LaSalle Hotel Properties' (LHO) CEO Mike Barnello on Q4 2016 Results - Earnings Call Transcript

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LaSalle Hotel Properties (NYSE:LHO) Q4 2016 Earnings Conference Call February 23, 2017 2:00 PM ET

Executives

Max Leinweber - VP, Finance and Asset Management

Mike Barnello - President and CEO

Ken Fuller - EVP and CFO

Analysts

Smedes Rose - Citi

Shaun Kelley - Bank of America

Thomas Allen - Morgan Stanley

Wes Golladay - RBC Capital Markets

Bill Crow - Raymond James

Chris Woronka - Deutsche Bank

Michael Balzary - Baird

Ryan Meliker - Canaccord Genuity

Anthony Powell - Barclays

Lukas Hartwich - Green Street Advisors

Neil Malkin - RBC Capital Markets

Operator

Good day and welcome to the LHO Fourth Quarter 2016 Earnings Call. At this time, I would like to turn the conference over to Max Leinweber, Vice President of Finance and Asset Management. Please go ahead, sir.

Max Leinweber

Thank you, Matt. Good afternoon, everyone and welcome to the fourth quarter 2016 earnings call and webcast for LaSalle Hotel Properties. I'm here today with Mike Barnello, our President and CEO and Ken Fuller, our CFO. Mike will discuss our fourth quarter results and activities. Then he will provide an overview of the industry. Ken will provide details on our portfolio performance and an update on 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 with 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 our fourth quarter call on what we know is a very busy earnings day. Let's begin this afternoon with a short recap of last year. In 2016 we sold two non-core assets, debuted the newly redeveloped Masan & Rook Hotel in DC, expanded our hotel EBITDA margins to a new high, opportunistically issued preferred shares at a record low coupon for a lodging REIT and repaid three mortgages, which significantly lowered our average interest rate.

Thus far in 2017, we have sold another non-core asset, the Hotel Deca in Seattle and we refinanced our credit facility. Overall the hotels continue to perform well despite a slow growth operating environment. We have also enhanced our already well positioned balance sheet. We're very proud of these accomplishments. With, that let's zoom in on our Q4, which had 2.5% RevPAR growth, 1% expense growth and 42 basis points of hotel EBITDA margin expansion.

While we benefited again from recovery of last year's lost business of Park Central New York and WestHouse, our results excluding these hotels still reflected moderate RevPAR growth and fantastic expense management. We also benefitted from great food and beverage margin improvement due our ongoing initiatives in that department. Despite a revenue decline of approximately 4%, SMB expenses were down over 6% leading to food and beverage margin expansion of near 200 basis points.

Our asset managers and our teams across the portfolio continue to relentlessly pursue opportunities to operate efficiently in each department, while delivering a great product experience to the guests at our hotels. These efforts are reflected in our standout margins and our impressively low expense growth. Excluding Park Central New York and WestHouse, our expenses grew by less than 1% in Q4.

Turning to capital, we invested $27 million in our portfolio during the quarter, partially for the rooms-renovation we just completed at L'Auberge Del Mar and Embassy Suites Philadelphia. For all of 2016, we invested $102 million of CapEx. For 2017 we expect to invest between $130 million and $170 of CapEx in our properties, which is heavily weighted towards renovations beginning in the fourth quarter. Several of these renovations are at hotels in San Francisco. Given the known headwinds in that market this year and historic strength in citywides coming into 2019, our plans to renovate these hotels while displacement is relatively modest. At the beginning of our call, we mentioned our portfolio performed well in a slow growth operating environment, which is the product of steady deceleration in demand and RevPAR growth for industry over the last two years.

Let’s now review the specific results for the industry and for LaSalle. When we spoke on our third quarter call, we were three weeks into October, a month that ended with 1.6% RevPAR growth for industry, which is the lowest growth of any month last year. Conversely, November came in 5.9% RevPAR growth for the industry, which is the highest increase of any month last year. As we've often said, demand is the wildcard when it comes to picking RevPAR and November's demand growth of more than 4% was the largest monthly demand change for the industry since September of '15, and the second largest since February of '15. We had thought November would be a good month, but we were pleasantly surprised by how strong it ended.

From there, December basically fell in line with the trend of the first 10 months, turning in 2.3% RevPAR growth on flat occupancy. Ultimately Q4 industry RevPAR increased 3.2%, which is the eighth time in the last nine quarters that RevPAR growth has decelerated. More importantly, RevPAR for the urban and upper upscale segments continue to lag the industry for both the fourth quarter and the full year. Urban RevPAR was 1.6% in Q4 and 2.1% for the year. Upper upscale RevPAR was 1.5% in Q4 and 2.4% for 2016. We are pleased that our RevPAR growth is 2.5% for the quarter and for the year outperformed both segments of the industry.

Looking more closely at the mix for '16, industry group RevPAR increased by 2.1% and transient RevPAR grew by 2.3%. Our RevPAR performance was similar with group and transient both up approximately 2%. For LaSalle, our growth has driven primarily by transient occupancy and group rate.

