Chesapeake Lodging Trust's (CHSP) CEO James Francis on Q1 2016 Results - Earnings Call Transcript

| About: Chesapeake Lodging (CHSP)

Chesapeake Lodging Trust (NYSE:CHSP)

Q1 2016 Results Earnings Conference Call

April 28, 2016, 05:00 PM ET

Executives

Douglas Vicari - Executive Vice President and Chief Financial Officer

James Francis - President and Chief Executive Officer

Graham Wootten - Senior Vice President, Chief Accounting Officer and Secretary

Analysts

Austin Wurschmidt - KeyBanc Capital Markets Inc

Chris Woronka - Deutsche Bank

Operator

Good afternoon. My name is Melody, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Chesapeake Lodging Trust First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Mr. Vicari, you may begin your call.

Douglas Vicari

Thank you, Melody. Good afternoon and welcome to the Chesapeake Lodging Trust first quarter 2016 earnings call. This is Doug Vicari, Executive Vice President and CFO of Chesapeake. Also on the call this afternoon are Jim Francis, our President and CEO; and Graham Wootten, our Chief Accounting Officer.

As is our custom, I’ll begin with a brief overview of our quarter, including a review of our consolidated results, our summary hotel operating performance, our financial position and an update on our near-term outlook.

After I conclude my commentary, Jim will provide greater detail on the performance of our hotel portfolio. He will also provide some general thoughts on the macro industry trends and more specifics regarding our outlook for our hotel performance.

As a reminder, any statements we make this afternoon about future results and performance or plans and objectives are forward-looking. Actual results may vary as a result of factors, risks and uncertainties over which we have no control. And with that housekeeping behind us, let me begin with a brief review of our highlights and consolidated results for the quarter.

So for the quarter, we reported total revenue of $140.6 million and net income available to common shareholders of $7.6 million or $0.13 per diluted share. Our adjusted corporate EBITDA was $34.8 million, and our adjusted funds from operations were $26 million or $0.44 per diluted share.

Let me now move on briefly some of our key hotel operating statistics. We continue to report our hotel operating trends on a pro forma basis, as if we owned the hotels throughout the comparison periods.

And for the quarter, our portfolio of 22 hotels produced RevPAR of $170.35, that represents a very strong increase of 10.1% over the prior year that was driven by occupancy of 78.8% and an average daily rate of $216.28.

These revenue trends resulted in adjusted hotel EBITDA of $40.1 million and our adjusted hotel EBITDA margin was a very strong 28.5%, which is a 360 base increase over the prior year.

Again, we are pleased with our results for the quarter, our strong beat [ph] versus our guidance have provided a solid start 2016. Jim, will provide more detailed information on the individual hotel performance in his commentary in a few moments. But as a general rule, we remain well-positioned with both our hotels and our markets as we navigate through 2016.

Let move on to capital markets activity and our balance sheet. We continue to be quite with regard to debt and equity capital activities within the quarter. Specifically, we did not sell any common shares under our ATM program, nor that we utilized our share repurchase program. We will continue to evaluate our capital allocation strategy and options as we work through the year.

We continue to see strong improvement in our balance sheet and financial position as we ended the quarter. Our balance sheet now reflects $47 million of cash and cash equivalents, while our total assets at quarter end were $2,83.9 [ph] billion and that includes $1.945.3 billion of real estate assets. Our long-term debt was $777.5 million and our shareholders equity was $1,195.2 billion.

Our leverage ratio at quarter end was 31.9%, our fixed cover charge ratio was a very strong 3.23 times and our net debt-to-EBITDA ratio was 4 times. We currently estimate we do have investment capacity based upon our cash position and our targeted leverage ratios. However, while we do have some capacity we will be evaluating how we allocate capital in the near-term driven by our blended overall cost of capital, our current and projected operating performance, as well as current investor sentiment.

And importantly, we remain confident and committed to our strong divided payout performance, which is currently set at a quarterly payout rate of $0.40 per share, this reflects a mid 6% yield based upon recent stock prices.

Now let me update you on some post-quarter events. On April 6, we paid down our mortgage loan on Hyatt Regency Boston, using our revolving credit facility. We are in discussions with a lender and expect to obtain a commitment letter for a new mortgage loan for the property. We will provide the market with more specific information on this loan in the very near term.

