Hersha Hospitality Trust's (HT) CEO Jay Shah on Q4 2015 Results - Earnings Call Transcript

| About: Hersha Hospitality (HT)

Hersha Hospitality Trust (NYSE:HT)

Q4 2015 Earnings Conference Call

February 17, 2016, 9:00 am ET

Executives

Pete Majeski - Manager, IR & Finance

Neil Shah - President & COO

Jay Shah - CEO

Ashish Parikh - CFO

Analysts

Anthony Powell - Barclays

Shaun Kelley - Bank of America Merrill Lynch

Ryan Meliker - Canaccord Genuity

Chris Woronka - Deutsche Bank

Wes Golladay - RBC Capital Markets

David Loeb - Baird

Bryan Maher - FBR & Company

Operator

Good morning, and welcome to the Hersha Hospitality Trust Fourth Quarter 2015 Earnings Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions].

At this time, I'd like to turn the conference over to Pete Majeski, Manager of Investor Relations and Finance. Please go ahead, sir.

Pete Majeski

Thank you, Shannon. Good morning to everyone participating today. Welcome to Hersha Hospitality Trust's fourth quarter 2015 conference call on this the 17 February, 2016. Today's call will be based on the fourth quarter and full-year earnings release, which was distributed yesterday afternoon. If you have not yet received a copy, please call us at (215) 238-1046.

Today's call will also be webcast. To listen to an audio webcast of the call, please visit www.hersha.com within the Investor Relations section.

Prior to proceeding, I'd like to remind everyone that today's conference call may contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the Company's actual results, performance, or financial positions to be materially different from any future results, performance, or financial positions. These factors are detailed within the Company's press release as well as within the Company's filings with the SEC.

With that, it is now my pleasure to turn the call over to Mr. Neil Shah, Hersha Hospitality Trust's President and Chief Operating Officer. Neil, you may begin.

Neil Shah

Thank you, Pete. Welcome and good morning to everyone joining this morning's call. With me this morning are Jay Shah, our Chief Executive Officer; and Ashish Parikh, Chief Financial Officer, and we all look forward to sharing highlights from a very productive and profitable year in 2015.

In 2015, our consolidated portfolio reported 6.9% RevPAR growth, hotel EBITDA increased by 13.5%, AFFO per share increased by 18.7%. We gained share in all of our markets outperforming each of our six markets in RevPAR growth, including New York, where we have now outperformed for eight consecutive quarters. We meaningfully diversified our portfolio with acquisitions in Washington DC and California, in addition to our joint venture with Cindat, and we bought back over 10% of our shares outstanding.

From a macroeconomic perspective the underlying drivers for sustained domestic economic growth remained in place during 2015, including increasing wages, improving labor markets, lower fuel prices, a strengthening housing market, and higher consumer and government spending. These factors drove U.S. RevPAR to increase 6.3% despite a weaker than expected GDP growth environment, new supply in key gateway markets such as New York, headwinds from energy dependant markets, the strong dollar, and perhaps most frustratingly lack of pricing content among operators, notwithstanding the sectors record occupancy.

During our quarterly calls and in meetings with investors throughout 2015, we repeatedly stated that is a great time to be a hotel owner. We continue to believe this to be true, as demand and pricing power remain at all-time highs. Given record occupancies across the country, the industry remains extremely well-positioned to raise rates and rate based gains will drive significant profitability growth for hotel owners in 2016 and beyond.

There is no doubt that the second half of 2015 had its fair share of challenges which have significantly impacted market sentiment. It's quite natural for all of us to be influenced by recent events, and we surely maintain a healthy respect for them. We certainly don't control the environment. However, we do control several things. How we serve our guests at our hotels? How we adapt to change in the field? How we allocate our capital to manage our risks and control our costs? And finally, how we invest in the future?

We believe it is our company's commitment to excellence in these areas that has been and will continue to be what drives outperformance over the long-term.

I'm going to provide an overview of our operational results, review our recent investment activity, and touch on capital allocation before turning it over to Ash for more detail and our 2016 outlook.

Operations. In 2015, our consolidated portfolio reported 6.9% RevPAR growth as rates increased 5.1% and occupancy rose 143 basis points to a company record 84.1%. Hotel EBITDA increased 13.5% to $178.6 million in 2015. Strong demand and revenue management techniques core characteristics of Hersha's alignment with operators were critical factors in our ability to drive performance.

Across the portfolio we outperformed the market and local comp sets in each of our six markets, while reporting double-digit RevPAR growth in four markets. Our West Coast portfolio delivered impressive 18.8% growth, while our South Florida, Boston, and Philadelphia clusters tallied 12.5%, 11.9%, and 10.9% RevPAR growth respectively in 2015.

Our Manhattan portfolio reported a RevPAR decline of 60 basis points despite robust portfolio-wide occupancy of 92.7%. In Manhattan, new supply which increased 2.6% in 2015 remained the most significant headwind to growth in the market. Nevertheless our newer, purpose built, and rooms focused assets outperformed the Greater Manhattan market by 170 basis points.

In the fourth quarter, we reported comparable RevPAR growth of 4.2% as rates increased 3.3% and occupancy rose 73 basis points to 82%.

Fourth quarter hotel EBITDA reached $33.1 million. During the fourth quarter, our Philadelphia hotel cluster delivered 16.6% RevPAR growth, while our West Coast and Washington DC urban portfolios reported 12.5% and 8% RevPAR growth respectively.