Now we've had an opportunity to reflect on our Company's performance last year, we'd like to move the conversation forward into '17 and discuss the state of the lodging industry. At this time, we do not plan on providing official numerical RevPAR range for 2017. However, as we've always done, we'll continue to provide our perspective on the current market conditions based on the information we have today, just to provide a frame of reference regarding our portfolio for the coming year. At this point in the year, our portfolio usually has only about 30% of its annual revenue on books, and a good portion of that can cancel. In order to better understand the current lodging environment, let's break RevPAR down into components, supply and demand.

Supply is reasonably predictable this year, because projects needs to be substantially complete very soon in order to have an impact this year. With the exception of San Francisco and Key West, which have supply growth between 1% and 1.5%, supply in all of our markets expected to be higher than the industry average.

In addition, except for Boston and Key West, supply growth in all of our markets is accelerating. The most extreme example of this is within our sub-markets of L.A., which actually had a supply reduction and more than 3% in ’16, due to the Hyatt Century City closure. This was followed up by supply growth of approximately 6.5% in 2017. With supply as a backdrop, it’s pretty clear the RevPAR strength will 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. We’ll start with group. As mentioned last year, citywides are down in most of our markets in 2017. The great sponsor of citywides remain Boston, DC, Seattle, and to a lesser extent, Chicago. After examining, how the citywides look on our markets this year, it's not surprising our own group pace for ’17 is currently down by 1%. While we’re encouraged our pace has improved since October, where it was down 4%, we note that an on duration in January overall had a big impact. For February through December, our pace is down almost 3%. As we discussed San Francisco has had larger headwinds for our group pace. Excluding San Francisco for the full year, our pace will be up 1%.

Even though Groups makes up 24% of our total demand, it remains a tough indicator for us, because most of our group production comes from a very -- looked from a few large hotels. For reference, any given year, we think we start the year with approximately 60% of our budget and group revenue in the books and 2017 is no different. Our next piece of demand is corporate. For the S&P 500, profits are estimated to increase in Q4 for the second straight quarter, which would bring earnings positive for 2016. While we are, pleased earnings have turned positive recently, we expect to sustain earnings growth through ’17 will be required, before we may feel the impact from corporate travelers.

In the fourth quarter, we saw our corporate negotiated room rates decline by approximately 1%, which is actually the smallest quarterly corporate demand decline we've witnessed all year. Corporate ADR was up by nearly 2%. So revenue did increase this quarter in the corporate segment. For the full year, our Corporate ADR was also up by 2%, but our corporate negotiated room rates declined by more than 4% and as a result, revenue decreased in the segment.

Moving onto our international business, our volume increased for the fourth consecutive quarter and in the year 14%. International volume represents 12% of our demand in ’16, which is up over 100 basis points to 2015. Speaking of international, we did here about a few isolated cancellations from transient gas who were impacted by the recent travel ban by the Trump administration. This has not had a material impact today, but we’ll certainly continue to monitor this trend throughout the year. Following the election in November, there was an overwhelming shift towards positive settlement around the industry, with hopes to changes to the tax code, reduced bank regulation and improved infrastructure. Those ideas should the help industry if implemented.

However, those are each complicated processes to change and it could take a year or more to feel any impact. Additionally, as we’ve seen over the last months, this positive settlement can change rapidly with each new executive order. As a whole, we think the facts we have today about increasing supply growth and software overall demand keep us cautionary to the industry fundamentals going forward, despite the hope of GDP acceleration.

As we continue to zoom out from lodging industry to the broader economic environment, the indicators we track have changed slowly since October. We still see some positives with unemployment employments and consumer confidence. Corporate profits and GDP are two indicators we had concerns about all last year. Both metrics improved as of late but overall the outlook looking into 2017 remains optimistic, but cloudy.

Unemployment remains stable, below 5% and employments were steady with estimated capacity increases again in 2017 from carriers. For consumer confidence, after hovering around similar levels at end of 2015 for the first half of this year, of last year, the index ended 2016 at its highest level in nine years.

While unemployment employments and consumer confidence are generally a good story, corporate profits and GDP, which are the two most important drivers for lodging, have been less consistent. As we have mentioned, corporate profits turned positive in the second half of 2016 after a year and a half of earnings declines. Earnings estimates for 2017 currently sit at about 10% growth. But we know that in 8 to last 10 years' actual earnings have underperformed the beginning of the year estimate. But as plus 10 or plus 4, we've been encouraging core profits can continue to arise in 2017 which would spur more corporate travel demand. Similarly, GDP was underwhelming for the better part of '16 with Q3 standing out as a bright spot. GDP estimates for 2017 currently sit at 2.3%, which is down slightly from 2.4% at the beginning of 2016 and is up from 2.1% before the election in November.

