Host Hotels & Resorts, Inc. Q4 2009 Earnings Call Transcript

| About: Host Hotels (HST)
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Host Hotels & Resorts, Inc. (NYSE:HST) Q4 2009 Earnings Call Transcript February 17, 2010 10:00 AM ET


Greg Larson – EVP, Corporate Strategy and Fund Management

Ed Walter – President and CEO

Larry Harvey – EVP, CFO and Treasurer


Chris Woronka – Deutsche Bank

Josh Attie – Citigroup

Michael Bilerman – Citigroup

Joe Greff – JPMorgan

Will Marks – JMP Securities

Michael Salinsky – RBC Capital Markets

Will Crow – Raymond James


Good day and welcome to the Host Hotels and Resorts, Incorporated fourth quarter 2009 earnings conference call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Executive Vice-President, Mr. Greg Larson. Please go ahead.

Greg Larson

Thank you. Welcome to the Host Hotels and Resorts fourth quarter earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered to be forward-looking statements under Federal Securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements.

Additionally, on today’s call we will discuss certain non-GAAP financial information such as FFO, adjusted EBITDA and comparable hotel results. You can find this information together with reconciliations to the most directly comparable GAAP information in today’s earnings press release, in our 8-K filed with the SEC and on our website at

This morning, Ed Walter, our President and Chief Executive Officer, will provide a brief overview of our fourth quarter results, and then we will describe the current operating environment as well as the company’s outlook for 2010. Larry Harvey, our Chief Financial Officer, will then provide greater detail on our fourth quarter results including regional and market performance. Following their remarks, we will be available to respond to your questions. And now, here is Ed.

Ed Walter

Thanks, Greg. Good morning, everyone. We are very happy to conclude 2009 a year in which we faced exceptional challenges in the travel industry. The difficult year was driven by a weakened economic environment, a declining GDP in business investment as well as increasing unemployment.

Despite the difficult economy, we made considerable progress to strengthening our balance sheet and positioning the company to take advantage of future opportunities. We issued 790 million in equity, 920 million in debt, and completed 200 million in asset sales for a total capital raised of about 1.90 billion. These activities allowed us to repay nearly 900 million in near-term maturities as well as provide additional funds for investment.

Overall, we believe the actions we took in 2009 materially improved the strength of our balance sheet and positioned us well for 2010. So let’s start by talking about our fourth quarter and full year results, and then I’ll discuss our outlook for 2010.

Fourth quarter RevPAR for our comparable hotels decreased 14.6% driven primarily by a decrease in room rate at 12.8%, and a decline in occupancy of 1.3 percentage points. For the full year, comparable RevPAR decreased 19.9% as a result of a 13.5% decrease in average rate combined with a decline in occupancy of 5.4 percentage points compared to where we were in 2008.

Our average rates for the year for our comparable hotels was $172 per night and our average occupancy rate was 66%. Food and beverage revenues at our comparable hotels decreased 15.9% for the quarter due to a decline in banquet business resulting from large scale reductions in group business. For the year, food and beverage revenues decline 20.4%.

Comparable hotel adjusted operating profit margins decreased 430 basis points in the fourth quarter, 520 basis points for the full year, resulting in adjusted EBITDA for Host at 229 million for the quarter, 798 million for the full year. Adjusted EBITDA for the fourth quarter and the full year has been decreased by approximately 41 million due to the unexpected fourth quarter of a potential litigation law relating to the ground lease for our San Antonio Rivercenter hotel.

Our FFO per diluted share was $0.18 for the fourth quarter and $0.51 for the full year. FFO per diluted share was also impacted by the potential litigation loss as well as non-cash impairment charges which will be now at $0.06 for the quarter and $0.28 per share for the full year.

Overall, the favorable trends we experienced in the third quarter accelerated during the fourth quarter as transient occupancy turned positive for the first time this year driven in part by increased special corporate bookings. While weekday performance improved on a relative basis, transient leisure demand remained surprisingly strong into the fourth quarter. As we saw beginning in the third quarter, short-term group bookings continue to improve.

On all fronts, demand is improving on a relative basis, however, we continue to see those improvements at lower room rates compared to the prior year. Starting with our transient business, volume was very strong with an increase in room rates in the fourth quarter of nearly 7% compared to the fourth quarter of 2008, and perhaps even more noteworthy, up almost 1% compared to 2007. These increases compare favorably to the first half of the year where transient occupancy was down over 7% to 2008.

