LaSalle Hotel Properties' (LHO) CEO Mike Barnello on Q4 2015 Results - Earnings Call Transcript

| About: LaSalle Hotel (LHO)

LaSalle Hotel Properties (NYSE:LHO)

Q4 2015 Earnings Conference Call

February 19, 2016 10:00 AM ET

Executives

Max Leinweber – Director-Finance

Mike Barnello – President and Chief Executive Officer

Bruce Riggins – Chief Financial Officer

Analysts

Ian Weissman – Credit Suisse

Smedes Rose – Citi

David Loeb – Baird

Shaun Kelley – Bank of America Merrill Lynch

Jim Sullivan – Cowen Group

Bill Crow – Raymond James

Lukas Hartwich – Green Street Advisors

Wes Golladay – RBC Capital Markets

Thomas Allen – Morgan Stanley

Anthony Powell – Barclays

Chris Woronka – Deutsche Bank

Ryan Meliker – Canaccord Genuity

Rich Hightower – Evercore ISI

Operator

Good day and welcome to the LHO Fourth Quarter 2015 Earnings Call. At this time, I would like to turn the conference over to Max Leinweber, Director of Finance. Please go ahead, sir.

Max Leinweber

Thank you, Alan. Good morning, everyone, and welcome to the fourth quarter 2015 earnings call and webcast for LaSalle Hotel Properties. I am here today with Mike Barnello, our President and Chief Executive Officer; and Bruce Riggins, our Chief Financial Officer. Mike will provide an overview of the industry, discuss our 2015 results and activities and talk about a few recent case studies of our company. Bruce will provide details on our capital markets activities and our balance sheet. Then we will open the call for Q&A.

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

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

With that, I will turn the call over to Mike Barnello. Mike?

Mike Barnello

Thanks, Max, and thanks, everyone for joining us this morning. What we know is a busy earnings week. Given that we’ve refined our outlook five weeks ago. I’d like to use our time together this morning to review the areas, in which our company continues to excel including a few case studies as well as our view how we’re looking at the current industry trends. Last year, we completed two great hotel acquisitions provided a mezzanine loan on two iconic assets expended our hotel EBITDA margins to a new record high and we enhanced our already well positioned balance sheet.

Before we get into the details, please note in order to demonstrate the stabilized run rate of our portfolio. The operating statistics we mentioned this morning during our prepared remarks exclude the impact of the union disruption at Park Central New York and WestHouse during August, September, and October of last year. With that, I’ll startup by highlighting our outstanding EBITDA and margins. We pride ourselves on our ability to consistently deliver strong adjusted EBITDA and margin performance during all phases of lodging cycle. With 2.6% RevPAR growth in 2015, we’re pleased with our operators and our asset management team’s ability to grow hotel EBITDA by 8%. More than three times our RevPAR growth.

Similarly, we’re proud of our adjusted EBITDA growth of more than 15% last year. Additionally our historically best-in-class hotel EBITDA margin rose to 34% and expanded by 155 basis points. In total, our hotel expense growth was basically flat compared to 2014 despite rising wages, cost of goods and a 10% increase in real estate taxes. If our history over the last 18 years is any indication, the operational improvements we uncovered in last year should be sustainable for our portfolio over the long-term.

For example, beginning in the summer of 2014 we had identified numerous ways to improve our food and beverage components including leasing outlets, converting outlets to meeting space, closing meal periods, installing grab-and-go stations, refining menu offerings, reducing room service among others. Many of these initiatives were implemented last year have resulted in a food and beverage revenue increase of 3%, profit growth of 12% and profit margin expansion of over 220 basis points during the year.

As looking to 2016, we know that these food and beverage tactics will continue to have a positive impact on our margins given that many of initiatives we’re not implemented at the beginning of 2015. Last night we posted an updated version of our investor presentation to the Investor Relation section of our website. I encourage each of you to review the presentation. However, I want to put a special emphasis on the case study section, which demonstrates the value that we created in the last year as a result of recent opportunistic investments and diligent asset management.

We have now provided case studies for many of our acquisitions since 2010, which can also be found on the Investor Relations page of our website. Over the last six years, we have completed 22 acquisitions with exciting results. We feel that we have created proven platform for investing in and improving upper upscale hotels. The new case studies in our investor presentation posted last night include the Hotel Chicago, Heathman Hotel, Park Central San Francisco, and the Marker Key West. Within this group of case studies, Heathman has had the most dramatic improvement in the first year of ownership.

During the year RevPAR increased by 9.5%, EBITDA increased by an astounding 89% and EBITDA margin increased by nearly 2,000 basis points to 49%. This deal went from a four caped acquisition to already north of an 8% yield in the first year staggering improvement. Although the improvement of Park Central San Francisco has not been as extreme as it was at Heathman, we will be remiss if we do not comment on the good progress to date of this asset. During the 12 months ended March of 2016, the forecast is for EBITDA to increase 17% and EBITDA margin to expand by 390 basis points. Despite a slight RevPAR decline compared to 2014.

Excluding the negative impact of the increased real estate tax assessment post acquisition in the State of California due to proposition 2013. The forecast is for EBITDA to grow by more than 26% and EBITDA margin did increase by 631 basis points. We have consistently mentioned that removing the Westin brand from the hotel will create some short-term disruption to revenue, but the EBITDA improvement will be immediate given brand affiliate expense savings and general operational freedom.

We expect additional margin improvement from this asset as many of the efficiencies implemented until the 2015 did not occur until later in the year. In October, we signed a deal with Starwood to extend our agreement for five more years. This agreement is essentially the same as before, meaning a pay for play situation at terminal at any time.

There isn’t any downside to this arrangement and we are looking forward to another strong year at this hotel as we continue to implement our asset management best practices. Now that we have had an opportunity to reflect on our Company’s performance last year, we would like to move the conversation forward into 2016 and evaluate the status of the lodging industry. We mentioned in our January pre-release that we do not plan on providing our traditional outlook based on the lack of visibility in the current environment, and we’re standing by that decision at this time.

However, we do think it is beneficial to give our perspective on current market conditions and our view on how the year could evolve based on the information we have today in order to provide a frame of reference regarding our portfolio for the coming year. Industry RevPAR growth has now decelerated for five consecutive quarters and we think it’s more likely than not that RevPAR growth deceleration will continue in 2016. It is important to examine the primary contributors to RevPAR growth, which are supply and demand.

Supply is recently predictable this year, because it’s readily visible. Project need to be substantially complete very soon in order to have an impact this year. With the exception of San Francisco, Philadelphia and our submarkets of LA, which have supply growth around 1%, supply in the rest of our markets is expected to be higher than the industry average and accelerating compared to 2015.

Seattle and San Diego supply looks to be approximately 2.5%. D.C., Chicago and Portland are all between 3% and 4%. And Boston and Manhattan should be our markets with the most supply with approximately 5.5% and 6.5% growth respectively. With supply as a backdrop, it’s pretty clear the RevPAR strength to be determined by demand, which is much harder for us to predict. Let’s take a few minutes to discuss the components of demand as we see it.