In Manhattan, we reported a 30 basis point RevPAR decline despite very strong 95% occupancy. Especially noteworthy was HT's Manhattan portfolio registering occupancy 880 basis points above the Greater Manhattan market. Rate growth was muted due to softer international and domestic leisure demand and reduced citywide activity during the quarter, combined with the impact on new supply delivered throughout the year.

Our significant outperformance in challenging markets like New York or higher growth markets in California or Boston demonstrate our operations advantage. The alignment we have with our operator is unique; it encourages transparency and allows responsiveness to micro trends in Hersha markets.

As we look into 2016, our team remains laser focused on execution, not only in Manhattan, but across each of our markets in terms of revenue management, guest satisfaction, international mix, training, and ecommerce initiatives, which combined will help sustain outperformance from our carefully assembled portfolio in 2016. Our cluster strategy and their investments in the kinds of hotels that travelers seek out today clearly helps but we are fortunate to truly partner with our operators. Together without our operators we expect to be able to increase the value of any given hotel in our market through our very control of it.

Investments. After large non-core portfolio sales in 2012 and 2013, and the completion of our development projects in 2014, we started and ended 2015 highly focused on driving EBITDA growth from the portfolio we have assembled. However, we were also clear that we would be active in the acquisitions market, if opportunities were accretive to current cash flow, accretive to the portfolios growth rate, and improve the overall quality of the portfolio.

We are pleased to have acquired five hotels in 2015 and in the first months of 2016. The St. Gregory in Washington DC, the Sunnyvale Silicon Valley TPS, The Sanctuary Beach Resort on Monterey Bay, The Ritz-Carlton Georgetown, and our recently announced Hilton Garden M Street, Washington. Each of the hotels are in great locations within high growth submarkets and we can meaningfully improve operations through thoughtful and aggressive asset and revenue management.

We prefer bolt-on acquisitions in our existing clusters. These investments offer less ramp up time and immediate efficiencies of scale and scope and a clear path for creating more value from a given asset through our operational advantages. These five assets will contribute meaningfully to our 2016 EBITDA with limited capital expenditures and no operational disruption. For the interest of time and since we have released press releases and supplementals on each of these transitions, I will leave further description of the acquisitions for Q&A.

In addition to acquisitions, we were also clear that we would actively seek to continue to recycle capital through further disposition activity in several of our markets. To that end, two weeks ago, we announced a transformative portfolio sale in Manhattan with Cindat Capital Management, forming a joint venture for seven of the company's limited service hotels in Manhattan for a total purchase price, including closing cost of $571.4 million or $526,000 per key.

As a result of the inbound increase from several Asian institutional investors in early summer, we conducted a process and received interest from investors on a joint venture and as an outright sale. We believe the economics of our joint venture structure, our continued confidence in long-term hotel values in Manhattan, and the opportunity to grow this institutional JV with other recycling or acquisition opportunities, offers the company a compelling opportunity. The transaction also illustrates a continued strong demand from offshore capital sources, institutional capital, and sovereigns seeking exposure to top gateway markets in the U.S.

Our sale of the seven hotels in Manhattan combined with the acquisitions in Washington DC and the Northern California highlights our ability to recycle capital from stabilized assets into high growth hotels in strategic markets, as well as a proven track record of realizing NAV.

Since 2012, we have been active capital recyclers, redeploying more than $500 million of sales into higher growth and higher quality acquisitions. We expect additional dispositions in 2016 and are evaluating several sales at this time.

And finally, capital allocation. Consistent with our 16-year commitment to total shareholder returns, we returned $127.9 million to shareholders through our buyback program in 2015. In 2015, with a large variance between our trading price and the company's net asset value we repurchased 10.7% of the company's float.

At present, approximately $72 million remains on our $100 million share repurchase program, which the board approved in September. As we proceed through 2016, we may seek to increase our 2016 repurchase authorization subject to approval by our board.

Hersha will continue to leverage the free cash flow generation from our carefully assembled portfolio in 2016. We will continue to seek capital recycling opportunities from the sale of stabilized assets. Reinvesting sales proceeds to four to five hotel plus clusters in key strategic markets with high quality acquisitions, should they provide significant growing in yield and operational upside. In addition, we will remain active in the repurchase market and look to repurchase our common shares given current market dislocations and the material discount of our stock price to the company's net asset value.

We've assembled a premier portfolio of 55 well-located hotels clustered in six gateway markets that provide a unique combination of high absolute RevPAR and sector leading margins, while meeting the taste and preferences of todays corporate and leisure transient travelers. Our high margin rooms oriented business model is tradition to both holdup well in the event of economic softness and outperform given continued fundamental strength in our compressed markets.

HT is not a basket of star markets. We assemble clusters of hotels in markets where we have long-term conviction. Our clusters enable immediate operational advantage and crucial local knowledge for outperformance and for deal flow.

We are now fixated on a particular segment or rate tier. We love the margin profile of select service hotels, but independent and luxury hotels can offer significant margin growth opportunities and often more significant real estate appreciation important drivers of NAV.

Within our core markets we assembled hotels with truly differentiate locations and hotels where we can deliver a differentiated value proposition for our guests. We believe that brand proliferation and the continued growth of disruptive technologies commoditizes nearly everything else. Location and service are more in our control.