The increase in transient occupancy stemmed primarily from additional demand in both with discount which was up 14% room night, and special corporate segments which were up 6% room night. Although even our higher rated segments were up by a less than in prior quarter, rates continue to be a challenge as the average trends in rates declined by 15% for the quarter which led to an overall transient revenue decline of 9.6%.

Overall for the year, transient demand was down roughly 1%, rate was off by almost 18% and revenues were down by 18.6%. As we project these trends into 2010, we are expecting a solid increase in transient occupancy, although this maybe offset by a decline in transient rate.

Turning to our group business, group room nights for the fourth quarter decreased 14.3%. However, this drop actually reflected significant recovery from the declines that we had anticipated at the beginning of the quarter. The improvement over the course of the quarter resulted from robust short-term group bookings as the net group bookings in the quarter for the quarter were about 90% higher than in the fourth quarter of 2008 and almost 50% higher than what we experienced in the fourth quarter of 2007.

Group business trends have begun to turn the corner as the run rate of declines in group occupancy continues to improve and the outside levels of attrition and cancellation activity are reverting back to historical norms. The average group rate decline 9% for the quarter, which when combined with the decreased in occupancy resulted in a 22% drop in group revenues. Looking at 2010, at this point our forward bookings represent more than 70% of the group room nights we achieved in 2009.

Adjusting our booking pace numbers for the record level of cancellations that occurred in the first half of 2009, our group room night bookings for this year approximately 5% to 6% behind 2009’s pace. Based on the strength of our short-term bookings, we would expect to close much but not all of that gap by yearend.

However, we believe that rate crisis will persist on the group side in 2010, and that the decline in average rate will be higher for groups than on the transient side of our business. This will likely lead to a reduction in group revenues for the year. Off course the final results for both of our group and transient business will depend on the ultimate strength of the recovery and the economy in 2010.

On the asset sale price, in addition to the $200 million in sales we completed last year, we also sold the Sheraton Green Tree [ph] hotel earlier this month for $9 million and recorded a gain of approximately $1 million. This continued our plan of selling non-core properties for significant capital requirements.

Given the current operating environment, tight capital markets for potential buyers and our strong capital position, we have not included any additional dispositions in our guidance for the remainder of the year, although, we still expect to market a few assets this year.

On the investment front, it is interesting to see how the market has developed over the last 12 months. Despite obviously distress in industry and a growing number of loan defaults, the combination of structural complexity in securitized transactions and a little pressure on banks to resolve troubled loan situations has resulted in very few assets actually coming to market.

The bulk of the activity today is occurring in slices of securitized loans either because holders have marked position down enough to permit a sale or a profit, or because that represents the initial level of default in the transaction. At this point, we are pursuing several of these types of investments. While we continue to expect to see more assets come to market, we are less optimistic that we will see -- the opportunities in the near term. Those opportunities we do may be initiated by tactical sellers as opposed to distressed sellers.

As the operating environment stabilizes and begins to improve, we should see deal flow accelerate, but that will likely not occur until later this year or into 2011. Given our successful capital raising efforts, we are well positioned to take advantage of opportunities as they begin to arise. However, while we are fairly confident we’ll acquire assets including debt instruments this year, we have not built any acquisition assumption into our guidance at this point.

Our level of capital spending declined in 2009, although we continue to reinvest in our portfolios to insure that our assets are well positioned for the future. This past year we completed a new ballroom in the Chicago Swissotel, The Ritz-Carlton in Amelia Island, and the Harbor Beach Marriott. These hotels should benefit from the expanded bidding face [ph] in their respective markets as the recovery begins and group business begins to pick up.

Our capital expenditures totaled $85 million for the quarter and $300 million for the full year. Return on investment in repositioning projects totaled $35 million for the quarter and $176 million for the full year. We expect that our capital spending will be approximately $270 million to $300 million in 2010 as we take advantage of a lower cost environment to complete several larger room renovation projects, including the complete repositioning of our San Diego Marina Marriott convention hotel. We do intend to revisit our capital plan – spending plan at mid-year to determine if any other projects should be added.

Now let me spend some time in our outlook for 2010. Economic indicators present a very mixed picture with GDP improving, business investment expected to be relatively flat while unemployment remains high and job growth is not expected to accelerate until next year. Even with the recession ending in 2009, we believe that the pace of recovery in 2010 will be somewhat moderate as concerns over unemployment and consumer spending linger.

