – the portfolio is up 4.8% year-to-date as of the end of last week. As we look at the Super Bowl, I think it’s pretty fair to say that unless you are a Seahawks fan it was pretty much across New York. The four days that really were impacted were that Thursday through Sunday time period. Our portfolio saw increases anywhere from 18% to 30% on those four days, so nowhere near the 100%, 200% type of RevPAR increases other cities have seen, just because of the stock, the amount of rooms that were available. We think that it affects the portfolio between 50 and 75 basis points. The Super Bowl helped the portfolio by 50 to 75 basis points year-to-date, but it really didn’t – it’s not a game changer at all. Occupancies for that time period were actually below occupancies for that time period last year. A lot of the growth was just in rate. So, it has – it did help, but it really wasn’t a big portion of the growth that we are seeing in the portfolio. I think a lot of the growth that we are seeing in the first quarter in Manhattan there has been nice transient pickup, there is some good groups that came into New York during January and part of February. We have seen good growth out of Philadelphia so far. West Coast assets are performing well. So as we look past the first quarter, we have – now during January we also saw probably the worst month we have seen a long time in DC, because of the inauguration comp. So that’s what gives us kind of a bullish flavor for the rest of the year as we are getting through some of the most difficult comps we have seen.

Bill Crow - Raymond James

And the comps really been easier as the year goes on whether it’s a government shutdown or this past fourth quarter obviously you didn’t report great numbers, so it almost sounds like your guidance is conservative, we talk about given where your first quarter could be, is that a fair statement?

Ashish Parikh

Well, I think it builds in, I think our core portfolio we are looking at strong results after first quarter and it does build in the ramp up from the three new assets, which is going to drag it down a little bit. So you are going to have Courtyard Miami, which is effectively a new 93-room hotel 52nd Street and Pearl Street all coming on. So, we will be bringing them on the first day that they open up. That does hold it down a little bit, but outside of that our view is bullish.

Bill Crow - Raymond James

And then the second topic quickly here, the Hotel 373 sale, could you tell me the intent of the offshore owner group, is this a conversion opportunity for them or are they going to continue to operate it as a hotel?

Ashish Parikh

They are going to continue to operate it as a hotel. I think they were attracted to the ability to buy a hotel that was immediately cash flowing and the accounting on the growth in the markets to drive even a stronger yield than what they feel that they bought it at, but they felt better that a (52) yield made sense for them as hotel buyers in New York.

Bill Crow - Raymond James

Great, thanks. I appreciate it.

Operator

And we’ll go next to Ryan Meliker with MLV & Company.

Ryan Meliker - MLV & Company

Hi, good morning guys. Just a question kind of as you guys think a little bit bigger picture that you just backing off of what you are talking about from David’s question, with regard to stock buybacks given your investor presentation, I think a lot of work that investors are probably on your stock certainly, how you guys feel being relatively large owners of your stock with inside the ownership? I guess what’s the plan for that discount for the private market value to disappear? And you talked a little about share buybacks, the market certainly doesn’t give credit for assets that are currently under development and will be stabilized for another year or two even longer potentially you are just kind of waiting for those things to get stabilized and being optimistic that the market wants that happen, we’ll value those assets appropriately. Does it make more sense to sell from assets and maybe 100% stabilized where you can get the value in the private market and then go and buyback stock at the depressed valuation that you’re seeing today? Help me understand how you are going to try to get from where you are today so where you think the stock is worth?

Jay Shah

I think Ryan, I think to hit lot of the things that we will need to do. I think one of them is really we’re going to spending a lot of this year going out and demonstrated the investment community why the divide between private and public valuation is rationale. I think it’s a lot more apparent today with the net asset value of the portfolio is as we have completed the non-core sale that have that behind us we’ve got the noise from the fourth quarter and the first quarter almost fully in the rearview mirror certainly in the fourth quarter is in the rearview mirror and stealing someone’s phraseology, I think it might have been build, but it’s nice to have these two sort of difficult quarterly behind us and so as we look into the second and third and fourth quarter of the EBITDA delivery that we’re expecting, I think we’ll speak for itself and so I think we need to just go out and be communicating that.

Beyond that, I think some of the things otherwise that we can do is as you mentioned we can continue to look for opportunities to recycle capital. I think that helps to continue to mark the portfolio from a net asset value standpoint with a real life timely comp and as you mentioned using those proceeds or using cash that we have on hand to buyback the stock, I think we’ll also drive some additional economics that will help close the gap. So, these are – it’s a – for us this year, we look at that it is a great opportunity, I think there are several leverage that we need to flip, but I think we’re pretty clear on what they need to be and we’re pretty confident that we’re going to be able to really demonstrate value in fairly short order in 2014 and we’ll spend a lot of time doing everyone of those things I just mentioned.

Ryan Meliker - MLV & Company

And then I think that’s helpful and I guess the follow-up, Jay, what just say from hypothetical standpoint I know you don’t like to deal in hypotheticals, but you start executing on that front and you’re still trading that at discount the private market value, you guys have publicly stated in the past that back in 2007, those guys that had the offer to be able to buy companies out, need the right decision and those guys that shows not to sell made the wrong decision. Would you be open to selling if you are seeing that type of material discount to private market value when there was a potential bidder out there?