Additionally, on April 14, we sold a five-room villa building and associated land parcel at our Hyatt Centric in Santa Barbara California for $2.1 million. As you may recall, we purchased this building as part of our acquisition of the main hotel and we expect to record a small gain the second quarter.

Now let just spend a couple of minutes updating you on our 2016 outlook. Today, based upon our recent results, we are adjusting our full-year 2016 outlook that we provided previously to the markets. We expect to generate adjusted corporate EBITDA ranging between $193.6 million and $200.1 million, and our AFFO available to common shareholders will now range from $2.52 to $2.62 per diluted share.

Consistent with our past practices, this guidance does not reflect any future hotel acquisitions or any future dispositions. We are maintaining our full year 2016 RevPAR guidance with our range for our 22 hotel portfolio between 5% to 7%. We also now expect our second quarter RevPAR increase for our portfolio to be in the range of 4% to 6%.

This top line growth is expected to result in the second quarter adjusted corporate EBITDA ranging between $56.7 million to $59.2 million and our AFFO associated with this – with that EBITDA and with that RevPAR growth will now range between $0.72 and $0.76 per diluted share.

Let me now turn the call over to Jim to provide more color on this outlook for '16, as well as review our recent hotel performance and some current industry trends. Jim?

James Francis

Thanks, Doug. As Doug has highlighted, our portfolio performed very well and above expectations in the first quarter and we continue to expect in the medium term solid growth for our well positioned and largely renovated portfolio.

While we clearly understand the lodging cycle is maturing, and macroeconomic conditions have softened, leading to RevPAR growth decelerating for the industry, we still expect good growth for our assets this year and first quarter results have reflected the expectation.

Our views are based on assumption of modest economic growth, continued jobs growth, the strengthening of household balance sheet, which ultimately will increase consumer spending, and manageable supply growth of new hotels in the major markets where we are focused. In other words, we are not forecasting a recession in the United States in the near term.

When we announced our guidance for the first quarter and full year this was met with skepticism. While we understand the skepticism given the macroeconomic uncertainties, we expected to have a very strong Q1 and we are able to exceed those expectations with 10.1% RevPAR growth and over 360 basis points increase in margins, resulting in a 26% increase in hotel EBITDA.

Our results were enhanced by the renovation impacts that were reported in Q1 last year. We were certainly pleased with these results. And while the majority of our RevPAR growth was occupancy driven, it should be noted that our modest rate growth was heavily impacted by our two Chicago properties and our revenue strategy at the Royal Palm to drive occupancy at reduce rates. Excluding these three hotels, the rate growth in the remainder of the portfolio was approximately 4.5%.

Q2 look solid, albeit the trends, as expected are not at the level of Q1. We expect our RevPAR growth to be in the 4% to 6% range. We also realized that given the current economic and industry dynamics its very difficult to forecast transient business beyond a month or two in advance.

However, our transient revenue pace for Q2 is currently up approximately 8% over same time last year, driven by solid room rate gains via our aggressive revenue management strategies. Our group revenue on the books for Q2 is up approximately 10%, again driven by aggressive room rate production as part of our overall revenue management programs.

Our current projections for the second half of the year are for mid single digit RevPAR growth. Again, we acknowledge that transient business has become much more difficult to forecast. That said, for the full year our group revenue is expected to increase just under 10% compared to the same time last year with Q2 and Q3 stronger than Q4.

Our group ADR is expected to increase approximately 6%, city-wide's for 2016 are generally stronger than 2015 in most of our major markets with the only meaningful exception being Chicago, which is materially off in the first half of the year and modestly improves above 2015 in the back half. Given these group and city-wide trends in the compression that should result, we are reaffirming our full year guidance.

Now let me provide a little more color on Chesapeake's markets. San Francisco continues to be a market with positive long-term supply demand fundamentals. 2016 is expected to be a good year and we're off to a great start in Q1.

Our pre-book strategies for the Super Bowl worked very well for our four San Francisco properties. We were at or near sold-out levels at all four properties with average rates over $500.