Lodging demand is expected to increase, however, this again would be somewhat offset by a moderate increase and supply. The bigger challenge is on the rate side as we begin this year with average rate running around 10% below last year’s level. While comparisons will become easier as we move into the second quarter, we see pricing power returning only slowly on a market-by-market basis as demand begins to improve. Unless we experience a far more robust recovery that is currently anticipated, we would expect to endure a third consecutive year of decline in RevPAR and EBITDA.

In a more favorably scenario, where significant business investment in job growth, which result in flat RevPAR for the full year, we would anticipate the comparable adjusted margin will decline a 175 basis points, leading to adjusted EBITDA of $750 million and FFO per share of $0.57. Assuming the recovery is more modest, we would anticipate RevPAR could be down 5%, which would result in comparable operating margins declining by 350 basis points, adjusted EBITDA of $635 million and FFO per share of $0.41.

Turning to our dividend, we expect to reinstate our regular cash dividend on our common stocks in the amount of penny per share per quarter, and we will continue to pay our quarterly cash dividend on our preferred stocks. In closing, let me say that we do expect to see an economic recovery, and we know from experience that early stage acquisitions tend to outperform. So, we will be aggressively looking for opportunities both domestically and internationally over the next couple of years.

We took significant step last year to improve our balance sheet and position ourselves as opportunities arrived. At the property level, we will closely monitor the level of recovery and work closely with our hotel to ensure we are positioned to take advantage of growth opportunities and improved pricing strategy. We also continue to be diligent in our oversight of property operations to ensure we maximize EBITDA and property cash flow through cost controls.

Thank you. And now I will return the call over to Larry Harvey, our Chief Financial Officer, who will discuss our operating and financial performance in more detail.

Larry Harvey

Thank you, Ed. Let me start by giving you some detail on our comparable hotel RevPAR results. Looking at the portfolio based on property types, our urban hotels performed the best during the fourth quarter with a RevPAR decline of 13.2%. RevPAR for our resort conference hotels decreased 16.5%, while RevPAR at our suburban and airport hotels fell 16.9% and 18.5% respectively.

For the full year, our urban hotels performed the best with a RevPAR decline of 18.5% followed by our suburban hotels, which declined 21.4% and our airport hotels, which fell 21.7%. RevPAR declined 23.3% for our resort conference hotels.

Our top performing market for the fourth quarter was New Orleans with a RevPAR increase of 13.8%. Strong in-house group and transient business contributed to an occupancy increase of over seven percentage points. In addition, the success of the Saints increased fan and media interest, resulting in additional demand for home gains.

The Tampa market continued its strong performance in 2009 with a RevPAR decline of only 3.1%, primarily due to several national sporting events that drove demand, particularly at our Tampa Waterside Marriot, although average daily rates declined 11.8%. The Orlando World Center Marriot outperformed the portfolio with a RevPAR decline of 6.8% as occupancy increased over 370 basis points, while rates fell 12.8%.

The outperformance was driven by stronger leisure demand, group pickup and better than expected attrition. As expected, the Washington DC market continued it’s strong with RevPAR down 8.4% in the fourth quarter. Occupancy was down slightly due to strong government and government related demand while rates fell 8%.

RevPAR for Boston fell 9.2% due to a year-over-year increase in occupancy from strong citywide activity offset by a drop in ADR of 10.1%. Additionally, some hotels were able to draw a significant demand in leisure business as well as short-leave group bookings. The San Francisco market RevPAR fell 12.3% which was much better than our expectations for the quarter. Occupancy was up 210 basis points due to strong transient demand while rates fell 14.9%.

We are also presently surprised by the outperformance of New York City where RevPAR declined 13% versus a third quarter decline of 29.2%. International and domestic leisure travel business transient and short-leave group bookings dropped -- remained higher than 2008 levels by 260 basis points.

RevPAR for the San Diego market fell 18.9% driven by a decline in occupancy of 390 basis points and a 13.7% decline in rates. Lower group demand led to discounting transient rates in order to increase demand. Our two worst markets were Phoenix and Houston where RevPAR fell by 25.7% and 27.2% respectively. Phoenix continues to suffer from the impact of new supply, diminished demand and weak economic fundamentals.

The Houston market suffered in 2009 in relation to 2008 from a spike in demand generated by hurricane Ike. For the year, our top three markets were New Orleans with a RevPAR decline of 3.7%, Washington D.C. with a RevPAR decline of 5.3%, and Tampa with a RevPAR decline of 9.6%. The Chicago market, where RevPAR declined 25.8%, the Orlando market with a decrease of 24.2%, and the Phoenix market with a 24% drop in RevPAR were our weakest performers.