First is group because of all that components group has the longest booking window. Citywide bookings are obviously a big contributor to group bookings. This year citywide bookings are a positive story in most of our markets except for Chicago and Seattle. And this strength was evident in our pace over the last year given that citywides typically have an even longer booking window than the rest of our in-house group. We have been encouraged by our 2016 group pace as of July 2015, when pace was ahead by 8%.

However, in the last few quarters, we have become increasingly concerned with the strength in our group pace as a result of an earlier booking window driven by citywides rather than a more robust group story overall. After announcing our 2016 group pace in July, we continue to update you in October with a pace that was ahead by 7%. Again, at year-end with pace up by 5% and now that our pay is shrinking yet again to approximately 2% ahead for 2016. Again, there seems to be results of earlier demand versus additional demand.

Group makes up approximately 27% of our hotel portfolios demand and remains a top indicator for us, because most of our group production comes from a few large hotels. For reference in any given year, we typically start the year with approximately 60% of our budgeted group revenue on the books. 2016 is no different. The next piece of demand is corporate. Industry wide corporate revenues and profits are estimated to decline again in the fourth quarter, which will mark the fourth consecutive quarter of revenue decline and the third consecutive quarter of earnings declines.

Trends we have not witnessed since 2009. Then the same thing we saw our corporate negotiated room nights decline by approximately 2% in 2015, but overall corporate revenue increased because of 4% ADR growth. This trend held through in Q4 with corporate room nights down about 1% and ADR growth just over 3%. In 2016, our operators have negotiated average ADR increases of approximately 5% with their clients. The unknown factor here is how many guests will use these rates. The corporate transient segment average is between 10% to 14% of our overall demand in a given year.

However, that only includes the guests and bookies in the company’s negotiated rate curve. We know the pool of corporate guests it is actually much larger, especially Sunday through Thursday, well we aren’t able to track other guests, who are traveling without a corporate negotiated rate.

As with corporate, the data behind our international demand isn’t exact, given the lack of booking source info, for many of the OTA’s. International demand was a steady drive in our portfolio during the last year, decreasing by approximately 10%, as reminder this business hovers around 8% to 10% of our portfolio total hotel room nights.

Given the sustained strength of the U.S. dollar, we see international demand remaining soft for 2016. Regarding OTA’s, our demand from online third party channels increased throughout the year in both room nights and rates, with Q4 revenue up 10% and full year revenue up about 7%.

The rest of the economic indicators, we track were generally positive, the two most positive indicators were unemployment and enplanements. Unemployment continued its steady decline in January to 4.9% and enplanements were steady throughout 2015. And with capacity increases planned in 2016 should provide and proved to be strong again this share.

GDP was positive for the year but has been moderating as of late. For example, the consensus for 2016 GDP were up beginning of 2015, at 2.8%, compared to consensus beginning of 2016 at 2.5%, the decline of approximately 35 basis points. Similarly, consumer confidence ended 2015 higher than 2014, where it took a jagged path during the year.

The one item, we haven’t touched on yet is short-term rentals, which we know can alter supply in any given day and observe the extreme demand around certain compression events. Although it’s incredibly hard to quantify, there is no doubt in our mind, that Airbnb and other similar services are hurting our top performance on the margin.

Short-term rentals in lodging industry will need to find a way to co-exist this. However before that can happen each city must figure out its own formula of distillation and corresponding enforcement to ensure short-term renters are following appropriate rules regarding maximal rental nights, taxation, insurance, security, safety and Apartment Building Permission.

Across our markets short-term rentals range from being illegal to unregulated. In cities, where short-term rentals are currently illegal, we are encouraged by a slight increase in enforcement recently, particularly in New York city, which authorized $10 million over three years to enforce the law. Until the short-term rental sites, and their hosts are held accountable to the law we think they’ll remain a threat to the hotels in major cities, which not coincidentally are the same markets in which we own hotels.

Before turning over to Bruce I want to mention that despite flowing macro trends, which may create headwinds for our business we do remain confident that we’ve assembled a terrific portfolio led by talented asset managers and operators who excel in maximizing performance of our assets in any part of the cycle. We remain up and ready to face any challenges 2016 may bring.

Now Bruce will provide some additional details about 2015 performance with an update on our balance sheet. Bruce?

Bruce Riggins

Thanks, Mike, and good morning, everyone. I will start with more details on our 2015 results. As you probably saw in our release last night, we enhanced our disclosure for RevPAR and EBITDA by property and by market, so I will not recap those results on this call. As Mike mentioned earlier, hotel EBITDA grew by 8% in 2015, which was more than three times our RevPAR growth, as such hotel EBITDA margin expanded by an impressive 165 basis points. Importantly even without adjusting for the union impact, our adjusted EBITDA and hotel EBITDA margin improvement are well within our original outlook range from February 2015, yet another testament to our operators and our asset management teams ability to quickly adapt in any environment.

Our top performing hotels this year in terms of EBITDA margin improvement, when the Heatman Hotel in Portland, Hotel Chicago, Hotel Vitale in San Francisco, and Liaison Capitol Hill and Hotel George in Washington, D.C. January 2016 RevPAR grew by 1.4% driven by an occupancy increase of 3.2% and I’ll set by an average rate decline of 1.7%.

Turning to our balance sheet, at December 31, we had a total debt outstanding of $1.4 billion at an average interest rate for the quarter of 3.1%. As of quarter end, total debt to trailing 12-month corporate EBITDA as defined in our senior unsecured credit facility was 3.6 times, which translates to a current interest rate on our credit facility of LIBOR-plus 170 basis points.

During the fourth quarter, we repaid the $177.5 million unsecured term loan and completed a new $555 million unsecured term loan, which matures in January 2021. This new term loan was temporarily used to payout the majority of the balance on our credit facility. We ultimately used approximately $290 million of the new term loan proceeds to opportunistically repay the mortgages on Westin Michigan Avenue, Indianapolis Marriott, and The Roger during January and February.

Pro forma for the mortgage payouts, we currently have approximately $465 million of capacity on our credit facility. Our weighted average interest rate is now 2.5% and 45 of their 47 hotels are unencumbered. The only remaining debt maturity through 2018 is $42.5 million of bond from the Hyatt Regency Boston Harbor.

Finally, we’re pleased to announce, that as of the end of the year the interest rate spread on the new Westin Copley mortgage dropped from 200 basis points to 175 basis points over LIBOR. This reduction was triggered by achieving a predetermined debt yield. From flat LIBOR this change would save us more than 500,000 of interest expense annually.

That completes our prepared remarks and Mike and I would now be happy to answer any questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] We’ll take our first question from Ian Weissman from Credit Suisse.

Ian Weissman

Yes good morning, just a quick question about I would say probably your outlook for the year. I mean you are not giving guidance at this point and you also didn’t buyback any stock in the fourth quarter. So what could we expect your views of the current stock price today?

Mike Barnello

Good morning Ian I guess we are not going to comment of the stock price as far as the buybacks you are right we did not buyback any stock during the forth quarter. I guess when you are thinking about the outlook I mean we understand it is frustrating for many of you guys not to hear a numerical outlook range from us. And it’s frustrating for us not to be able to give an achievable one over the past year as well, but we’re not alone there. Management teams across lodging spent last year chasing the outlooks down and as we head in to the seventh year of the cycle. We’re clearly at a point where fine tune ranges to level of certainty becomes very difficult.