We are excited as we head into 2016, particularly in light of the turmoil in the financial markets. When we look at the strength of our portfolio, the strength of our balance sheet, as well as the dry powder we expect through asset sales across this year, not only was 2015 a good year, but we feel very well-positioned as we move into 2016. And we have a management team that's eager for the opportunities that 2016 may present.

This concludes my remarks. I'm going to turn the call over to Ashish.

Ashish Parikh

Thanks, Neil, and good morning. Over the past few years we have diligently worked to position our balance sheet to allow us to respond to opportunities, while continuing to execute our business plan. At close of 2015, we're pleased to report our balance sheet is in great shape, cash and cash equivalents of $28 million, and approximately $220 million of capacity on the company's $250 million senior unsecured credit facility. Throughout 2015, we accessed very attractive secured and unsecured debt to refinance or payoff existing secure debt at five properties. This allowed us to finish 2015 with the lowest weighted average cost of debt on the company's history at 3.68%.

Moving forward, we remain committed and continue to see ample opportunity to refinance our 2006 and 2007 vintage 10 years CMBS loan allowing us to further reduce our weighted average cost of debt. We estimate that by the end of 2015 only 10% of our debt will be securitized with the reminder comprising unsecured or very flexible balance sheet loan, which will permit the company to continue its disposition program without further encumbrances.

In addition, we estimate that upon the closing of the Cindat joint venture we will free up approximately $300 million of net proceeds allowing us to continue to free up our balance sheet by a debt reduction or preferred share redemption.

Transitioning now to the fourth quarter's operating results. During the quarter our consolidated hotel EBITDA increased 9.4% or $4 million to $46.9 million. Rate driven growth, combined with hands on revenue and asset management, alignment with our operators, and continued ramp up at new and recently renovated hotels, generated comparable GOP margin growth of 20 basis points to 49.2%.

Comparable hotel EBITDA margins grow 30 basis points to 38.2%, supported by rate growth across the portfolio, along with strong margin performance in our Philadelphia and West Coast clusters where margins increased 850 and 160 basis points respectively.

In Manhattan, GOP margin declined 40 basis points in the fourth quarter. However, on an absolute basis GOP margins at 56.9% demonstrate the scale and efficiencies of our Manhattan hotel cluster.

As is the case throughout 2015, cost containment strategies benefited our Manhattan portfolio with the goal of maximizing efficiency, while maintaining high service levels and industry-leading margin performance. Despite these healthy GOP margins, our Manhattan EBITDA margin declined 110 basis points, negatively impacted by the Manhattan portfolio of 30 basis points, decline in ADR, combined with increases in property taxes at newer hotels, which have been reassessed from construction projects to operational hotel. Similar to GOP margins on an absolute basis our Manhattan portfolio EBITDA margins remained very strong at 44.2%.

In our Philadelphia cluster, RevPAR increased 16.6% with the Rittenhouse driving performance, delivering an impressive 41.7% RevPAR increase. The hotel contributed $8.8 million in total revenue and $2.2 million in hotel EBITDA ranking as the company's third largest EBITDA producing asset in the portfolio, despite the fact that the hotel only has 116 rooms.

Increased bar in corporate group business as well as strengthened L&R relationships allowed the property to significantly outperform the market and prior year's results. In addition, the Rittenhouse increased GOP margins by 1,500 basis points and achieved a 67% flow-through.

On the West Coast, RevPAR increased 12.5% with our Courtyard in San Diego delivering 17.9% RevPAR growth. The hotel which contributed approximately $1.6 million in hotel EBITDA benefited from strong citywide activity with 21% more citywide room nights in the market along with high rated retail production.

RevPAR at our Courtyard LA rose 8.5% in the fourth quarter and the property was aided by strong group based in L&R production, which translated into 7.9% rate growth and hotel EBITDA of $1.1 million for the quarter.

In South Florida, our portfolio delivered 8.6% RevPAR growth driven by strong results at the Residence Inn Coconut Grove which was under renovation last year. Additionally, our two autograph collection hotels increased RevPAR by 7.9%. Combined these three properties contributed approximately $1.2 million in hotel EBITDA in the fourth quarter.

Our Washington CBD cluster reported 8% RevPAR growth, improved revenue management strategies at the Capitol Hill Hotel help drive group business leading to an 18.9% RevPAR improvement. Property level EBITDA margins at the Capitol Hill Hotel also improved 610 basis points with the hotel contributing approximately $773,000 in hotel EBITDA during the quarter.

With regards to capital expenditures, during the fourth quarter, we spent approximately $9 million to commence the brand made mandated refresh at Courtyard Brookline and our four Hampton Inn in New York City. The majority of the work and disruption for these five assets takes place during the first quarter of 2016.

For full-year 2015, our CapEx spend totaled approximately $25 million and we estimate that for 2016 our CapEx spend will be between $25 million and $27 million, along with an additional $4 million to $5 million related to the reconcepting of F&B operations at the Rittenhouse and the St. Gregory Hotel. Outside of these two renovations we anticipate majority of the disruptive CapEx to be completed by the end of the first quarter.

Prior to discussing our 2016 guidance, we first discuss what we are currently seeing across our portfolio in our major markets. Quarter-to-date, our comparable hotel portfolio, excluding renovations, have seen RevPAR increase in the low-single-digit range across all of our markets.

On a market specific basis, our comparable Manhattan portfolio reported a RevPAR increase of 2.3% while Philadelphia, Boston, West Coast, have all registered mid-single-digit growth quarter-to-date.