As Ed mentioned in his comments, we have taken advantage of our liquidity and continue to invest in our portfolio. As we discussed some of our expectations for select market in 2010, you will know that some markets will benefit from our 2009 capital plans and others will be affected by the 2010 capital plans. We expect the Miami/Fort Lauderdale market to perform very well.

The outperformance will be driven by the late 2009 Ballroom addition at the Harbor Beach Marriott and demand generated by the Super Bowl and Pro Bowl. Boston will also be a top performer, benefiting from the 2009 renovation at the Sheraton Boston, Boston Marriott Copley Place and the Hyatt Cambridge. In addition, leisure and in-house group demand to help to offset weak citywide activities.

We also expect New York City to outperform in 2010. We believe that occupancy will continue to strengthen across all transient segments, and may allow us to stabilize and eventually increase rates. San Francisco will also perform well, the Ballroom renovation at the San Francisco Marriott Marquis will negatively affect the first quarter but improve fourth quarter comparisons. While the citywide pace is down, transient demand is recovering well.

Markets that will continue to struggle in 2010 includes Phoenix, where substantial decline in group room nights is expected along with the 2.5% increase in supply. The ballrooms at the Ritz-Carlton and Phoenix in the Westin Kierland will be renovated and we are adding a ballroom in Kierland which will be disrupted and further reduce group room nights.

The Hawaiian market will continue to be challenged by the lack of airline capacity and airline price increases. Although we have started to see a recent increase in flights, they are still well below 2007 level. In addition, both of our hotels will undergo room renovations.

The San Diego market will struggle due to a substantial decline in citywide demand and the absorption of the new Hilton that opened in 2009, and room renovation at the San Diego Marina Marriott will also negatively effect our performance.

For our European joint venture, RevPAR calculated in constant euros decreased 13.4% for the quarter. The Westin Palace, Milan, Western Europe and Regina and Venice and The Sheraton Skyline in London outperformed the rest of the portfolio. For the year, RevPAR calculated in constant euros fell 19.9%. We expect the European joint venture portfolio to have RevPAR of +2% to -2% for 2010.

For the fourth quarter, adjusted operating profit margins for our comparable hotels declined 430 basis points. In spite of the difficult comparisons to the fourth quarter of 2008, due to the high levels of contingency plans implemented at that time, the margin performance was very strong. Our managers continue to actively cut discretionary spending and have been proactive in implementing new cost saving measures.

Profit flow through in the rooms department was higher than anticipated due to reductions in controllable expenses and an improvement in productivity. Food and beverage flow through was also quite good due to reductions in cost and improvements in productivity as well, even though the revenue decline was driven by the loss of higher margin banquet and audio-visual revenues.

Overall, wages and benefits decreased 10.4% and unallocated costs declined by 7.8% for the quarter as hotels reduced management headcount and significantly lowered other controllable costs. Utility cost decreased 9.7% through a combination of lower usage, lower rates and the impact of energy saving capital improvements. For the quarter, real estate taxes declined 6.9% while property insurance costs increased by approximately 1.4%.

It is worth noting that we achieved this level of margin performance for the quarter despite the significant negative impact from the treatment of the New York Marriott Marquis ground lease of 50 basis points and a 50% year-over-year decline in cancellation and attrition fees in the quarter, which led to an additional 60 basis points drop in margins.

Looking forward to 2010, we expect occupancy to increase, which will lead to growth in wage and benefit costs, slightly less than inflation. After taking into consideration the benefit productivity gain, we expect unallocated costs to decrease less than inflation except for utilities, where we expect higher growth to an increase in rates in volume due to 2010’s cold winter compared to the mild winter of 2009.

We expect property insurance to increase of inflation, and property taxes to rise in excess of inflation. As a result, we expect comparable hotel adjusted operating profit margins to decrease 175 basis points at a better end of the RevPAR range and decrease 350 basis points at the worst end of the range. I previously mentioned the impact of attrition and cancellation fees in the fourth quarter of 2009 results. For all of 2009, attrition and cancellation fees were approximately $40 million higher than a typical year, adjusting 2009 to a typical year with results in 2010 margins declining by 75 basis points less in the marketing detail of ours [ph].