So it’s exactly at this point of the cycle when management teams continue to chase their outlook down over the course of the year like they did last year. So we did provide a macro backdrop in our prepared remarks as well as a backdrop for the lodging industry, which is clearly in a state of slow down. And so we gave a lot of outlook color, but we prefer not to provide numbers based on hunches and hope but rather stick to the historical evidence before us. So that leads us to really refrain from offering a type of numerical outlook.

Ian Weissman

But as far as just being a buyer of your stock here, I’m just curious about how you think about share repurchases?

Mike Barnello

We think about them. I mean we look at what the sources and uses are, right, which we could buyback the stock. We may buyback stock down the road, we may not. But at this point, we obviously had not felt like it was the smartest thing to do.

Ian Weissman

Okay. And just two last questions. As far as your CapEx spend outlook for 2016, its up over 2015, which is also I think a near record year how should we think about your putting capital to work at this point in the cycle and maybe just a little bit more color on what your spending money on in 2016.

Mike Barnello

So when you think about what we’re investing in the range for this year, about half of it is basically spent, I mean if look the investor presentation, what Bruce mentioned in terms of while we’ve already done or going to finish up the next couple of months, a lot of that is already in the works. So if you think about the Westin Michigan Avenue, The Grafton – I’m sorry, the Amarano, this – and Solamar, Mason & Rook, the Hotel Palomar, The Liberty, Lansdowne, second phase of Westin Michigan Avenue, Gild Hall and Chaminade, those are all in the works. The Amarano was actually finished in January. Couple of those will finish this month and the rest will finish in March.

So a good bit of that range is for those projects. As far as spending additional capital to investing our properties in this part of the cycle, we want to balance maintaining the properties and doing our renovation works appropriate in terms of maintaining the customers versus spending perhaps too early. On the renovations that we plan for the second half of the year, we have the ability to hold off on those if we see fit at the same time, there is a normal renovations.

And so held whether we ended up holding off on them for 2016, would mean, we hold up for them forever, we might push them back a year and plenty of those happy have the ability to do that. And we think it’s a question to maintain the assets, it’s not really happy repositioning. The only exceptional to that Ian is really the Hotel Helix was closed in October. Moving into a total repositioning and becoming Mason & Rook, which will open up the end of March.

Ian Weissman

Okay. And finally, just your decision to pay off the Michigan Avenue mortgage. I am just trying to understand the thought process there versus paying off of preferreds, was there a reason why you didn’t look at the preferreds and what should we expect going forward?

Mike Barnello

Well that, loan matured

Ian Weissman

Understand.

Bruce Riggins

We just paid it off three months prior to when it matured.

Ian Weissman

Right. And the preferreds though mature this year, right?

Bruce Riggins

They were callable in January. So obviously, we can do it in any point in the future.

Ian Weissman

And your plan to going forward on the preferred?

Bruce Riggins

We don’t have the a set plan, obviously, we have the flexibility and we could do it at any point, but have not picked the date that we’ve determined, we would call those.

Ian Weissman

Okay, alright thank you very much.

Operator

Next we go to Smedes Rose with Citi.

Smedes Rose

Hi. Thanks. Yes. I just wanted to ask you maybe just your thoughts about the portfolio now and have you changed your thinking around potential dispositions? And maybe just sort of broader what you are seeing from private equity or private participants in the marketplace? It just seems like there is such a sort of disconnect between the public valuations and what still seems like a fairly healthy transactions market on the private side. And is there any kind of sense from your end that you might just take advantage of that disconnect here?

Mike Barnello

Well, there has been no change in our thinking, we always remain open to dispositions really for any of our assets, there is nothing, we’re wedded to. But it comes down to right prices for the right asset. And there can be situation, where there is a disconnect between private and public and we should obviously look into that, we have – we do look at all of our properties regularly including doing a hold versus sale analysis on many of our assets every year, to determine what ever we think it make sense to keep them or potentially dispose of those.

We did do couple of sales like that in 2014. And we will consider that in 2016 or any year. At this point, we’re really going forward, we really don’t talk about any individual assets and so we’ve any kind of announcement on that. But we are totally open to doing that, Smedes.

Smedes Rose

Okay, thanks. And then I realize that STR data is not necessarily a proxy for you guys by market, but there are some markets where they are just the sort of underperformance of your portfolio relative to the market just sort of stands out. Particularly in LA and – well, really I guess in LA for the fourth quarter specifically. I mean is there anything you are seeing in the first quarter or over the course of this year that would maybe change that or? It seems that at some point if you can’t drive RevPAR your margin – opportunities for margin expansion must be getting increasingly limited.

Mike Barnello

You bring up an interesting point about LA. LA is the trickiest market when you look at MSA versus CBD, because there is not necessarily one perfect area to look at. When you think about the LaSalle submarkets, it’s really LA – it is really Beverly Hills, Santa Monica, Hollywood, West Hollywood. If you look at what you see in the MSA, it includes a huge area including North LA, East LA, airport, Downtown, et cetera. If you peal back the sections of those – of LA, and looked at what happened in 2015. We’re pretty much as the submarkets of Santa Monica, Beverly Hills, West Hollywood, Hollywood did.

But what you note is accurate, is that the markets of LA they did much better in the fourth quarter, we’re the outlying markets for a couple of reasons, one, they’ve had lower occupancy. They have lower occupancy. And they have much lower rates. The four submarkets that I have mentioned that we are in have a much higher rate in the overall LA market and that’s where the business was in – in the fourth quarter of 2014. Will that continue to be the case, it’s harder to say. I mean we still have their great submarkets. They just have same increases as the other submarkets of LA have had.

What was the other part of your question Smedes

Smedes Rose

Well, I just – I guess I’m just sort of wondering about the opportunity for continued margin expansion. I mean obviously it was very impressive for last year, but if your revenues – it just sounds like the pace of revenues continues to slow and just kind of thinking about the continued opportunities for margin expansion if the RevPAR continues to be relatively light. I guess the question sort of answers itself, but

Mike Barnello

Sure.

Smedes Rose

I guess the questions sort of answers itself, but.

Mike Barnello

The thing that we have always focused on is what’s the best thing to do for the property, what’s best thing to do for the shareholders. And that always comes down to EBITDA as long as it’s consistent, sustainable. We feel that’s the right way to focus. So we’re obviously not ignoring RevPAR by no means but as you can see in our performance several our history, the margins have been exceptional. And we have been able to increase some substantially almost in any RevPAR situation.

So what I would tell you is that as we look out into the future really our asset managers, our operators are always finding new ways to do things. We spend a lot of time in the last couple of years working through our food and beverage. It’s just one department, we have other departments that do we obviously look at regularly. And we have an even finalized those. We think we’ll see some additional savings efficiencies in food and beverage throughout this year.