Jay Shah

I think Ryan we are – for us to be open to selling the company is very clearly and affirmative. We would very much be open to that. I think the real key is we would want to ensure that we are doing it at a price that makes a lot of sense. And we don’t need to probably bring out the last penny of value for the portfolio on the sale because we understand that we will be driving significant value otherwise. But I think it is important that we allow some of the investments that we have made in the strategy and the time that we have taken in the portfolio transformation to bear some fruit to allow that to be reflected in the projects before we consider a transaction like that. And like I said I think we are going to be able to demonstrate that value in relatively short order.

Ryan Meliker - MLV & Company

Well, that really that makes sense obviously you guys have in your investor presentation expectation of value of 370,000, 385,000 a key wouldn’t make a lot of sense for them to sell the company at 325,000 a key (indiscernible), so it makes perfect sense. That’s all for me? Thanks a lot.

Jay Shah

Okay, thanks Ryan.

Operator

And we will go next to Anthony Powell with Barclays.

Anthony Powell - Barclays

Hi good morning everyone. Just a quick question on the value of Manhattan hotels are you seeing the same level of interest in your branded service hotels as opposed to boutique hotels in 373? Thank you.

Neil Shah

Absolutely this is Neil. Yes, I think there is different buyers for branded hotels versus the independent hotels, but generally we are finding interest in both areas. I think a lot of valuation is driven by actual cash flow yields and if the branded hotels are producing those kinds of yields there is interest in those assets. Today in the marketplace beyond the transaction that we recently announced there is today in the market several select service assets being actively marketed and broadly marketed today. So in addition to the transaction we have done, I think across this year we will see several other select service assets trade in New York City branded select service assets. Last year there was a couple of transactions in the $500,000 to $550,000 per key range for Holiday Inn and other select service kind of assets. There was land sales from underneath hotels that also valued select service and branded assets at around $550,000 to $600,000 a key. So I think that across this year we will see good comps for both independent and branded hotels trading in that kind of price range.

Jay Shah

Anthony, let me add on to what Neil mentioned, I think as he said there is clearly interest for both. I think what makes both our branded as well as independent assets even more attractive than sort of the others is that the case of 373, that was unencumbered of brand and management and our branded assets will be sold unencumbered of management. And many of our peers may or may not be in that same position. So I think there is a real value premium for selling branded assets that are not encumbered with management contracts. It allows owners to take the direction that they see fit with the asset from a management standpoint. And I think that that’s also going to drive incremental value for some of our hotels not only in New York but across the portfolio from the strategic disposition standpoint.

Anthony Powell - Barclays

Alright thank you.

Operator

And we will go next to Chris Woronka with Deutsche Bank.

Chris Woronka - Deutsche Bank

Hey, good morning guys. You guys have established pretty good footprint down in Miami with these latest two acquisitions, I am just kind of curious looking forward I assume maybe there is not a lot left in terms of things that could go into the Autograph Collection with Marriott, but can you one give us the sense of are there still things for sale down there kind of obviously lot of boutique properties, are there things for sale publicly or non-publicly. And then can you guys consider other essentially branded boutique options if you know what I am getting at?

Neil Shah

Chris, this is Neil again. The – in Miami there are assets trading or being marketed today. I think they fall into two categories there are hotels that are trading that are kind of fully renovated, they’ve gone through their redevelopment and repositioning plans. They may have a lifestyle brand or their branded hotels in there being sold at significant premiums particularly on the beach, you are seeing values anywhere from 500,000 key to a million dollars a key depending on the hotel and the location. The other bucket of properties available in Miami on market or off market are some of the smaller boutique hotels that required significant renovations particularly in South Beach these are going to be historic Art Deco hotels.

And what we found and we’ve been looking inactive for several years at Miami that a lot of those hotels, the time required to go through that renovation process, it’s highly disruptive and pretty costly and so that’s why we were very attracted to these two autograph hotels because they gone through that deep renovation process, they’ve already got 70,000 per key in modernization and refresh. And so I think as we look at other opportunities there, I think with the two autographs in South Beach we do have the ability now to bolt-on and it should help smaller properties there, but we remained pretty cautious about stepping into big redevelopment projects there, big or small, they are just highly disruptive. But we continue to be active there and continue to look at opportunities that there is nothing squarely in our sites right now.

Chris Woronka - Deutsche Bank

Okay, very good, thanks.

Operator

(Operator Instructions) We’ll go next to David Loeb with Baird.

David Loeb - Baird

Thanks. Just a quick follow-up actually following on Ryan’s question, how much you react if you find yourself approached by a large active shareholder who took a position obviously this is hypothetical, but what’s your thought about, how that might play out?

Jay Shah

I guess we’ve seen that kind of activity with a couple of other of our – of the reeds the space. I think we’re in a unique situation relative to those companies and that we’ve had a very clear path to the value that we’re reporting we should be at. I don’t know that we need to use a lot of imagination to get there, I think a lot of the work is already being done and I think we would be able to really demonstrate that right now doing anything at this value is a rationale and I think that would probably from our standpoint be a fairly good defense to at least buy sometime until we’re in a position to transact that at a more attractive value for shareholders.