With respect to our balance sheet, we finished the year with over $1.6 billion of cash and cash equivalents. We recently redeemed the remaining $346 million and 7% Series M senior notes due in August of 2012 and repaid the $124 million mortgage on the Atlanta Marriott Marquis with an interest rate in the loan was set to increase 200 basis points to 9.4%. As result of these repayments, we reduced our outstanding debt by $470 million to approximately $5.4 billion and we currently have approximately $1.2 billion in cash and cash equivalents and 99 assets unencumbered by mortgage debt.

Lastly, I want to briefly comment on the litigation loss detailed in the press release. Our fourth quarter EBITDA and FFO have been reduced by approximately $41 million for the potential loss related to the attempted sale of the land encumbered by a ground lease for the San Antonio Marriott Rivercenter. We are obviously disappointed by the juries’ verdict which is not yet final and is subject to close trial motions. While we certainly appreciate the time that the Jury put into this case, we disagree with the trial court’s interpretation of the ground lease in question and the effect that interpretation and other rulings had on the jury’s deliberations and verdict.

This completes our prepared remarks. We are now interested in answering any questions you may have.

Question-and-Answer Session


Thank you, Mr. Harvey. (Operator Instructions) And we will go first to Chris Woronka with Deutsche Bank.

Chris Woronka – Deutsche Bank

Hi, guys. Quick question on the property tax expectation, what would drive an increase there, is that – I'm guessing it’s based either profits or values, which would seem to be increasing in 2010, is that just local municipalities kind of cranking up the tax rate?

Larry Harvey

Chris, I think you are right. That’s part of it, part of it is that we were able to, one of the reasons our property tax numbers dropped in the fourth quarter as we were successful in some of the appeals that we had mounted over the course of the last couple of years and the benefits of those appeals came into the fourth quarter number. So that was the reason why the fourth quarter was down.

As we look at this year we're still going to be contesting in a number of jurisdictions but I think the problem we are running into is that we know that single family values are down throughout a lot of markets. There is a reluctance on the part of most local governments to increase tax rates, especially as it relates to residential customers.

And so, even though our value should be lower, at the end of the day we are assuming that we're going to pay a bit more. It should be at that as it was a couple of years ago where we really got caught in historically high cash flows in a declining environment. So we should get to the point where we start to moderate and see this go the other way, but we don’t think we're quite there yet.

Chris Woronka – Deutsche Bank

And on the group bookings pace, can you maybe give us just a little bit of color on how that’s trended maybe throughout the fourth quarter and into the first quarter in terms of the, really interested in the booking windows and how short are they, and is there any signs they may begin to lengthen?

Ed Walter

I don’t we're seeing any sign yet that they are beginning to lengthen. I mean, obviously it depends a lot on the size of the group, but I would say as we look back we talk to our asset managers on our properties and then compare this to what we've seen over the course of the last seven to ten years, we are clearly at the short end of the cycle in terms of how closely events are happening compared to when people are booking them. It’s not uncommon to see big events booked within a 30-day timeframe, although I think in general you are seeing the bulk of the business gets booked in a 30- to 60-day timeframe. We’re not yet -- as the occupancy levels that we are seeing in the industry right now, they are still at pretty high level of confidence on the part of most, both that are bookings group events -- they will be able to find a place to have at their hotel.

Now, we continue to start to see some strong performance on the occupancy side where we begin to see occupancy rebuilds, there will come a point, hopefully it won’t be in the too distant future, we are close to start to realize they can’t until the last minute, and we just haven’t got to that point yet.

Chris Woronka – Deutsche Bank

Okay, great. That’s helpful. Thanks.


And we will go next to Josh Attie with Citigroup.

Josh Attie – Citigroup

What’s your philosophy on the ATM program going forward both in terms of using your remaining capacity that you have and also how you would think about using a new program assuming you put one in place this year?

Ed Walter

Well, Josh, I guess, what I would say is as we explain the ATM when we announced it last year, and it’s really our primary way of funding investments over the course of the near term. Now, we have got a fairly good pipeline right now, but having said that there is nothing; we are not closed to an announcement.

There is no deal as imminent yet. I think we have build pretty about where the balance sheet exist at this point relative to the level of cash we have versus the debt maturities that we have paid. And we’ve raised just a little under $300 million in the programs still far which gives us a good basis or a good base for investing over the course of this year.

I think the short answer on the ATM is that we don’t expect in the next quarter or so unless we start to announce some acquisition. We don’t expect to be issuing equity at the same pace that we were last year, and it will moderate a bit. And then as we -- as I relate it to a new program, I guess what I’d say there is, it's a little early to start to contemplate that, I mean at this point what we want to do is sign some acquisitions or other investments to get those dealing. To the extent if that’s successful we would certainly think of a as another program has a way to fund future acquisition but we are not at that point yet.