So we think we can do more. No doubt it comes harder when RevPAR is lower. We always said traditionally as it takes 2 to 3 points of RevPAR to really cover expenses. That’s sort of a simplistic view when you look at our actual performance, our expenses have been held in check for a long time during this recovery and basically over 2015 they were flat. So our guys continue to find new ways to operate that our efficient and satisfying for the guest and we’ll continue to do that. So recognize the difficulty, but our guys have done a great job of finding ways to excel.

Smedes Rose

All right. Thank you.

Operator

Next, we’ll go to David Loeb with Baird.

David Loeb

Good morning. Can you just talk a little bit Mike, about the demand trends for the hotels that are no longer Kimpton in San Francisco?

Mike Barnello

Well. When you look at what happened in those three hotels, the last six months really was mid-July when the transition happened, the RevPAR have been – have disappointed us. When you look about the, think about the performance for the whole year, the EBITDA has actually done pretty well. I am not so sure those demand trend differences of the three hotel versus the demand trend differences in San Francisco. The transitions were lumpy. They always are. We said it would take a couple of quarters to work through. It’s taken all that. We hope we’re in a much better position for 2016. There were a number of personal changes really at all there of the properties, so which, what happened even as recently in last couple of months.

So it’s all going to much better spot, but there is no denying that transition is lumpy and you guys see it in the RevPAR, but we can also see as EBITDAs we’re actually held in check same time.

David Loeb

One more if I can keep going. More broadly on brand versus independent hotel performance. You have had a tremendous amount of benefit at the Hotel Chicago from going onto the Marriott system. With the kind of weaker occupancy trends that you talked about in your prepared remarks, are there other opportunities? And clearly the costs of brand affiliation are higher, but is this the kind of market where that actually pays versus the cost of a customer acquisition for independence?

Mike Barnello

What you raise is something that we think about all the time. You mentioned that – what happened in the Hotel Chicago a couple years ago, we made it into an autograph. In 2014 they had a good year; in 2015 they had a tremendous year. It has been a solid case study which is why we included it. When you look at that hotel and you have to look at couple of specifics one – one of the biggest independent hotels we have, pushing almost 400 rooms.

Two Chicago is one of our one of the lower rated markets relative I’d say average daily rate markets in our portfolio, doesn’t necessarily mean low relative, just means low relative to the coastal markets. And three, it had a lower occupancy. So it was I will call it riper to be soft branded than many hotels. When you think about a lot of our independent hotels, they are at 80 plus percent of occupancy. And so the things that we might gain from a brand or soft brand would have to be really on the rate side, David.

And we do look at that, but we have to manage what the potential rate impact would be offset by the potential costs of bringing in a soft brand or a brand. The thing that we like to tout with the investors is that we have this flexibility. So if at any given time over this year, next year, over the five years we want to look at potentially soft branding, branding of our assets we can do that. So we love the fact that we can pivot in that direction. Will assets we can do that. So we love the fact that we can pivot in that direction. Will we? It is hard to say. There is certainly nothing we can talk about right now. But we do have that opportunity.

David Loeb

Okay. And one more quick housekeeping. Will there be a period where you don’t get rent from the Heathman restaurant space?

Bruce Riggins

The Heathman, yes because the Heathman that’s there is changeover going on the end of this month, David. And so will go dark for a couple of months while the new operator comes in but won’t be very long but I think it’s three to six months

David Loeb

Okay. Thanks.

Operator

Now we it’s a questions from Shaun Kelley with Bank of America Merrill Lynch.

Shaun Kelley

Good morning guys. Mike, I just wanted to sort of go back to your high-level outlook. So you have a better sense of what’s sort of going on from the transient guest to then probably a lot of our other companies. And it seems like when we true up some the outlooks we heard yesterday from people, their view was that group was holding in probably a little bit better than you characterized and transient was where they had seen a lot of the weakness. So, can you help us drill down on just what you are seeing from the transient guest right now? Just any sort of near-term trend or what you think behaviorally you saw in the fourth quarter would be helpful.

Mike Barnello

When you think about our transient, our transient was up slightly in the fourth quarter, I mean very little, just positive. When you think about the trend for the next couple of quarters – and keep in mind really you should really just focus on Q1 because there is not a lot of transient business booked in Q2 and beyond. If you look at it, it gives you on one hand a decent number. The transient revenues are up almost 10%, Shaun. It is entirely room nights. Okay, the rate is basically flat. So it is good, we are glad that there is more on the books. We are not getting the rate on the earlier business that we have. It doesn’t mean we look at rate overall, it just means that what we have booked so far is not a big increase.

We think this does tie in to some of the things that we were trying to put in place in Q4. As we went through the budget process we noticed that there has been a slowdown in demand, a deceleration of RevPAR. And so, we instructed a lot of our operators to be more thoughtful of business that they took, in terms of getting some more heads in beds, and the transient earlier to try to have a better base of business so that they can grow that going forward. And so a lot of our guys have done that. So what you are seeing is helpful on one hand; on the other hand it might just be early. So we are pleased with it but it might just be early. When we look at the whole year it is actually up about the same number, about 10% for the year. But again, taken with a grain of salt for Q2, Q3 and Q4, there’s just not a lot of people who are booking business out six months on a transient basis.

Shaun Kelley

That is really helpful. And then I guess the second thing is sort of on group. Again, a lot of the outlooks are expecting it seems like Q1 to be a little softer partially due to the Easter shift. And obviously if you are more group exposed that is probably going to be a more serious impact. But then easier comps and more group business in Q2 and Q3 to sort of help boost things back. When you outlined your trend it sounded a little different than that, like things could continue to decelerate further. I mean cyclically what you say makes a lot of sense. So I am just kind of curious like how do you – do you think the other outlooks out there are a little on the optimistic side and anything you are seeing that you think is different?

Mike Barnello

I can’t comment on what others are seeking. But what I will tell you is [indiscernible] detail on what we have, our group pace is now about 2%, just a little higher than that. When you break it down by quarter, the first and second quarters are almost identical, just over 2%. The third quarter is up the most, double-digit about 12% and Q4 is down about 7%. What I would tell you is that that is factual information for us. Keep in mind a couple things. Our citywides are strongest in Q3 which helps define that pace. Think about it, you have the – in Philadelphia, which we have two hotels, you have the DNC event which is one big event in Q3. But keep in mind that, again, these are our stats, but half of our group business comes from five hotels. So again, it is accurate information, I’m just not so sure how it translates to an industry overall when you think about five big hotels across an entire country.

Nonetheless, the trends we are seeing we are not encouraging relative to the pace, but they do make sense. I mean citywides just book earlier and then you have a decent base. But it is not necessarily additional demand, it is business you would have gotten a little later through your in-house or through other citywides picking up. Does that help?

Shaun Kelley

Yes, that is very helpful. Last question for me, but just – you obviously outlined some of the individual supply growth numbers that you’re seeing by market. Either demand can also be a little different both based on citywide and other behaviors that you are seeing out there. So I am curious, just kind of bullish and bearish, I mean where do you think – or where do you think in your portfolio you are most positive on for 2016 and where are you the most cautious?