We expect strong group trends across the year with the exception of Q4, which has been accounted for in our projections. This group base is expected to create compression and allow us to increase ADR this year.

Our Q1 RevPAR growth was well into the double-digit in Sans Francisco and while this growth will moderate the remainder of the year we still expect solid single digit growth moving forward.

We expect the Boston market to continue its above industry performance for the full year 2016 with a healthy convention calendar and limited supply growth competing with our properties.

With 2016 and beyond looking strong from a group perspective, Boston is expected to be one of the stronger markets in the US over the next few years. Our Downtown Hyatt performed very well in Q1 with double-digit growth and we expect a very solid single digit growth remainder of the year.

And while Newton underperformed in Q1 due to property level management issues, we expect to turn this performance around by the second half of the year and I've already implemented the required changes.

In Chicago, as previously mentioned based on the timing of city-wide's in 2016, the first half of the year is expected to be much weaker than the second half. Q1 as expected showed negative single digit RevPAR growth.

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We expect Q2 to improve to flat, to slightly negative growth and in the second half of the year to generate modestly positive growth based on city-wide's and group pace.

In Miami, at our Royal Palm Hotel, Q1, while highly competitive with the new luxury supply additions was solid given market conditions. We significantly increased occupancy and ran over 97% and EBITDA margin growth was over 600 basis points.

We continue to be pleased with our revenue management strategies, direct sales efforts with group bookings continued to be encouraging, particularly in the traditionally weaker summer months and our continued refinement of the overall operation to drive efficiencies.

In New Orleans, we own the W French Quarter which produces RevPAR results at the very top end of the market. Given its current high performance level for 2016, we expect modest growth from French Quarter.

At our second hotel, the Le Meridien, group pace has picked up meaningfully and we have deployed numerous transient focused strategies to introduce the customer to our new product. Q1 was a very good start to the year, with 10% RevPAR growth and we expect strong double-digit growth to continue.

Out west in Denver, our group pace is strong for 2016 with group revenues expected to increase over 10% for the balance of the year compared to same time last year. Q1 was soft as expected, based on the timing of city-wide's, but the remaining three quarters are expected to be very robust with high single digit RevPAR growth as guests enjoy our new public areas and expanded meeting space offerings.

Our LA properties, including the Hilton Checkers and our Ace Hotel and Theater, as well as the Hyatt Santa Barbara, downtown LA continues to be a robust market. Our two Downtown hotels for 2016 was very solid with city-wide's up and the growth of the Downtown market expected to continue. In Q1 we generated double-digit RevPAR growth in both hotels and these strong trends are expected to continue.

In Santa Barbara, we continue to focus on correcting the revenue management mistakes made at the property in 2015 with the replacement of some of the on-site management personnel. With these changes we expect strong results in '16 and in Q1 we generated RevPAR growth in the double-digits.

In Chesapeake’s smaller markets, our Seattle RevPAR growth for 2016 is expected to be in the mid-to-upper single-digits, as Seattle remains a solid market for us. Q1 was slow, but the future quarters are expected to be stronger.

In DC, our RevPAR growth is expected to be in the low to mid single-digits. In New York, pricing remains a challenge and RevPAR growth is expected to be modest, but we did see positive growth in our New York City assets in Q1 and we expect this modest growth to continue.

San Diego continues to be a strong market for us and we expect mid to upper single digit RevPAR growth from both of our hotels. Q1 was solid at Mission Bay, but slowdown town at the Indigo, as expected, due to the timing of city-wide's.

The indigo is expected to turnaround meaningfully in the coming quarters based on the timing of city-wide's and group pace which are stronger year-over-year for the remaining quarters.

And finally in Minneapolis, we expect mid single-digit growth and while Q1 was flat, the remainder of the year looks stronger.

In summary, our portfolio performed well in Q1, is in excellent physical shape and we have a strong footprint with much of our EBITDA located in the markets that we believe will have the most favorable fundamentals in 2016.

With that, I’ll open it up to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Austin Wurschmidt [KeyBanc Capital Markets Inc]

Austin Wurschmidt

Hi guys, good evening. Thanks for taking the question. I was just curious, you know, it seems like the first quarter was really good. You beat expectations pretty handily here. What's kind of holding you back, I guess, from raising your full-year guidance by the commensurate amount of the first quarter beat?