Josh Attie – Citigroup

Okay. And you mentioned earlier that you might look at debt investments as a way to get acquisitions, can you just elaborate on that a little bit what type of investments you would look at and how you'd pursue those?

Ed Walter

I’d say that there’s a couple of different forms of that type of investments that we'd look at. I am sure many of you know already that a typical securitized deal often comes with a senior notes that’s secured by the real estate or maybe a B notes that’s also secured by the real estate, and then maybe varying levels of mez debt that are not secured by the real estate but rather look to security in the form of the borrowers' ownership interest for their collateral. What you are finding in a lot of situations right now, it's clear that the borrower is probably going to be out of the picture that just because of decline in value has been significant enough that the borrowers not likely to retain any equity interest in the property because the value is not worth to debt.

But what that still means is that there’s opportunities to invest either at the mez debt level or at the B note level. Some of those opportunities will be a route to the real estate. It will be an opportunity to buy that note at a significant discount, and then ultimately through for closure process or some other process end up with control of the property.

In other cases it may just be that where there is an opportunity to invest in one of those securities and get a mid-teens or higher returns, which would be attractive from our perspective. So, each of the transaction tends to be a little bit different, they are actually fairly interesting but they are also fairly complex, but I think that gives you some flavor for what we are looking at.

Michael Bilerman – Citigroup

This is Michael Bilerman speaking. Just going back to the equity for a second, I guess maybe you can give little bit more clarity to the pipeline, I guess, to issue another, I know you had the type -- the ATM in place, to issue another 160 million of stock in the quarter or half having the billion already and having an untapped 600 million revolver, rather than wait for a couple of deals to come into pipe, wait for fundamentals to start to turn, and perhaps let that benefit accrue to the stock price and then issue more equity. I guess, it doesn’t sound anything is imminent, but maybe you can talk a little bit more about why you pulled the trigger on so much capital relative to your base?

Larry Harvey

Well, Michael, I guess, what I would say is I am not certain when we are talking about the $12 billion company, I necessarily look and when you look at the traditional size of an acquisition that we make, which is typically in that $100 million to $300 million range, that would necessarily look at $300 million of capital being raised, is necessarily being out of way [ph] with the norm.

But, I mean, the point I was trying to make, maybe I wasn’t quite so clear about it is that, number one, we do have a pipeline, but there isn’t anything imminent that we don’t intend to issue equity at the same rate that we have been over the next couple of quarters unless we see that pipeline start to materialize in real deal. So, I think, partly it sounds like part of our comment was that it would be prudent to be slower about raising equity capital until we start to see deal flow materialize, and I don’t think we see the road differently from you.

Michael Bilerman – Citigroup

Right, and I think, I guess, I was thinking more so that, that probably would have happened at the end of the third quarter that you would have put the brakes on a little bit of the equity prior to maybe announcing a deal or two. But it sounds like at this point we are at the same ballpark. Is there anything under matter of intense or that you can comment of?

Ed Walter

I don’t want to comment on the status of deal, just because over the years I have found that to comment on anything before it’s done is usually a mistake. The thing I would point out too as you think about the capital we have is that, we have been – part of what we have been doing is trying to make certain we have adequate capacity deals in maturities that we have. Now we’re in great shape on that perspective.

We only have – assuming our exchangeable afflict to us in a couple of months, we only have a little over 300 million come through this year, and we don’t deal our exposure in 2011 that’s much different than that. But remember that part of the drive and the world is changing, but part of the drive that we had over the course of 2009 is to make certain we were adequately prepared to deal with the different debt maturities that we have. And so some of that money that we have already is really targeted to deal with those maturities.

Michael Bilerman – Citigroup

Right. Okay, thank you.


And we will take our next question from Joe Greff with JPMorgan.

Joe Greff – JPMorgan

Good morning guys. You talked about this a little bit but just going back to your 2010 RevPAR outlook. I mean, maybe you can sort of contrast it with maybe how Marriott and Starwood are looking at things on the domestic side and their 2010 outlook is zero to down 3%. Do you look at 2010 differently than they do, is it more group business for you that kind of weighs on the outlook? Is it conservatism or is it a different view of the economy, if you can – give me sort of help reconcile your deal maybe versus some of your peers? And do you think that you underperformed some of the branded guys, given your mix or geographic segments?