Mike Barnello

So, we are very happy with a lot of the citywide schedules. So we are trying to present hopefully a balanced view of what is going on. When you think about the markets, the markets that we feel most strong about would be Boston, even though they have a flat citywide, they have a big number of in-supply. So but they have had strong demand. So that could be moderate story. Chicago is a concern market for us. They have a combination of both an increase of supply, almost 4%, and the citywides are down about 16%. They had a really a phenomenal year in 2015 with citywides. And so what you are seeing is the opposite of that. When you look into DC, DC does have supply, but at the same time the citywide pace is up about 21%.

So we feel very good about that overall. In one of our smaller markets, but Indianapolis has a strong pace and their citywides are up 4% so we feel good about that. Philadelphia has a – probably the purest story in terms of they have a great citywide pace which is up five shows including the DNC we mentioned. The actual room nights are up about 70% plus and Philadelphia has almost no supply coming in 2016.

Shaun Kelley

And one more if I could, San Francisco specifically, given Moscone and probably in the second half or Q4?

Mike Barnello

Yes. So San Francisco, they went into the year about 12% up in citywides, that is five more shows in 2016 versus 2015. The number was 26 this year versus 21 last year. When you get granular the first three quarters in San Francisco are strong, Q4 is actually down year-over-year about 20%. So we should see some outperformance. I mean no doubt everybody is aware of the Super Bowl, the Super Bowl obviously is a big help in Q1, but they do have some good shifts in Q2 and Q3 as well with, again, Q4 being the worry. With the Moscone, the one thing to just keep in mind is that it is not closing. Some people have said it is closing, it is expanding which is obviously causing some kind of noise disruption as they do it.

But the real impact on the center is next year and so what you are seeing in 2017 is the citywides are down it looks like right now are not quite 40% and about 10 shows which they have lost. When they came clean with the disruption that was going to happen in 2017 at the center a lot of the shows moved elsewhere. So 2017 will be the concern year for the Moscone, but 2016 should be a much better year, at least for the three quarters. I skipped over San Diego also has a strong citywide year, they are up double-digits about 21%. So we feel pretty good about San Diego. They do have some supply, not quite 3%, but otherwise will be a good story.

And then lastly Seattle, Shaun. Seattle is – they had a monster citywide story in 2015 and as a result 2016 does not look as strong. It has picked up a little bit recently, but they are still down about 16% when you look at the pace to 2016 and they also have some supply coming online. So hopefully that helps your thinking about our markets.

Shaun Kelley

Great, thank you very much.

Operator

Now we’ll go to Jim Sullivan with Cowen Group.

Jim Sullivan

Thank you. Good morning. Mike, just to follow-up on your comments about the market, the DC market has been known to have weak results in the CBD during so-called election years. And so, we have that this year and in your comments about the outlook you didn’t mention that. Do you think that is not a negative this year?

Mike Barnello

I think that is a possibility. We are concerned about October, Jim, that is usually the month that gets hit the hardest. We can get a little more granular in terms of DC. If you look at it, again, 21% for the overall year. If you look at Q1 room nights are up big about 60%; we have an extra event in Q1. If you look at Q2, equally up, we have another extra event in Q2 and the room nights are up about 50%. Nothing really major in Q3 in terms of citywides, they are actually down about 50%. And in Q4 we are also down 1. So we are worried about I would say the second half of the year. I mean net-net the numbers are stronger, but if I had to weight them you would look for more beneficial results in the first half of the year and the second half of the year with the wildcard being, as you pointed out, what the elections do to DC.

Jim Sullivan

Okay, thanks for that. Also the various expense items that get reversed in getting to the adjusted FFO, obviously 2015 with what was happening with the Kimpton and the union relationship, it was a major impact here. What level of expenses and what are the headings that we should be expecting in 2016?

Bruce Riggins

We wouldn’t typically forecast because that would be – we may have some preopening costs for the Mason & Rook, but typically it would relate to any management transitions that come up. So we wouldn’t expect much going into the year. But every year things pop up along the way.

Jim Sullivan

Okay. And then going back to you, Mike. Generally on the issue of OTA take rates. There was a lot of talk through the middle to the second half of last year about the impact of lower rates being negotiated by some of the brands. And I just wonder if you can give us an update on what is happening in that respect. And whether you anticipate that could be a source of expense reduction for LaSalle this year?

Mike Barnello

You’re talking about not necessarily the take rates, the commission that we pay on the OTA...

Jim Sullivan

Sure, yes I mean take rate is the phrase they use. But, yes, the commission.

Mike Barnello

Well, a number of the brands renegotiated the end of the year. And they did see some reductions. I will tell you that we don’t get a ton of the OTA business from our brands. A, we don’t have a lot of brands. And B, those brands are – a lot of them are more group oriented. So when you peel it away net-net it could be a savings for us, but I wouldn’t tout that as the biggest cost savings leader going into 2016.

As the merger happens with Starwood and Marriott, if it does go through in the middle of the year, I know there has been a lot of talk about potentially getting additional savings from the OTAs through their consolidation. If that happens, terrific, that is great. I don’t know that that would happen anytime relatively in 2016, maybe not even in 2017. But if it happens that is terrific and hopefully we all can benefit from that. But the management companies – all of our management companies are constantly working with all of their distribution channels to find the most efficient way to do it. And that means potentially bringing down the cost. So, I think that will continue to go down over the years. But I am not so sure I can point to an exact number this year.

Jim Sullivan

Okay, then finally from me, kind of a follow-up to an earlier question about The Heathman and the restaurant shift. There’s obviously been a lot a publicity locally in Portland about that shift. And I wonder if you could just walk through the impact financially if it is material for you guys with the new operator there?

Mike Barnello

We don’t think it is material. I mean we think the old operator had been there for a number of years. The lease was up. And we were able to find kind of a star chef in the Portland scene, he and his wife are very excited about opening up a new place. We are excited about it too. So, we don’t think it is – A, it is not material. And B, we don’t think the disruption is going to last all that long. So, we are excited about it. And so are they.

Jim Sullivan

Good, okay, thank you.

Operator

Next we’ll go to Bill Crow with Raymond James.

Bill Crow

Hey, good morning. Mike, when we talked a month ago or so I think you indicated that on your budget tour in December your operators were more optimistic than you were and you kind of talked them down a little bit. I’m just wondering if they have had a change of heart over the last couple of months?

Mike Barnello

Well, that is hard to say. When we go through our budget process one of the things that we like to do is try to have discussions not just about what is going on in a hotel or a comp set or even a market, what is going on in the more macro sense in terms of what we’re seeing in the country. Because of obviously a lot of the business that affects all of our hotels is either coming internationally outside of their control or from corporate that is outside of any particular city or hotel’s control just to get a better sense of that.

As far as what each particular operator and team is thinking, that is definitely hard to say. I can tell you what they are acting towards is trying to get the most solid group and transient base we can get knowing that if things actually are to accelerate then we will stick at the benefit of that. And if things continue to decelerate, then we will have a more heads in beds strategy and we will have stronger numbers on the books. So, it is really more of a question of tactically how to operate more than it is anything else.

Bill Crow

All right. Second question for me. Are you getting calls from brokers on deals that are busted or being re-traded? And what is your appetite at this point in the cycle, given the strength of your balance sheet, to potentially pick off an asset or two?