We presented our detailed 2016 guidance in the earnings release published yesterday. In providing our guidance for 2016, we believe the most meaningful set of numbers we can provide at this time includes full-year operating forecast for all seven of the Manhattan assets to be contributed to the Cindat joint venture, along with the addition of the Hilton Garden Inn M Street which is expected to close prior to the end of the first quarter of 2016. We believe this provides the market with a snapshot of our operating expectations for the year prior to the closing of the Cindat joint venture and any other strategic initiatives that we will pursue with net proceeds from this joint venture.

We will continue to update all guidance figures upon the closing of the JV and for any other potential acquisitions, dispositions, share buybacks, or capital market activity as they're completed. I won't repeat all the guidance figures, but a few of the highlights include comparable store RevPAR growth of 4% to 6%, with 50 to 75 basis points of margin growth, EBITDA in the range of $198 million to $208 million, with FFO per diluted share between $2.79 to $3 per share.

That concludes my portion of the call. I think we can now proceed the Q&A where Jay, Neil, and I are happy to address any questions that you may have. Operator?

Question-and-Answer Session

Operator

Yes sir, thank you. [Operator Instructions].

And our first question comes from Anthony Powell with Barclays.

Anthony Powell

Hi, just in terms of your guidance, you just mentioned that you're currently in low-single-digit RevPAR growth in the first quarter. How do you think you will get to the midpoint of your full-year guidance of 5%? What segment you think will accelerate as the year goes on to kind of drive your RevPAR growth higher?

Ashish Parikh

Sure, Anthony, good morning, this is Ashish. As you are probably aware January and February are the weakest contributing months in our portfolio and we have renovation activity going on. As we look out through the rest of the year based on our booking pace and what we're seeing in our market, we do think that our best performing markets are still looking like what the West Coast and the DC urban market, with strong growth in Philadelphia as well. We have something, the Democratic National Meeting convention here in summer and then several other group activity; there is more group activity in Philadelphia this year.

So as we look through the remainder of the year, we do see the quarters two through four having a much better outlook than quarter one at this time.

Anthony Powell

Got it. And just on acquisitions, you're one of the few retailers still buying, clearly you've proceeds from a very accretive sale. What makes you get confidence they're willing to buy assets as part of the cycle. Is it just because you're selling at a higher valuation or do you still think you need to build out for these clusters that you referred to?

Neil Shah

You know, Anthony, I don't think it's really, it's not a motivation to necessarily build out the clusters, but its deals that, as we've mentioned that are accretive to cash flow and accretive to our portfolio growth rates. We're generally buying assets that we can stabilize between an 8% and an 10% unleverage yield. When we can do that we feel like we can create significant value for our shareholders by continuing to grow.

Today, the dislocation in the markets in the kind of -- in the financial market may have an impact on the transactions market, and if it does, we will be -- we may benefit from even better stabilized yields. But at this stage we believe that buying -- growing in yields around 7% to 8% and stabilizing those yields and those assets at above 10% makes for very good business sense.

Operator

Next question comes from Shaun Kelley with Bank of America Merrill Lynch.

Shaun Kelley

Hey. Good morning guys. So I just wanted to touch back on the guidance as well. Ashish, as we sort of try and breakdown the 4% to 6% and start to compare this other outlooks that we're going to hear throughout the week, can you just help us think about if you didn't have the Manhattan portfolio in that how much of an impact or the seven hotels let's call it, how much of an impact do you think that would have? Like what would your -- what would the 4% to 6% look like, excluding Manhattan?

Ashish Parikh

Sure. Shaun, excluding those seven assets in tag, we would estimate that our entire portfolio would have about a 50 basis points lift in RevPAR growth. Absolute margins would probably go backwards by 50 to 75 basis points, but margin growth would go up because New York City portfolio is likely to see lower margin growth or flat margin in 2016.

I think that in looking at the guidance it's important to remember in with the five acquisitions beginning of 2015, a lot of the -- I think the modeling doesn't include as far as $16 million, $17 million of incremental EBITDA that we're going to be picking up from all of these assets that we've acquired. And then you have to look at the Cindat JV as in worst case if it closes kind of mid-year, we probably lose between $10 million to $12 million of EBITDA from that joint venture.

Shaun Kelley

Got it. And then same question but slightly different spin. If we were to think about the 4% to 6% but exclude some of the acquisition that you've done, would you probably able to drive better than average or industry average portfolio growth because of some of your own revenue management activities. Directionally, what do you think the core underlying same-store sales growth would be here? Is it pretty close to what we're seeing? Is the 4% to 6% pretty true or we excluded a handful of hotels? Are we looking, again, where you guys are doing stuff, would it be materially lower?

Ashish Parikh

No, I think it's pretty true, Shaun, because you really -- it's really -- the Ritz -- Hilton Garden entry which is running at a very high EBITDA level already and stabilizing, and the St. Gregory which is going to have some disruptions this year because the restaurant recontracting. So I think those are and the Sanctuary, so we pickup those and it's really not that the range would go down significantly at the level of acquisition.

Shaun Kelley

Got it. Last question. But -- just generally you're underwriting for New York City for this year, I mean how you're guys thinking about, what kind of RevPAR the market can post? And I know like you guys have been taking share. So I'm actually more interested in just your macro view, like what you think the market overall is going to be -- is going to look like before, not necessarily Hersha specific?