James Francis

Quite frankly, it's directly related to forecasting transient ADR growth. And we feel very comfortable with our group projections. We've had no slippage in group since we - leading in a quarter or two before the year started and then going this far into the year.

So group remains solid. There is no – there doesn't seem to be any change in the dynamics, in any meaningful way of our group. I mean, no meaningful additional slippage or those kinds of things.

And so we're comfortable with that, but we're conservative, I think, hopefully conservative the rest of the year, but just cautious because we know, plus or minus, where we can end up in occupancy, but it's very difficult for us to price transient rates at this time, more than the next month or so.

Austin Wurschmidt

That’s certainly fair. Any particular markets that you are finding it more difficult to drive to rate of would you say that the softness is fairly broad based?

James Francis

I would say that the transient softness is fairly evenly across the board. Though Chicago certainly, again, we talk about transient but of course transient is directly related to group, right, because as we have more group and compress the hotel, then no matter what the level of demand on the transient side, we have less room to fill in and potentially a stronger rate pattern.

So with said, I would say its relatively difficult to forecast transient rates across most of the markets at this point in time. Chicago and then our specific strategy at the Royal Palm certainly square results meaningfully because those hotels and those markets are often ADR significantly, but then relative the other markets, I would say for the most part, its pretty evenly spread. I don’t see any meaningfully difference on transient.

Again, it depends on group in any given month and they depend on group that’s in the market, but I think the dynamics of what's going on are pretty evenly spread around.

Austin Wurschmidt

Thanks for the color. And then, just curious, when you look at the renovated hotels that kind of drove a little bit of a tailwind here in the first quarter, I think you have a little bit left in the second quarter. But when you think about how you underwrote those renovations and the ramp in EBITDA, how much additional up side do you think you have as you start to face more difficult comps come maybe later in the year, and even into next year, with what's particularly going on in San Francisco at the Moscone Center?

James Francis

I would not say beyond this quarter there's a meaningful upside from the renovations. Certainly at Fisherman's Wharf we have a little more up side in Q2 because that was a more extended renovation. But these were not major repositioning and brand changes, right, that we did earlier in time, a couple of years ago, which may have a longer time line to them on the up side. But these were room renovations.

And so in Boston and then Liberty in San Francisco, I mean, they ramp right back up and we got the pop in the first quarter. I can't say that from a renovation perspective that there's any meaningful up side beyond that. In Fisherman's Wharf there's a little bit certainly in Q2 but that's really it. And that doesn't have a meaningful impact on the overall portfolio numbers in Q2.

You as you mentioned year-over-year changes. The only thing I would say is as we look later in the year, we did have - as everyone is aware, we did have a pretty weak fourth quarter last year. So some of the comps, while Q3 started to tail off and then Q4 was tough.

So I'm just highlighting the point that I'm not sure comps are getting more difficult later in the year. In fact, I'd say it's the opposite because we did have weak performance last year.

Austin Wurschmidt

That’s fair. Thanks for taking the questions.

James Francis

Sure.

Operator

And your next question comes from the line of Chris Woronka [Deutsche Bank]

Chris Woronka

Hey, good afternoon, guys. Do you have kind of where RevPAR would have been if you, I guess, take out San Francisco, whether it's just Super Bowl or maybe all of February? And then, is there a benefit from the gas leaks that you can tell going on right now?

James Francis

Yes, let me provide it to you this way. I don't specifically have just excluding all of San Francisco, but what I can say is that the 10% plus or minus RevPAR growth without the renovation tailwinds is somewhere in the 6% range, 5.5% to 6%. And then, I can say that the Super Bowl itself was roundly 125 basis points plus or minus impact on the quarter.

So you can kind of look at it that way. So call it five and three quarters to six and then minus 125 for the Super Bowl. So you're kind of in the upper 4s if you're kind of looking apples, trying to kind of look at a stabilized apples-to-apples, upper 4s to 5.

And again, downtown - and the answer to the other part of your question, downtown in LA, we don't think there was any real change in our business based on the gas leaks in the different location that may have impacted some of west LA.