Mike Barnello

There is once in a while there are busted deals. I wouldn’t say there has been any abnormal call – number of calls relative to that. So that is no change. As far as our appetite for buying, look, we look at lots of deals. I would tell you realistically that I don’t think that given the option of buying stock at anywhere from 7 to a 9 cap over the last couple months it is hard to envision realistically an acquisition that would make more sense than that. So, it doesn’t mean we have stopped looking, Bill. It just means that I don’t think realistically we would be coming to you guys with buying an asset versus potentially buying our stock back.

Bill Crow

That is helpful. Finally from me, Mike, simple question, may be difficult to answer, but do you think independent hotels, boutique hotels, Kimpton style hotels, if you will, are more susceptible to short-term rental – taking share away from you?

Mike Barnello

I think when you think about the makeup of the independent consumer versus the brand consumer

Mike Barnello

I think when you think about the makeup of the independent consumer versus the brand consumer, I think the basic difference is the brand person is looking for consistency of product style at the same time they are looking for points. And the independent offerings that we have offer neither, right. We are not about points to somebody who is manic about their points. And the hotels are actually trying to do the opposite.

Instead of being consistently designed they are uniquely designed. So by definition, if somebody is more interested in something different, then I guess perhaps you can say that that person is also more interested in potentially trying something else that is new. It could be like an Airbnb. So it is hard to say exactly who is going there; there is not the greatest data out. But what I would tell you is that it is almost like any new supply.

While our customers are not necessarily the customers that would be staying no-frills limited service hotel, to the extent you add no- frills limited service hotels to the market, that supply takes from whatever the closest competition is, so it ends up bringing down rates, creating availability and then every rung ultimately becomes more and more price-sensitive as they price their business and it affects everyone. So I do think it could be where people end up coming from. But I am not so sure that it has a different effect on us than it does on the whole market because effectively it is supply in the market, which, at some point effects everyone in the market.

Bill Crow

Great, thank you.

Operator

Our next question comes from Lukas Hartwich with Green Street Advisors.

Lukas Hartwich

Thank you. Hey guys. Mike, can you comment on where you think asset values are today and have you seen any move in cap rates?

Mike Barnello

Hasn’t been a ton of trades in Q4, are there has been a couple in Q1. So when you look at the overall list that we put together internally every quarter, you obviously get an average, but I am not so sure it is meaningful enough to draw any conclusions. I think a couple things are out there. I think when there is a trade, sometimes there’s special circumstances in terms of whether it was strategic, whether it was a specialty buy, an offshore buy, etc. So I am not for sure all those translate to just general hotels. And at the same time, while there have been transactions, I don’t want to leave you thinking there’s zero transactions. There is not a huge robust market for people running around trying to buy deals.

There definitely are people in the market, but it is just not as many. So I don’t know how that relates to cap rates. It seems like what the – there is still a strong desire on the part of the seller to get lower cap rates. And with the EBITDAs at many hotels continuing to grow, it wouldn’t seem those would – their desire to get their pricing would shrink. And so a lot of times that creates kind of a stall function where the seller is holding out for perhaps yesteryear’s pricing and the buyer wants to get something a little lower and so you see a lot of dancing, but no transactions.

Lukas Hartwich

Do you have a sense of how long you think that will kind of persist? Or do you think the logjam will clear up in the not-too-distant future?

Mike Barnello

Hard to say. I think that the biggest thing to look at, Lukas, would be the RevPAR trends. As they are with the deceleration you have seen in the last 5 quarters, with the deceleration you have seen in the first six weeks of the year, it is not too encouraging. If that does reverse then I think people might feel differently. But if you look at what has happened, the first six weeks of the year have had RevPAR somewhere in the 1.8% range. When you look at the first six weeks of 2015, the first six weeks were about 7%. So a huge difference. And if that continues, it is hard for me to believe there will be a lot of transactions. If that reverses then it could be a much different story. But right now, glide path doesn’t seem to be too encouraging.

Lukas Hartwich

That is helpful. And then I am just curious, are you seeing any changes in demand from the technology sector?

Mike Barnello

Nothing specific. Nobody is calling us at any of our markets and saying tech is soft. And at some point, if it was big enough we would have heard about it.

Lukas Hartwich

Okay. And then last quarter, there was a focus on the cancellation of short-term bookings. I am just curious if you are seeing any of that activity. Is it the same, has it picked up or has it kind of gone away?

Mike Barnello

Well, I think you are talking about cancellation and rebooking of the transient side, not so much the group side. And if you are talking about the transient, then yes, that has continued. It has continued in really a couple of markets, but in some of our markets, our hotels have had to go as deep as basically overselling the hotel by 50% or even 100% at sometimes because they get that many cancellations, which is kind of a silly game to have to play. And if, as an industry, we were confident enough to put in place cancellation fees, or cancellation timelines that had cancellation fees either upon booking or a week to 10 days before the arrival, that game-playing would slow down, maybe even be eliminated. But until that happens then, yes, you are going to see a lot of people who are actually canceling and rebooking. If you are talking about the group side, no. We saw softer pickup in Q4, but it wasn’t ramp in cancellations. It wasn’t really much cancellations at all.

Lukas Hartwich

Great, that is it for me. Thank you.

Operator

Next here with Wes Golladay with RBC Capital Markets.

Wes Golladay

Hey, guys. I tried to actually hop out of the queue, but real quick sticking with that cancel and rebooking and maybe tossing in Airbnb, how much do those two items do you think artificially depress RevPAR?

Mike Barnello

I am not sure I can put a number on either one of them. But on the cancellation and rebookings, that is just something we have learned to play through at all of our properties. So I don’t have a good answer for you other than that is a terrible situation to be in to have to constantly do this. It makes everything that we’re doing in terms of staffing and guesswork and pricing very difficult.

Wes Golladay

Okay.

Mike Barnello

As far as the issue with Airbnb, it is also – I mean I know you are using that as a proxy for short-term rentals because they are all kind of in the same bucket, but we certainly don’t have a number and we will never know why people don’t necessarily stay in a hotel or with us. But think about it this way, the thing that we have been telling people over the last quarters is that when a random hotel does 5% or 6% RevPAR for an entire year, I think everybody knows intuitively that they don’t do 5% or 6% every single day. What it really means is we do 20% plus RevPAR for 60 or 70 days a year and then the rest we average to be kind of flat. And so, if you think about the fact that short-term rentals become more of an option when hotels are extremely compressed and pricing is highest, maybe you even have minimum length requirements, then potentially people could take a chance and move to a short-term rental. And when they do, instead getting our 20% RevPAR for those 50 to 60 days, if we get 15, 16, 14, and what happens is that kind of cuts into the RevPAR for the year. But again, it is impossible to know exactly the reasons other than when we see the listings and we see pricing that could be happening. But I definitely couldn’t put a figure on it.

Wes Golladay

Okay, thanks a lot.

Operator

Now we will go to Thomas Allen with Morgan Stanley

Thomas Allen

Just one question. Can you give us some more color on what your expectations are for New York? I think you went through every single market except for it. And if we are looking at your RevPAR growth, last year it was down 2% in New York, actually union impact down 11.5% with it. So I guess two questions. One, some of the companies that reported yesterday suggested the market would kind of be up or down low-single-digits, do think that is – in 2016, do you think that is fair? And then, two, how are you thinking about your RevPAR given you are lapping that issue? Thanks.