Ashish Parikh

Sure. Not Hersha specific. We think the market is probably range bound. Let's say negative two to positive two somewhere in that range. And I think that we continue to outperform by 150 to 250 basis points.

Operator

Next question comes from Ryan Meliker with Canaccord Genuity.

Ryan Meliker

Hey good morning guys. I just wanted to talk a little bit about the Cindat transaction. Can you give us any color on and I apologize if I missed in the call on a) what your current expectations and timing of the closing is, and then, b) what you think that assuming that fell in the line with your expectations with the impact on your overall EBITDA and that might look like?

Ashish Parikh

Sure Ryan, right now we are targeting an end of first quarter close. I think that we would -- we would say there is as good of a chance that happens sometime between the end of the first quarter and the end of the second quarter. I think that right now we don't see it going past June 30.

But the biggest sort of unknown here is the proceeds coming out of China and that is moving along at very healthy pace, no issues on that side. But right now as you may know that there is a big push to get our money out of China it has to go through government approval and we have started the process, it's just a timing issue. So we're saying anywhere between the end of the first quarter and the end of the second quarter. On the outside if it closes at the end of the second quarter, we allude somewhere around $10 million to $12 million of EBITDA in this year.

Ryan Meliker

Okay, that's helpful. And then can you just give us some color on the process for this portfolio sale obviously we haven't seen a lot of big portfolio transactions recently and we keep hearing that the CMBS market is shut obviously the fire isn't somebody that would need to access those types of financing markets. But how deep was the buyer pools as you guys were looking at this transaction. Was it really some of these more foreign capital investors that were let's call it not atypical but more unique to the Manhattan market driving this process?

Neil Shah

Ryan, this was to give you start the process was a result of some inbound increase we got from Asian institutional investors in early summer. We responded to that inbound interest by having a process. But that process is focused on Asian investors and Asian institutional investors in particular. We discussed a seven hotel portfolio like the one that we're transacting on or individual assets within that grouping. And we were open to either joint venture or outright sale.

There was, I think there was probably significantly more comp fees assigned in this but we were ultimately kind of in process and in discussions throughout the summer and early fall with about six to eight groups, in the end it came down to two that were very compelling, and ultimately we felt that Cindat's experience already investing overseas in New York, LA, London, and other markets, and their experience in large transactions as well as in actually investing overseas made them our most credible and compelling opportunity to pursue.

And but I think that to your question, it is I think this kind of capital offshore, institutional capital is attracted to major gateway markets. New York City is clearly kind of number one the list. But I think that other major gateways in the U.S. are also of interest to investors like these. We've seen from Asia investors focus on both trophy assets as well as yield oriented assets and we've been talking about this on calls probably the last year or two that as they get more and more experienced investing overseas, they generally start on the trophy side, and then over time, we would see a more interest in yield oriented assets.

And I think that our this portfolio was unique and particularly attractive to investors and that it was relatively newly built hotels with very little CapEx required, they were unencumbered of management which gave them the flexibility to underwrite performance as they wished, and all of these assets were clustered, and had some compelling scale economics as well as good diversity in various submarkets around Manhattan.

So I think this portfolio was kind of a perfect fit for some of this overseas capital but we do expect to see more and more offshore institutional capital accessing markets like New York in the coming years.

Ryan Meliker

That's helpful. Thanks I appreciate the color. And then just as a follow-up to that, why retain the 30% interest, why not sell the assets outright or try to retain at least the controlling stake and is the deal structured where you have a controlling stake in a 30% interest or how to pursue you tell me how things are going to look are you going to be able to sell your interest as you so desire?

Jay Shah

Sure, hey Ryan. So on the last part of the question we don't have a controlling stake at 30%. There is a three-year lockup on the deals that neither side can initiate a for sale or a by sale for three years. Our -- this capital that's coming into the joint venture it doesn't have a fund of life or particular whole period. So we would estimate anywhere from five to 10 years on a whole basis. And our view on this was we did want to sell a majority stake. We did want us to go into an unconsolidated joint venture. We are happy to keep, our target was anywhere from 20% to 30% of the stake in the joint venture. It helps diversify our earnings base. What we look at the 30% as we probably aren't going to get our 8% preferred the first year or potentially the second year based on New York fundamentals. But the real estate value in New York is going to continue to increase for simple unencumbered assets that are newly built in these submarkets. And if you look out over five-year whole period we do think that we will do quite well with residual real estate value.

Ryan Meliker

Great. That's helpful. And then just one last maintenance question. Tax benefit was pretty solid at almost $2.5 million in the fourth quarter. As you guys provided the guidance for EBITDA and FFO for 2016, are you assuming a similar tax type dynamic like we saw in 2015 with minimal benefits through the first three quarter and then some type of material true up in the fourth quarter?

Jay Shah

It's really difficult to try gauge the income tax benefit. We are not building in a tax benefit for 2016 with these numbers.

Operator

Next question comes from Chris Woronka with Deutsche Bank.

Chris Woronka

Hey good morning guys. I hope we could drilldown a little bit into your outlook for Manhattan. And I know given the nature of most of your hotels, you don't necessarily have a ton of visibility although you always run very high occupancies. But if you kind of look out a little bit may be into summer which I know feels like a long time away. What are you seeing on the booking pace there and really I'm just kind of comparing where you were this year versus last year, where are you on nights booked versus where are you on rates?