David Loeb - Baird

So, would you invite them in and have a decision about what you’re trying to do to have that value realized or is that a fair way to characterize your response?

Jay Shah

I am not certain David, the hypothetical I guess in that kind of situation would be a lot of variables that would probably I guess we could kind of – we can put together a set of variables, but I mean there was just a – if there was just an inquiry certainly we would be open to talk to an active shareholder about it. I think if they came in a more – came in a less friendly manner, I don’t know exactly how we will deal with that we’ve probably have to take advice and counsel and bankers and our board to really determine what course we take at that point. But again any sort of buyer or anybody could demonstrate interest in purchasing even purchasing our stock we typically will sit down with them and be quite open about our plans. So I hope that helps you.

David Loeb - Baird

It does. And I guess I share with you the hope that your stocks reflecting the underlying value of the portfolio?

Jay Shah

Yes.

David Loeb - Baird

Thanks.

Jay Shah

Thanks, David.

Operator

And we’ll go next to Nikhil Bhalla with FBR.

Nikhil Bhalla - FBR

Hi, good morning everyone. Two questions for you. The first one about how many more stabilized assets do you think you have that you might be looking to market over the next 12 months?

Jay Shah

So we look at our portfolio we have – there are some – there are some additional secondary market assets that across this year, we may consider transacting on we have a lot of assets in New York City that are stabilized and more mature than some of our others. I am hesitant to put a number on it, because I think it will depend on pricing in the marketplace for them as we do anticipate this being a pretty good year for growth in most of our markets, but I would say there is less than 10, but there is less than 10, but in that range series of assets that could trade at prices that would be attracted to us today.

Nikhil Bhalla - FBR

Got it. And just not a question where there is also the independent collection about, so I think you are building up, now you have a few hotels that are being branded as independent collection hotels, could you just give us some sense of what the strategy is Jay? Where do you see this, two to three years from now? Would you continue buying assets to kind of support the strategy? Thank you.

Jay Shah

Sure, Nik. The independent collection has – is no longer an insignificant portfolio of hotels within our larger portfolio. These were hotels – these are hotels that we typically bought that were in very attractive submarkets in our gateway markets, but did not necessarily – initially did not necessarily fit into a brand bucket very well for a variety of reasons. Over time, what we have found is when you are in these attractive submarkets with interesting independent hotels with some thoughtfulness behind branding and positioning in a high level of service, you are able to drive from an asset that would have a basis that would be similar to sort of 3.5 star select service assets, you are able to drive rates and RevPARs and EBITDAs that are far superior to what a branded asset would be. And we are finding that just taste and preferences of current travelers are really driving towards these kind of hotels. They allow us to kind of be unencumbered by sort of pricing metrics and things that other brands have.

So I think for us, I mentioned in my prepared remarks that the Boxer, which we repositioned and kind of reopened as the Boxer, which used to be called the – actually I can’t remember, the Bulfinch Hotel, which we have purchased and somewhat neglected, it was part of a portfolio transactions originally owned by another REIT and then owned by a private equity firm. That hotel post repositioning has posted a 32% increase in RevPAR on a year-over-year basis. So we have the opportunity with these kind of hotels to create significant, significant value from where we purchased them.

I think as we move forward, the Hotel Oceana is another example of the hotel that we think that we are going to be able to buying it currently at a terrific cap rate, but I think remember we will be to drive significant value there with some branding impact. The name of that hotel will change after we close on it. And it will be programmed slightly differently and we expect to see some real significant results there. So I guess the answer – I am giving you a lot of context to answer the question where simply I think it is a segment in the hotel that we would continue to pursue. I think the independent collection for us has very strong lags. And when we are in a position to be acquiring hotels, I think we would very much look closely at opportunities for independent hotels and probably even favor them.

Nikhil Bhalla - FBR

Just one follow-up question there, Jay, would it be possible at some point to actually spin off the independent collection hotels at sort of as its own separate entity?

Neil Shah

Nik, this is Neil. We have – I think it is getting to the kind of scale and scope as a collection that could happen. We have received interest from several other lifestyle brands. I think what’s very attractive about this portfolio is that they are in eight locations in these gateway markets. And so they all have RevPARs approaching $200. And so it does provide a strategic buyer with great footprints and great metrics. I think across this year along with the rest of our portfolio, we will see opportunities to consider a transaction for a smaller subset of them.

Nikhil Bhalla - FBR

Thank you.

Operator

And there are no other questions at this time. I would like to turn the conference back to Jay Shah for any closing remarks.

Jay Shah

Okay. Well, I thank everyone for joining us this morning. We have posted a new investor presentation on the website. It was referenced by a couple of the participants on the call. Some of you may find it interesting. We have done some work around NAV in that deck. So if you have some interest you can take a look at that. Neil, Ashish and I will be in the office all day if any questions occur to anyone after the call, please feel free to give us a ring. And thank you again for joining us this morning.

Operator

Thank you everyone. That does conclude today’s conference. We thank you for your participation.

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