Ed Walter

Joe, I would – if I were to be in flip I would probably answer this but generally I think you are seeing the conservatism of an owner who is basically paid and focused on the bottom line as the somewhat normal optimism of the operator to the little bit more top line focus. The truth is that I don’t think there is a huge difference in the way we are looking at next 2010 compared to Marriott and Starwood are. They represent together probably 75% to 80% of our portfolio. So, to the extent that the way the years plays out is closer to the midpoint of their guidance and necessarily the midpoint of ours, you will see that benefit in our performance. I don’t expect that we would really ultimately perform much differently from them.

I don’t know the exact composition of Starwood and Marriott portfolios from a group versus transient perspective. We mentioned the point that we may have a bit more groups in them and I suspect that that’s right. I think in the case of the Marriott portfolio I am sure that when you look at all the large group convention hotels that we own, that they also operate, I suspect that we will have a disproportionate percentage of those. If you look at that in terms of how we compare to the overall market in this area last year we probably ran 37% to 38% of our mix was group, and I think the industry as a whole has been up or upscale average 30% to 31%.

So we are a little bit higher in group, and we area little bit concerned about group for this year just from the standpoint that everything we talked about today and in the past has been that group got hit a lot harder in this downturn than it normally got and frankly then we would have hoped in a way we developed our portfolio.

I suspect that if we do underperform at all it would probably because we have a slightly larger group presence, and it may take a bit longer for that to come back. I think longer term that will -- I see that as a huge benefit. The reality is that that our normal group typically represents 42% to 43% of our overall business. So that’s a 5% plus jump in share that should ultimately come out of our portfolio, or happen to our portfolio the group that covers. And once that starts to turn the corner, we start to see group and it will especially be corporate group comeback. You'll see that reflected in stronger results for those.

Joe Greff – JPMorgan

That’s helpful, Ed. Thank you.


We'll take our next question from Will Marks with JMP Securities.

Will Marks – JMP Securities

Hi, good morning. My question just relates to supply, I don’t think you mentioned supply on the call and I'm wondering how that supply may impact New York. It seems like the year-to-date numbers for the industry in New York are pretty strong but maybe you can just comment on major supply?

Ed Walter

Overall, supply based on what most of the market experts have predicted looked like its going to end up being in that 1.3% to 1.5% level. A lot of that is weighted towards the first part of the year, its logic that with finance. That tree, financial meltdown are finally completed.

As you look across the spectrum of markets that appear to be a bit more challenging, finance in New York and Denver tend to be some of the markets where we've seen more supply coming in, kind of looking at that in a 2009 to 2011 timeframe. That when New York makes that list of, the supply in New York is not really in Manhattan as much as in some of the surrounding neighborhoods and surrounding boroughs. So, ultimately as we look at the New York market, we actually feel fairly good about the ability of New York to absorb what will a downtown market what we are, for New York to absorb that supply.

I mean the reality is for our portfolio for last year we ran well above 80% in terms of occupancy. I think it was around 83% for the full year in New York, was over -- a real close to 90% in the fourth quarter. So New York is one of those markets that we actually think, if you could get a little bit of pickup on the corporate transient side, we have little bit of strength on the group side, that’s the market that could surprise to the upside over the course of 2010.

Will Marks – JMP Securities

Okay. That’s very helpful. Thanks.


And we’ll go next to Michael Salinsky with RBC Capital Markets.

Michael Salinsky – RBC Capital Markets

Hi, good morning. Just a quick question on the group bookings for ’10, can you specify what the rate line is on those on a year-over-year basis?

Ed Walter

Yes, part of the challenge in looking at group booking pace for this -- for 2010 is trying to adjust out the cancellation. But what I would tell you is look at this point that we are probably running plus or minus 5% behind where we were at this time last year.

Michael Salinsky – RBC Capital Markets

Okay, so there is only 5% decline in rates in there. Second question, just in terms of the acquisition pipeline, can you give a sense of how much we’re looking at at this point? I mean is there a significant amount or is it really just one-offs at this point?

Ed Walter

I would say that on the debt side, I am fairly encouraged by the number of transactions that we’re looking at. I guess the way I would describe is that more than the handful, on the fee side it is not. I mean, you are not seeing, as I have said in my prepared comments, you are just not seeing deals go through the process that had come out ready for sale at this point in time. That should change, I mean, you can’t have the number of defaults that we know are reading about and others that we are hearing are imminent, and you can’t have all that happen not either properties ultimately makes the market, but it hasn’t did yet.