Neil Shah

Chris, our booking pace we are a very transient oriented portfolio as you know. And so we are -- our booking window is much shorter than larger hotels in the city, really it's a two to three week kind of window for filling most of our rooms. And so we -- we don't -- we can't really rely on three months, six months out kind of visibility. What gives us some confidence relative to last year on the summer is that the kind of the foreign exchange headwinds this impacted the strong dollar. That shock was really felt in the fourth quarter of 2014, and then really extended throughout all of last year. We felt that -- we felt the most kind of pain from it in the summer season last year. And our expectation is that it may not reverse right away but it will that shock is already been felt, it's been priced in, people are aware of it, and we expect international demand to be somewhat stronger this summer than it was in prior years.

We also believe that new supply, in 2015; new supply actually ended the year at only 2.7%. What we have always said that supply the impact of supply is really felt 18 to 24 months out. And the -- our high watermark of supply in 2014 continue to be experienced throughout 2015. Now, in 2015, we had a little bit less supply than in 2014 and so the fundamentals and the opportunity for demand to outpace supply is a very rational and credible view. I hope that provides a little bit of color just on international and on supply which has been kind of the biggest headwinds we faced last year in New York, they're lessened this year.

Jay Shah

And Chris I'll just add to what Neil said, if you are really interested in group booking pace, I think as Neil mentioned the summer would be a little less relevant but we are seeing March and April being up in group booking pace by 10% and 16%. And transient is up also through March. So generally the early indicators are good and then you put that against the macro, against the context of the macro backdrop that Neil gave and that's what is driving our operators to be more sanguine about New York this year.

Chris Woronka

Yes that's great color. And just on the -- you guys have always kind of had a mix of independent hotels in the portfolio, you further that with the Monterey acquisition and I guess, not that long ago, is it are you close -- any closer to may be thinking about brands or soft brands for anything or is it pretty much very happy what you've got and you don't need these brands at this point?

Neil Shah

We continue to -- we've had a very good relationship with Autograph and Marriott soft brand in two of our assets down in Miami Beach, the Winter Haven and The Blue Moon. And so we continue to always assess whether a soft brand can add value to our portfolio and our individual assets. Currently, our independent hotels however are really performing very well are in high demand markets and have particularly compelling locations that make occupancy where kind of already a premium differentiated choice for consumers. And so the -- it's just a matter of kind of balancing the fees that we would pay to our brands versus the cost of accessing customers on our own.

Our independent hotels unlike many other public portfolios, our independent hotels are transient oriented, rooms oriented, and are smaller. And our hotels are generally less than 200 rooms. And so we are just not as reliant on online travel channels. It's those hotels that are highly reliant on online travel channels that can really make the math work on soft brands. We often argue that soft brands should be very careful before putting our name on Big Boxes because it's hard to kind of keep the quality of the soft brand but regardless that's where the real value can be had is where a brand and the pipe from the brand can truly differentiate a hotel in a local marketplace.

Right now our independent collection of properties which now has I think nearly 20% of our EBITDA are all already very high occupancy hotels over 80% occupancy and our growing rate significantly on their own.

All that said, all the hotels that we buy are institutional quality and are very attractive hotels to soft brands. And so, if the world were to change, and we found in a downturn that the pipe can help us, we believe that all these hotels, most of our hotels could be good fits with soft brands from Marriott, Starwood, Hilton, Accor, and others.

So it's a conversation that we have actually we had just this past in the last month or two we've spent some time with a couple of brands, just the math is still not working. Well our assets are working too well.

Chris Woronka

Sure. Good problem to have. Thanks for that. Just finally from me apologize if I missed it. On the joint venture approval for Manhattan, did they put you guys have a deposit from them, hard deposit or no?

Ashish Parikh

We do, Chris. The total amount of the deposit is $20 million, a bunch of $6 million and then the other $14 million is being converted from RMB into dollars. So they're going through that process.

Operator

Next question comes from Wes Golladay with RBC Capital Markets.

Wes Golladay

Hey, good morning guys. You mentioned that part about hotels potentially becoming a commodity and lasting pricing power for the industry. Are you seeing any pricing power in your independent, your branded hotels, your soft branded hotels, or is it more a market specific?

Neil Shah

No, I think it's really market and location specific. Our independent hotels do grow -- our independent hotels do offer a higher RevPAR growth than the rest of our portfolio. But I wouldn't make that -- I wouldn't make the assumption that our independent hotels grow faster than branded hotels. Just in our portfolio our individual business plans and locations have led to our independent hotel setting the pace on growth.

Wes Golladay

Okay. And then what do think will drive confidence and ultimately pricing power for the industry, what needs to change?

Neil Shah

We've been ringing our hands about this for years. I mean I think in markets like New York I think, some stabilization to the supply inventory our -- across the last five years, New York has experienced higher supply than it ever has. On a CAGR basis it's about 3.9% supply growth from 2010 to 2015. That compares to the long-term average of about 1.7% supply growth. Our expectations for the coming five years is significantly less supply than we've experienced in the last five years, we think it will be closer to 3% versus the 5% we've experienced across these last five years.