But we talked extensively about that with our GMs at our properties and we just didn't see it. I mean, downtown LA is just plain strong. I mean, there is a lot of events in the first quarter, a lot of activity going on, and it's just a really good submarket down there for us.

Chris Woronka

Great. Thanks for the color. Then in Miami, understand there is some new luxury supply, you guys have kind of done a heads and beds strategy which is – it looks like it worked pretty well, do you think is the market going to get to a point where you can maybe shift the strategy a little bit and push rate or do you think the market dynamics kind of keep you on the current pace?

James Francis

I would say that in the near term meaning the next quarter or so or two, I wouldn’t expect market dynamics to change and we'll continue with the heads and beds strategy. The only thing I would highlight when you think about our numbers year-over-year, as we do get to a point in a couple months where the strategy starts to overlap year-to-year.

So the ADR declines that we're seeing in the first quarter this year will start to taper and become - actually there won't be ADR decline, by the time we get say, June timeframe because we put that – we started putting that in place in June of last year.

Chris Woronka

Okay, got you. And then just finally, on Chicago it's a market that I think it kind of a tough grind-it-out market always with supply that can come in. I mean is that, do you think longer term if the market - if you could find the right price, is it a market you want to be in longer term or is it really strategic or is it kind of if you get - if the right price is there, you would exit the market?

James Francis

We have two assets, two decent-size assets there. And certainly whether we would completely exit the market or at least lighten our weighting in the market if we could get what we consider to be a fair price for one of the assets, yes, we would do that.

Chris Woronka

Okay, very good. Thanks, Jim.

James Francis

Sure.

Operator

And your next question comes from the line of Jeff Donnelly.

Q – Unidentified Analyst

Good evening, guys. I'm just curious - like a market like San Francisco's expected to face some significant bumps in 2017 from the Moscone renovation, and New York right now is kind of coping with some softer demand and increased supply. Maybe I'll put you on the spot - if you could hold only one, which of those markets would you prefer to be in the next 24 to 36 months?

James Francis

San Francisco for sure. I just think - Moscone's going to have an impact; there's no question about that. But that's a relatively short-term impact. The overall supply/demand fundamentals - my thinking on the overall supply/demand fundamentals for San Francisco are certainly much stronger than New York, from my perspective.

I mean, I guess you can always worry about a huge tech blowup and some other things. On the other hand, the economy in San Francisco has diversified some over time. But yes, I would certainly think San Francisco's going to be - excluding the first half - a good amount of 2017, San Francisco's a much stronger market.

Q – Unidentified Analyst

And maybe related to that, I guess, how do you think about what's going on with asset prices out there given the dynamics of RevPAR? Maybe to use New York as an example, there haven't been an abundance of deals but have you seen any signs that would show that there's been a material change in some of the New York asset prices, or do you think transaction values there or more broadly have held up better than people think?

James Francis

In New York I think it depends on the asset. I would say location and asset; if you have a very unique asset that may interest a certain kind of buyer and I realize there's only one Waldorf; I don't mean to take it to that extreme. But again, a unique maybe higher-end asset, I think it may trade less on cash flow and cap rate than some other dynamics.

As far as kind of the typical mid-scale to smaller full-service assets, I don't know the amount and I'm not saying it's huge, but I think there's been some downward pressure on pricing there. And again, there's not a tremendous amount of transactions. But I think it would be - we kind of would be burying our head in the sand if we didn't ignore that there's some pressure on pricing on those kinds of assets.

Q – Unidentified Analyst

Do you think that applies to other cities as well, or is it somewhat more unique to New York?

James Francis

I think that's more unique to New York. Again, there haven't been a lot of transactions, but over all, given the macro economic uncertainties, and again, I'm sure you guys are tired of hearing, you hear about it on each call. But the difficulty in forecasting transient ADRs in particular, I think most people have gotten comfortable that certainly the industry isn't falling apart. But certainly RevPAR growth isn't where it was 24 months ago, either.

So for that to have some impact on cap rates, I can't measure it for you, I think there's some mild impacts out there but I think it's probably a little bit larger impact in New York.