Mike Barnello

Sure, good morning Thomas I guess a couple things. Sorry I didn’t get into the color on the earlier cities discussion. New York doesn’t really have much of a citywide story. I mean the ` does exist and has business, but it is just a small component of the overall city. So the city doesn’t necessarily get make or break moments because of what is going on in the Javit Center. When you think of this supply, obviously it has been well documented and well discussed what the supply issue is in New York for 2016 and beyond. So we are looking at – if everything does get built on time, which has not happened, we are still talking in the 6% range for supply. So you have that headwind.

When you think about where New York has been you are right on your numbers. When you look at January – that is the last data point we have, January was down about 2.3% in New York. So not a terrific start for New York. It is definitely hard to predict. But it is easy to say it is likely to be negative on a market basis because of those things with supply off and obviously the short-term rental situation. So I think that is probably a fair way to think about it. When you think about our hotels, you are absolutely right. We are expecting to regain the losses that we had in Q3 and part of Q4 because of the union disruption. So RLB will be a But I think the way to look at it is to think about it coming off of the negative 1.9% situation more so than the negative 11%. That is how we are thinking about it. But, yes, we don’t have high hopes New York until we get through the supply situation.

Thomas Allen

Great, thank you.

Operator

Next we got to Anthony Powell with Barclays.

Anthony Powell

Hi, good morning guys. First of all, thanks for a lot for all the new detail on the lease, it is very helpful. When you look at your – this is a follow-up to Smedes question. I guess looking at the RevPAR index or market share for your hotels in your various markets and the fourth quarter in 2015, where do you think you track relative to your comp sets?

Mike Barnello

On an overall basis? Well, we look at – comp set information if we look at – we track really every week and every month and obviously quarter and year. There is a lot of noise in comp sets whether it is our renovation, whether it is comp set renovation, whether it is a comp set management change. So to give out numbers is not necessarily meaningful. We look at how we track it – in position, we have those discussions with our operators really every single week and month. So, but overall we do actually pretty well. In most years it is actually – as you might imagine it is actually fairly flat. Some hotels are up and some hotels are down, with the biggest extremes being the renovation hotels, the ones that are in renovation or came out of renovation. But overall pretty solid. And the reason I say that is because our comp sets obviously match not only the types of hotels they are within the city, but whether they are branded, non-branded, etc. And so, we try to be thoughtful about how we are looking at sets. But they are not necessarily a proxy for what you would see in either the CBD or the overall market.

Anthony Powell

Right, got it. And I guess focusing on San Francisco, in that market you obviously had some brand transitions which are impacting RevPAR. If you can get back to a market of RevPAR growth in that market, do you think that could translate pretty closely to EBITDA gains? Or do you think it is a bit too costly to chase after kind of higher RevPAR there?

Mike Barnello

Well, with all the transitions we are looking at moving to the highest RevPARs we can get. I think that one thing you need to keep in mind of what happened in 2015 is that our game plan was the Park Central, the former Westin, was that by taking the Westin name off the hotel we knew that it was going to cause us a RevPAR decrease. But the game plan was to increase EBITDA, which it did and you can see that further in our case studies, it is a significant movement in EBITDA. And since a lot of the programs we put in place in 2015 were done the minute we took over, we will see further gains in 2016 at that property. When you think about the other properties, we are definitely looking to maximize the RevPAR. But we do look at maximizing both. If you look at getting the best RevPAR it is at what price RevPAR? And that is the question we ask on a big picture basis relative to branding, not branding. You can buy RevPAR but is it the best thing to do from your EBITDA perspective? And so, I would direct you more towards the EBITDA data that we provide to focus on that, knowing that we are trying to achieve the best RevPAR we can that provides the best EBITDA story for the assets and for you guys.

Anthony Powell

All right, that is it for me. Thank you.

Operator

And we got to Chris Woronka with Deutsche Bank.

Chris Woronka

Hey, good morning guys. Appreciate the additional disclosure as well and the data points on January. Could you remind us what your comp is going to be in March versus 2015?

Mike Barnello

Yes. I think we gave that out, the monthly information, Chris. The overall RevPAR for the quarter was about 5.4% for the first quarter of 2015, if that helps. We didn’t give out March.

Chris Woronka

Okay. And then just want to ask you on the OTA question, but in a kind of different way. I mean do you think that is – if we compare kind of – even if we just take the fourth quarter for you guys and you had a slight occupancy decline but rates are up 1.4% outside of the New York. Last cycle we were seeing rate growth 5% even with negative occ. Do you think the OTAs or something else is eating away at pricing power this time?

Mike Barnello

Well, I don’t know that I want to point to any one reason as to why the rates may be off or slightly lower than last cycle. I think there’s a different level of transparency in every cycle. So, it is so hard to actually pinpoint say the OTAs. If you look at what has happened recently the last couple weeks in February, you have seen a big drop in the occupancies. The RevPARs are one thing but look at the occupancies. The occupancies have dropped significantly the first couple weeks of February, which would suggest that demand is off in the first week of February. It’s just the past couple weeks but it is – it is just a data point. When you think about the rates, I know everybody is trying to best job they can to increase rates, we are as well. And hopefully what you suggested the last cycle will continue. But I think with more transparency and more people having different options relative to short-term rentals, I’m not sure it will hold up quite as strong as last cycle. But we will see.

Chris Woronka

Okay, thanks for the color. And then just on the Park Central San Francisco – I know you can’t get into maybe contract specifics. But it is not a really common agreement, right? And so, I guess the question is kind of what are the range of possibilities there long-term? You just signed a five-year extension, but what are some of the things that could happen and whether you guys know something will happen or not? I mean, how could we think about it?

Mike Barnello

You are absolutely right, it is not a common agreement. It is an agreement of one unless they have signed others since. Our perspective is that we are going to see what happens in 2016. And we can obviously evaluate it really month to month. We have the right to get out any time we want. So if it works for us then we will keep it; if it doesn’t work for us then we’ll get out of it. As far as long-term the options we have at that hotel are really no different than we have at most of our hotels, is we can continue to run it as an independent with the flexibility and the cost structure that we have at many of our hotels. We can obviously brand it or we can soft brand it. So that has a different complexity to it in terms of what it would need in terms of physical requirements and then operational requirements. But we absolutely could do it. I mean all our hotels offer that flexibility, but that hotel particularly. It is a lot of rooms in one of the best markets in the country if not the world and there are a lot of brands that are interested in that asset whether it is for a traditional brand or a soft brand. So we still have a lot of possibilities and we have a lot of time to think about it if we are not ready to make a decision.

Chris Woronka

Okay, very good. Thanks, Mike.