Michael Salinsky – RBC Capital Markets

Okay. With those $0.01 dividend statement there, do you anticipate this performance in the fourth quarter has been to pay another special dividends haven’t to have requirements, or do you think of based upon your current outlook that should be pretty good, and once that run rate should be sufficient?

Larry Harvey

I think, I mean realistically the $0.01 level should be all that we pay out this year except for the fact that, I’m commented that we are still going to try to sell some assets this year. We just weren’t confident about the likelihood of those happening that we didn’t think there was any reason to include them in our expectations for the year.

To the extent that some of those sales might happen at levels where they would trigger significant capital gains, then that might be the one reason why there would be a need for special dividend because taxable income would have gone up by a meaningful amount, but other than that there would be no – at this point wouldn’t accept that we would have a need to distribute more than the penny for the quarter.

Michael Salinsky – RBC Capital Markets

Okay. Strongly I know you are primarily an unsecured borrowers, but I am just curious as to what you – if you seen any kind of strengthening in the secured debt markets?

Larry Harvey

Yes, on the secured debt side, with respect to availability there has been a lot progress made, I think you have – there are some other banks out there that will principal CMBS debt, which would be in – depending on maturities in the six to 6.5 range at roughly 50% to 55% loan to value. You still have like companies out there on the higher end of, more of a 6.5 to 7.5 but there is availability out there. And those rates are significantly better as you can imagine they were a year ago.

Michael Salinsky – RBC Capital Markets

Thank you.


And we'll go next to Will Crow with Raymond James.

Will Crow – Raymond James

Good morning, guys. Two quick questions. Larry, the CapEx guidance for 2010, how much of that is kind of recurring maintenance and how much is NOI provision?

Larry Harvey

I think what I’d probably say is that, well, I think the true ROI component of that is probably in the 15% range. I think that is -- and the bulk of it is primarily for targeted maintenance this year.

Will Crow – Raymond James

And then could you guys give us an update on how your Ritz-Carltons are performing, what’s the demand like, is the kind of the stigma gone away, what the group bookings look like as you think about, not so much 2010, but more 2011 and 2012, if you could just kind of cover that topic?

Ed Walter

Bill, that’s good question because luxury is obviously one of the key part of our portfolio. It has dragged us down in a way those hotels performed last year. It is interesting to watch them and the trends on the luxury side, luxury did, I would say it did better, that would be an overstatement that they did better than the rest of the portfolio in the fourth quarter, but it certainly did a lot better than it had done in the first three quarters of the year.

And as you got towards December and into January, and I think some of this is because if you think about the luxury segment especially the Ritz-Carlton Hotels that have own, we have a big lot [ph] of presence. We’ve actually seen that, that segment has outperformed the rest of the company in both the months of December and January.

Now I think some of that is timing and some of that is the fact -- again reflects back to that last year was fairly ugly on the luxury side because those are the hotels that got hit first by the some of the politics around the same reasons for some other areas, but more than short is that we’re actually expecting for our whole portfolio this year for likely to probably do a little bit better than the portfolio as a whole.

We’re actually thinking of Florida hotels based on their budgets and their performance here so far, individually there was only six weeks in the year, so you don’t really get a lot out of that. But so far our RevPAR which is in Florida are expecting to have positive RevPAR for the year. So I think what that tells you is that they are doing a little – they are doing better on the demand side. They are still down meaningfully in terms of rate, so that’s going to a challenge and it probably take them a while to rebuild on that front.

There are still some segments in the industry that are scared to go to a luxury hotel, and so I suspect we’ll fight back for another year. We don’t – and our risk is we do at for season, we don’t get a lot of bookings that are multiple years out, that’s a typical corporate customer in terms of what close they are in. So I don’t know that you can draw a lot of comfort for what you are see in ’11 and ’12 but the bookings looking out further are inline with what you would expect in a normal year. They don’t reflect some of the weakness in all of that.

Will Crow – Raymond James

Okay. That’s helpful. Thanks guys.


And that’s all the time we have for questions. I would like to turn the conference over to Mr. Ed Walter for any closing remarks.

Ed Walter

Great. Well, thank you everybody for joining us on this call today. We appreciate the opportunity to talk about our results for 2009. More importantly, we look forward to talking with you in late April to discuss how 2010 is starting off and as how we see the rest of 2010. Thank you.


And this concludes today’s conference call. We thank you for your participation.

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