Q – Unidentified Analyst

I guess sticking with that, do you think it's fair to say that maybe the reason it's sort of a New York issue is that what's driving that is really the change in the profitability of the assets? It's not really sort of a broad change in credit markets that's changing asset pricing?

James Francis

Yes, I don't think it's so much a credit market-driven thing. I mean, certainly earlier in the year the debt markets were tied up. And I'm not suggesting that they're wide open currently, but certainly the debt markets have improved since last time we spoke and on an earnings call. I don't think that's driving it as much as just the overall cash flow and profitability of kind of the traditional, again, mid-tier to smaller full-service hotel in New York.

Q – Unidentified Analyst

Okay; thank you, guys.

James Francis

Yes.

Operator

[Operator Instructions] And your next question comes from the line of Jeff Donnelly.

Q –Unidentified Analyst

Hi, Jim. You kind of answered this three times but I want to ask you again anyway. You did say in the prepared remarks that you can't really see transient more than a month out. So let me just ask you, what does it look like in the next month?

James Francis

Well, I mean our Q2 over all is about 8% and that - so for the next month we're in that range. Again, it's more occupancy currently than rate growth in that 8%, but we're expecting some mild rate growth.

And it really depends, it does depend specifically on the market and the month based on the relationship to the group that's in the market. But over all for Q2, we're in the 8% range. Again, with most of that, a good amount of that - being on the occupancy side.

Q –Unidentified Analyst

Just to clarify, that's group you're talking about?

James Francis

No, I'm sorry; that's transient. That's transient. Group continues to trend right around 10% and again, the group is actually, as far as the mixture between rate and occupancy, is actually a decent amount of rate growth in that 10% while, again, we're still not seeing a tremendous amount of growth in rate on the transient side.

Q –Unidentified Analyst

Got it; okay. And you called out the Boston Hyatt as being particularly strong. Your peers have had less success in Boston in the first quarter and have actually called out a lot of supply growth; or one in particular has mentioned that. What is it about that hotel that you think is doing better than some of the other hotels in that general?

James Francis

Well in fairness, of course, we did have renovation tailwinds in Q1. But that said, even beyond that as you look at - the city-wides in the Boston market should continue to improve this year beyond Q1.

At this point, I know one or two of the peers are talking about supply. In our location, and you have to also understand, our location from when we bought that hotel till now has improved dramatically and continues to improve with high-end retail, residential, office. So maybe it's the micro sub-market that we're in there in downtown in the Crossing area, and just that improvement over time.

Of course, I think it's a great hotel. We've done a lot of good renovation work on it. And again, in fairness we had a Q1 tailwind but we still expect good, solid upper single digit RevPAR growth without a tailwind as we move throughout the year.

And if you look at city-wides for next year in Boston, it's a real solid positive change over 2016. So we're not seeing supply impact certainly at this point in time. I mean, the Godfrey opened up near us and has had basically no impact on our performance. And we like our location and that asset. It's been good for us and continues to be.

Q –Unidentified Analyst

That makes sense. One more, Jim, if you don't mind. As you look at asset sales, what's your thought on the market for those? What assets might you consider? You just talked about how great Boston is and how much better it is than when you bought it. Is it time to think about harvesting value there?

James Francis

It's a consistent debate that we talk about internally. Certainly Boston was probably the best investment any of us have ever made as far as timing, location, etc., price on the investment. And then what that asset might trade for now.

On the other hand, I don't see in Boston specifically, I certainly don't see any down side coming. And I would say it's certainly one of our top couple of assets. And so for a company our size, which is - we're not huge, downsizing and reaping the benefits, certainly if we saw something in the future that we thought would impact that value, we would seriously consider it. But we're a little more hesitant just because we continue to see very solid up side over the next couple of years.

So we debate it, but no, I wouldn’t say that Boston is on, near the top of our list. We'd like to lighten our weight a little bit in Chicago but again, it would depend on pricing and whether we could get a price that we think we'd be comfortable with one of those assets.

We would be open, again, we're not looking, necessarily pushing it in a hard way. We would be open to selling an asset or both assets in New York, again, if there was an interest at the right kind of price. So I'd say those are the markets we would be most interested in.