Operator

Next questions, we take comes from Ryan Meliker with Canaccord Genuity

Ryan Meliker

Guys, most of my questions have been answered, but similar to what Anthony and Smedes were asking with regards to underperformance versus markets, comp sets, etc. I guess obviously we get this STR data, I know that is not indicative of your submarkets. But clearly throughout 2015 I think all but one of your markets underperformed. I think that is just driven by the market exposure to CBD urban locations relative to the suburbs. But as that is probably going to persist for at least a little while based on where supply growth is coming, have you guys thought at all about trying potentially shifting strategies to any extent to get a little bit more suburban oriented or maybe acquire assets that are a little bit more group heavy so you have more visibility?

I mean, obviously this is – we are in a bit of uncharted territory here where you are not issuing guidance, you don’t seem to have a great deal of confidence in what the future holds. So does that mean that maybe there is a little bit more risk in your portfolio that you perceive today than you did years ago?

Mike Barnello

Well, let’s step back. The reason for no numerical outlook, as mentioned before, it’s got nothing to do with our portfolio, it has got to do with what the macro trends are. So, we are not saying that we are not giving a number of because of the assets that we have, it is the trends that we have seen that suggest that people are just going to chase numbers down for – well, they have last year and will likely do it this year. That is the reason, as far as considering other asset types, other asset locations. We talk about that all the time. Obviously we haven’t pulled the trigger. But I don’t know that we are ready to abandon the cities that we are in because the cities that we are in have not outperformed as they had in the first kind of 30 years of Smith Travel Data, they haven’t been able to do that in the last two.

It is still – we still have assets that are in top shape, they have great locations and they are markets people want to be in. Obviously that is the reason people want to build in those markets too. So we obviously monitor that situation, we look not only at where we are on a RevPAR competitive basis but where we are on an EBITDA basis. And so I would keep pointing you to the leverage situation. I mean, where we are in terms of the RevPAR we produced relative to the EBITDA growth is 3 to 4 times.

And so, I am not necessarily saying we are trying to get lower RevPAR, but we’re trying to maximize the EBITDA. As long as we can do that in those markets we will continue. If we see other markets that we think we can do the same in or better, then we are open to that also. But for right now our strategy is still focusing on those same cities.

Ryan Meliker

All right, that is good color. Thanks, Mike. And then just as a follow-up to that, we have obviously seen over the past couple of years soft brands materialize from the major hotel brand families. Just wondering if you have any color or data that would indicate whether you have seen any of those dynamics negatively impact some of your independent hotels that aren’t affiliated with any of those soft brands?

Mike Barnello

Look, if an independent hotel gets a brand or soft brand then it is a fairly good bet that there will be a RevPAR increase associated with it. These brands, they are successful because they are great distribution channels. So that is to be clear. The question isn’t the distribution channel and getting additional occupancy or even rate; the question is at what point – or I’m sorry, at what price. If you have to spend a lot of money physically to make your asset ready to be branded or soft branded that is my consideration. If you certainly have to pay ongoing fees that generally range in the 8% to 10% range or maybe even more for brands and soft brands, and you have to operate the hotels in ways that may also limit your profitability, you have to factor all those things into consideration.

So it is not just as simple as saying, oh, let’s pop in a soft brand, we can get 5% more RevPAR, that is maybe fine. But if you are focused on the EBITDA you have to consider all the other things I just mentioned as well. And if it is the best thing for you then it might make sense. It worked for us at the Hotel Chicago. Could it work at other properties? Maybe. But it might not work at all. So our job is to kind of fit the pieces of the puzzle together in a way that makes the most sense for the shareholder.

Ryan Meliker

Sure. And that makes a ton of sense. I guess I was coming at it from another direction, which is if some of the independents in your market select to increase their soft branding, does that have a material impact on your ability to drive RevPAR at your independent hotels? It sounds like the answer is it does impact share to some extent.

Mike Barnello

I guess it could. I mean, first of all, we don’t see a ton of that. I’m actually trying to think of where we have seen that. I am not coming up with a lot of examples in our comp set. It could happen in the market, it doesn’t necessarily mean it has happened in our comp set. So – but, look, anytime that any set does something to enhance itself, whether it is a brand, then by definition it could have the effect of hurting us. But it is not like I could point to a bunch of markets and hotels that we have seen that happen in.

Ryan Meliker

Fair enough. Thanks, Mike.

Operator

And your final question comes from Rich Hightower with Evercore ISI.

Rich Hightower

Hey guys, good morning. Thanks for taking the question here. A lot of them have been answered at this point, but just a quick question on sort of the guidance philosophy as we progress throughout the year. Is there a point during the year at which you think the view might change where you might be able to provide a little more solid color on what remains in the year?

Mike Barnello

Look, we are never going to say never. But our job is to present you guys with as much color as we can. So hopefully we did that as much as we could without giving a numerical range. Could something happen in the rest of the year that would change our view on that? Absolutely. And when we see it we will sort of let you know. But it is going to surround things like we talked about, which is where demand has shifted, where RevPAR is going. And when we see that and we feel comfortable with it then we also evaluate whether it is time to take a different view on what we offer in terms of our RevPAR outlooks. But you will get our thoughts either way, whether it comes with a number or not it is hard to say.

Rich Hightower

Okay. I guess one of my key takeaways today is that sort of implicit in LaSalle’s current policy is that whoever has provided guidance – other companies out there that have provided guidance, I mean you just think they are being maybe a little too positive. Is that an accurate read of kind of how you see things? And another implication being that you just think it is a bad policy to put out a number and then, as you have described it, chase it down throughout the rest of the year?

Mike Barnello

It’s hard to comment on how everybody else’s – what everybody else’s views are. I can tell you historically a couple things. I mean we and pretty much every management team chased the numbers down in 2015, so you have that historical view. When you think about visibility, I think it is important for investors, and it is important for the sell side to keep in mind the visibility that we have as a industry. I know a lot of people also invest in multi-family or office industrial, et cetera. And their view is at the beginning of the year call it 85% to 95% of their business is already on the books.

So they have a pretty good indication of what the year looks like. When you think about the hotel business, when you think about our outlook right now, anywhere from 15% to 20% of our business is on the books for the year. And of that 15% to 20% of the business it can all cancel. Now some of them may owe us a fee, but they can all go away. So, on one hand when you think about talking about visibility and ranges, some people may question how a lot of people in the business might be off in their ranges. On the other hand, if you’ve really thought about the visibility that we all have, in some respect it’s amazing that we are even close when we do give outlook to the original outlook because of the fact that we have very little on the books to begin with.

So we are aware of that; obviously the closer we get you feel like it is – we are better. But I would say what we said before to Rich and the other guys which is we thought we had decent visibility in Q4 and yet things changed more rapidly than we anticipated and I think everybody was surprised at the downside. Now will that happen in Q1 and the other quarters in 2016? Hard to say what will happen with the peers. But I am not so sure that we thought the first six weeks would start the year the same way they started out, which has been pretty discouraging. So, will that change in the next quarter or three quarters? Hard to say. But if it does we will obviously comment on it.

Rich Hightower

Okay, thank you, Mike.

Operator

And now I would like to turn it back to our speakers for any additional or closing remarks.

Mike Barnello

Thanks, Alan. Thanks for listening to the fourth quarter earnings call. We look forward to seeing many of you over the next month. We will talk to you again in April during our first quarter call. Thanks.

Operator

And that thus conclude today’s conference. We thank everyone again for their participation.

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