I think the nature of the supply is also changing a little bit in the supply that's opening in 2016 and '17 are larger hotels, still not 800 room kind of hotels. But after years of a lot of 100 and 150 room hotels there is more 250, 300 room hotels. We have mentioned before in call that it's -- sometimes it's not the number of rooms that enter the market it's the number of hotels that enter a market and how many comp sets they influence. It's absolutely rational for a new hotel owner to keep rates low while getting their fair share of occupancy across the first year or two. And when you have multiple hotels doing the same think in various submarkets around the city I think it really influences the psychology of a lot of general managers and revenue managers out there.

So I think that part of it is just a reduction in the supply picture should help. I also think that it's a matter of leadership from management teams and investors to not view portfolios as I mentioned that remarks as baskets of star markets, but rather assets that you can turn and drive and have a view on setting higher rates.

Now, we would adjust and you have to be very responsive to what's happening on a daily and weekly basis. We mentioned that the fourth quarter in New York there wasn't a lot of rate growth. And so we did play the occupancy game there and finished the quarter at 95% occupancy. But if being that responsive to daily conditions that allows you to really drive results and drive rates.

I think in other parts of the country we've -- in -- on the West Coast we've continued to have great success in driving rates. Miami has been a little bit softer in the last several months. But we have some unique assets and unique business plans there and so we've been driving very strong rate growth at our Autographs in Miami Beach as well as the Residence Inn Coconut Grove.

And so it is a bit market-to-market. And I think just our communicating more of success from the strategy of kind of pushing rates will help. I think for -- there is a lot of headwinds from the air and there is lot of shifting market sentiment, but 2016 ended -- 2015 ended as a very strong year and hopefully that will give further confidence to operators and owners in 2016.

Wes Golladay

Okay. Thank you. Real quick. I know you guys actively target certain countries for international inbound travel. What countries do you see as being strong for inbound travel in 2016? And do you have an overall forecast for oversee tours into the U.S. this year?

Neil Shah

We -- we are going to -- we focus most of our international conversation and dialogue on calls around New York and Miami. We have international demand throughout our portfolio, but it's only in Manhattan, in Miami, where it's a meaningful contribution.

In New York we range from 15% to 20% international mix in our business. We've mentioned before that that mix is not only a function of kind of a strong dollar it's also a function of how well the rest of business is going. At our hotels we generally view international demand as more price sensitive than value oriented. And so as domestic economy improves, corporate spending increases, and we get more take on our locally negotiated rates, we intentionally bring down some level of international mix.

In New York in 2015 we ended around 16%, 16.5% international. In Miami, we ended 2015 around 13% international. In Miami, it was actually a significant growth versus prior years for us, because we were taking over a hotel that weren't even accessing some of these international markets and so we added the international market mix to them. In New York we went down to 16% from about 18% the year prior as there was more price sensitivity amongst the Eurozone traveler and we found better priced domestic business to fill our books.

In terms of countries it's -- it is a function of kind of -- we look to where there is kind of a secular change and target those countries. So China, India it's -- they're not huge percentages today but very high growth rates on their contribution and so we do target those countries. But the countries that have been the real stalwarts across the last year, year-and-a-half have been the United Kingdom, the Netherlands. The Swiss Franc has also been very strong. We've had more Swiss travelers than we've had in the past. We -- this has been from the Eurozone and from Canada.

Brazil has always been a big driver of Miami and it is kind of stabilizing. I can't say it's meaningfully reducing, because there is so much more airlift to Miami. And so it's continues to make up a very strong portion of our business of our international mix. The elections in Argentina in November have led to some more confidence there and our sales team is getting more bites from Argentina than they did six months ago or eight months ago.

I think there is a lot of things happening in the world that could be real benefits to international demand in the U.S. So if you think of the turmoil and concerns around safety in the Middle East, a lot of European travelers, Germans, Brits, and other European travelers have been going to the Middle East for resort vacations. We're expecting to continue to see more of that come to Miami as there is unrest and instability in the Middle East.

Korea, Japan, all -- these countries are benefiting from kind of reductions in commodity prices globally and should lead to more corporate spending from their international travelers as well. Throughout this time, I mean if you look at enplanement data and things it's very strong growth, 6% growth in 2015 across all markets that is. In markets like Boston it was actually up 10.5% as they've gotten many more non-stop flights from European designations and Asian destinations. Miami was up in enplanements by over 8%, again just a lot more airlift coming from various Latin American countries as well as European countries. As well as the first non-stop first flight coming in from the Middle East from Qatar.

Airlines have clearly been bridging the gap for the travelers' wallet with the strong dollar. Airlines have reduced prices in order to attract travelers. And fortunately, in most markets hotels haven't had to follow a suit to attract that business, but jet fuel and capacity have lead airlines to lower cost and that's leading to a lot of -- lot more enplanement. And the big secular trend obviously is just the growth of the middle class and throughout Latin America, throughout Asia. And the first thing that the middle class deserves is the ability to travel for leisure. And when you travel for leisure to the United States you come to our markets.

Operator

Next question comes from David Loeb with Baird. And David your line is open. Please check your mute function.

David Loeb

Sorry, my headphone was muted, I wasn't muted otherwise. Good morning. I wanted to ask about acquisitions and dispositions. You've got some acquisitions to do to complete the 1031. Can you give us an idea about how that pipeline is -- where you're looking, what kind of pricing you expect to achieve? And also, what's the magnitude of potential dispositions beyond what you have announced so far? What markets might you be looking to lighten up on non-core assets today?