I think San Francisco, again, long-term supply, excluding the Moscone Center issue, supply/demand in San Francisco is strong. I think Boston is strong; we're not seeing the supply impact. So I would be hesitant to sell out of those markets unless we got a price from someone that we thought was just too hard to turn down.

Q –Unidentified Analyst

Great; thank you.

James Francis

Yes.

Operator

And your next question comes from the line of Wes Golladay.

Q –Unidentified Analyst

Hello, guys. When you look at the pace, it's up pretty nicely. How much of that do think is driven by the heads in beds being a little bit more defensive versus a better outlook for some of these city-wides coming up?

James Francis

Wes, I'm not sure how to answer that. It's not that I don't want to answer it, I'm not sure I have a great answer. I mean, certainly we're being more cautious given the macro economic landscape. And we are pushing for heads in beds. Is that certainly driven by good city-wide.

Excluding Chicago, for most of our markets the city-wide convention cycle's pretty solid for us this year. And so we feel good about that but we certainly have pushed hard to put as many heads in beds pretty much across the board just because of kind of the macro uncertainty and the difficulty in pricing transient or raising prices in a meaningful way on transient business.

Q –Unidentified Analyst

Okay. And I guess maybe a little more granular I was looking at. You definitely have that nice sub-market in downtown LA. For a market like that, maybe in your Boston sub-market where lodging is definitely soft but I think you have a pretty good position in some of those markets where maybe you are still maybe being aggressive on the revenue management side [indiscernible] those hotels. Is that a fair assumption?

James Francis

Yes. Well, certainly in downtown LA we're more aggressive; no question. And in Boston, I mean, the overall Boston market is a convention market. So we do ebb and flow certainly a little bit with the convention business. But again, we're not seeing the supply impact.

So certainly we're more aggressive in LA; to some extent in Boston, but I would say more in LA. And at the appropriate times in San Francisco. But sometimes, it just depends on the month or the quarter and again, how our group book lays out for the month and what we have open and those kinds of things.

There's no question that revenue management is taking an enormous amount of our focus and time, and certainly more than the early days of the cycle. So it's a constant day-to-day week-to-week evaluation. But in general, we're trying to take risk off the table as we can.

Q –Unidentified Analyst

Okay. Yes, that's kind of what I was trying to get at. Thanks for answering that. Now, looking at the few properties you're changing the management team at, I think you mentioned maybe two of them. Now, what's the turnaround process, or time-wise, for that to get up and running to the optimal level between transitioning, hiring someone new, and then them implementing their system?

James Francis

Well, by the way, I didn't mean to indicate that we were changing and if I did, I misspoke. But I didn't mean to indicate that we're changing management companies and or brands or [indiscernible] management companies.

So we've had some personnel issues at a couple of properties that it's part of our business and it happens from time to time. But every now and then it may have a little bit more of an impact, a negative impact, when it's going the wrong way than we'd hoped. And certainly one of those situations was in Santa Barbara, which we've now made the changes late last year. We started to reap the benefits in Q1.

We've had some problems early this year in Newton and we ultimately replaced the GM, but we're not changing the management company.

So as far as getting up to speed, it really depends on the person that's coming in the door but as long as they're familiar with the management company, the systems, etc., it certainly should not take long. We're talking about 30 days or 60 days kind of time frame.

Q –Unidentified Analyst

Okay, and last one for me, the Royal Palm. You still have some nice margin gains there. How should we look at that through the rest of the year? I imagine it would start to abate more maybe in 3Q and 4Q pretty substantially.

James Francis

That's right. Once you go too far beyond lapping over the year over year, we acquired it in March. Certainly Q2 you're going to have some margin gain, not at the level of Q1, but you have some margin gain. And then it will moderate, certainly, in Q3 and Q4. And again, I'm not saying there won't be any gain, but it'll definitely moderate.

Q –Unidentified Analyst

Okay, thanks for taking the question.

James Francis

Yes, sure.

Operator

[Operator Instructions] And we have no further questions at this time.

Douglas Vicari

All right; thank you, Melody.

A - James Francis

Thank you, everyone.

Douglas Vicari

Thanks, everybody, for being on the call tonight; appreciate it. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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