Jay Shah

David, I think if we were to use proceeds from the Cindat transaction for 1031 exchange treatment, we would probably continue to look in the markets that we've been -- that we've been active in across the last year. We think that there is still some really attractive opportunities on the West Cost, Washington. Washington, we built out some good exposure already, we probably look towards Boston as well. And there might be interesting opportunities in Southern Florida.

From a yield standpoint, I think the bid on acquisitions right now is fairly scares driven by that debt market is getting up to some degree and the capital markets being dislocated. We are -- for the quality of assets and the submarkets and markets that we want to be, we would anticipate being able to buy something high 6s or in the 7s going forward, we wouldn't be taking on -- I don't think we'd be taking on big, big value-added project at this time. But I think we'd be able to buy an attractive going forward cap rates in the range I mentioned the 6.5 to 7.5.

And as far as dispositions, we do have some hotels in the portfolio where the hotel has stabilized to a degree and we're coming up to the end of CMBS debt terms on them. So we -- we're continuing to consider disposition of close to another 10 to 12 hotels and they would be similar to asset that we have transacted on in our two earlier tranches in the last couple of years. So they would be in markets that were -- sort of that first ring outside of core CBDs. They would be markets where we didn't expect a lot more growth and they would be assets where -- it's just not necessarily in line with the growth profiles of the company and the company average.

David Loeb

And do you see the disposition as being in portfolio deals or single assets?

Neil Shah

The market has become more difficult for kind of portfolio transactions. There is clearly not a portfolio premium out in the market place. Private equity was the greatest kind of -- was the driver of this large portfolio transaction. And from what we're seeing in the marketplace today that that bid just no longer exists. It was dependent on kind of high LTV, CMBS financing, which remains dislocated.

And so I think ideally we would have been able to transact in a portfolio basis. But I think we've kind of reassessed our view on these hotels and we would likely do them in either small portfolios of one or two assets or three assets or just sales to individual regional owner operators or other aggregators who want to add a single asset to an existing cluster, or the like. But its remarkable how quickly the private equity bid for large portfolios has dissipated.

David Loeb

And just one last follow-up, Jay, you mentioned you were kind of vague on the $100 or some million or remaining 1031 proceeds to be deployed. I guess you got some time on that but do you have stuff that's under letter of intent that you have a shopping list that you're working from now?

Jay Shah

No, no we did not. There is -- no, we don't have anything that we're looking at seriously right now. But the pipeline is pretty robust. But there is and I think Ashish, Neil, alluded to it earlier, there is so many different alternatives on uses of the proceeds and even with -- even to shield ourselves from a capital gain exposure there is a couple of different leverage we can pull. So we'll see what makes the most sense to the market as the deals gets closer to closing and then choose the direction of that one.

Operator

Next question comes from Bryan Maher with FBR & Company.

Bryan Maher

Good morning guys. I’m surprised an hour into this call, Airbnb hasn’t come up at all especially since it's been in the press again recently and operates a lot in some of the markets that you guys operate in. Can you just give us your view and we heard a lot about this at Alice on Airbnb and its impact and the potential for Airbnb being out there creating a scenario where operators do not feel like they have pricing power because demand might go off to that other area. Can you just talk about that a little bit? Thanks.

Neil Shah

Our view on Airbnb is something that we spend a lot of time on. We read everything that comes out. We have team members testing different markets and different opportunities on their site. We try to use it ourself, it's actually very hard to as you may have found, as you've looked at it, hard to in terms of as a business traveler. But what we -- what our view is it that it is a -- in the higher kind of compression period for leisure travelers it may be an alternative, but we do not believe that it's directly competitive to our portfolio.

You can have an impact in a market just like a non-competitive hotel can have an impact on a market. But we believe that it is a much more value-oriented traveler that seeks out Airbnb, it's a longer length of stay generally four days plus, it's multiple guests per booking over two guests per room. I think we've seen some stats that it's actually three guests per many of these rooms. Our hotels are transient oriented. We have a short booking window and we are focused on being in locations that are of choice for leisure travelers and very convenient for business travelers.

Our customers are willing to pay a premium for the consistency, quality, and locations and services that we offer. And so it, where we don't have our head in the sand on it but it is -- it's just not coming up as a truly significant impediment to growth for our operators today. We think over time Airbnb may become more like an online travel agent and I think hotels that are highly dependent on online travel agents that have more commoditized value-oriented products that compete on price may be feeling the impact of Airbnb more so than the portfolio like ours of smaller transient-oriented premium hotels.

But at this moment, we continue to monitor it. We think if it becomes more of an online travel agent over time then it may be a good source of incremental demand for some of our independent hotels. We've actually had some conversations with Airbnb about some of our Airbnb hotels. Relative to an online travel agent, it's a high -- it's much lower cost channel actually. They charge the host and the guest but it's all in less than 10%, 8% to 10% most online travel agents are 15% to 25%.

And so that's our view and it's been, we continue to update that view with new information that we see but to-date we haven't seen anything that makes us feel like this is a significant threat for our portfolio.

Operator

And ladies and gentlemen with no further questions in queue, I would like to turn the conference back over to Neil Shah for closing remarks.

Neil Shah

Great, well thank you. I think that completes all the questions. I hope we've been able to demonstrate some of our advantage and our outlook for the coming year. Jay, Ash, and I are standing by after this call and for the rest of the day, if there is any other follow-up questions. But thank you, and have a great day.

Operator

Ladies and gentlemen that does conclude today's conference. We thank you for your participation and you may now disconnect. Have a great rest of your day.

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