Before handing the call over to Ken, I want to briefly touch on the Hotel Deca Sale that we completed in January. Deca was another excellent long-term investment for us, delivering a 12% on leveraged IRR of 11 years. We sold Deca at a 14 times EBITDA multiple, which is a positive reflection of the value of our portfolio, especially given that Deca have the second lowest RevPar in our portfolio.

Now Ken will provide some details on our fourth quarter and our full-year performance as well as an update on our balance sheet. Ken?

Ken Fuller

Thank you, Mike and good afternoon, everyone. I'll start by providing more color on our fourth quarter results. While the operating environment was challenging, our hotels delivered solid results overall, driven by another excellent quarter of lending expense growth to 1%, which is particularly impressive in the face of higher occupancy and a slight decline in average rates, in addition to a 5% increase in property taxes. As Mike mentioned, one of the contributors to this performance was an outstanding SMB margin improvement of close to 200 basis points.

Our better performing markets during the quarter in terms of RevPAR were D.C., LA and Boston, with increases of 12%, 9% and 5%, respectively. LA was a strong market all year due to continued solid entertainment demand and a drop in supply. And Grafton also continued its post renovation ramp. The out-performance in New York was a recovery of lost business at Park Central and WestHouse from August to October 2015. As a reminder, for the full-year 2015, the disruption at these hotels reduced our portfolio RevPAR by 120 basis points, our hotel EBITDA margin by 50 basis points and our adjusted EBITDA by $9.2 million. In 2016, the recovery of business at these hotels improved our portfolio RevPAR by 100 basis points, our hotel EBITDA margin by 28 basis points and our adjusted EBITDA growth by $6.9 million. As a note, we included tables detailing last year’s impact in our third quarter 2015 press release and we also provided our fourth quarter 2016 portfolio results, excluding these hotels in last night’s release.

The Manhattan market faced headwinds in 2016 with RevPAR down 2.3%, which held us back from fully recapturing all of the lost EBITDA from 2015. That said, we are encouraged by the recent strength in demand in Manhattan in November, December and January, which led to positive RevPAR in the face of significant supply.

Looking at our RevPAR performance over the full year 2016, our best markets were LA, with an increase of 13%; New York, with growth of 7%; and DC, with an improvement of 5%. By property, our highest RevPAR growth in 2016 came from Grafton, Amarano and Le Park, all in LA, Dove Hotel in DC and Park Central and WestHouse in New York, all of which had double digit increases. For the portfolio, occupancy rose to a noteworthy 84%, signifying solid demand for our hotels. With respect to our bottom-line performance, our asset management team and our operators have continued to do an outstanding job. As a result, expense growth was limited to an impressive 1.4% for the year.

In terms of EBITDA margin improvement, special kudos to our top performing hotel this quarter and year, which were the Grafton, Amarano, Hotel Chicago, Dove Hotel, Park Central New York and WestHouse. Our portfolio hotel EBITDA, our adjusted EBITDA and our adjusted FFO all improved by approximately 3% in 2016. Looking into 2017, January RevPAR grew by 12.5% driven by a historically strong performance over the inauguration. It's great to see DC end 2016 and start 2017 with double digit RevPAR growth. Excluding DC, altogether for January, the rest of the portfolio grew RevPAR by 3.6%.

Now as we announced in yesterday's press release, our board authorized an expanded share repurchase program to acquire up to $500 million of common shares. Including the previous authorization, we now have $569.8 million of capacity remaining in our share repurchase program. The board of trustees authorized expanded programs to increase our flexibility to execute opportunistic repurchases only believe that share buybacks are an accretive use of funds that will enhance shareholder value. The program does not obligate us to acquire any specific number of shares, and as a result there's no guarantee as to the number of shares that will be repurchased if any, or the timing of such repurchases. We did not acquire any common shares during the fourth quarter of 2016 or to date during the first quarter of 2017.

Now I'll provide a brief update on our balance sheet, which was further strengthened following the Hotel Deca sale and the credit facility refinancing in January. In early January, we refinanced our credit facility which improved our interest rate grid. We also moved the maturity of our revolver and $300 million term loan from 2019 to 2022. As such, we only have a very small maturity coming up in 2018 which can easily be absorbed by our revolver. Beyond that, our next maturity isn't until 2021.

As of December 31st, we had total debt outstanding of $1.1 billion. Total debt to trailing 12 month corporate EBITDA was 2.8 times, which does not include our full cash balance per our credit facility covenants. After including a $135 million of cash on hand, our debt to EBITDA would actually be 2.5 times. We finished the year with substantial fixed charge coverage of six times, further demonstrating our commitment to responsible balance sheet stewardship. We continue to have substantial flexibility, with 43 of our 45 hotels unencumbered by debt. In addition, with nearly $775 million of capacity available on our lines of credit and cash of $135 million, we have a highly liquid balance sheet and remain extremely well capitalized.

With that, I'd like to turn it back over to Mike to close out our prepared remarks. Mike?

Mike Barnello

Thanks Ken. As we look at out at the lodging industry fundamentals, we are anticipating a tough operating environment throughout the year from a supply and demand perspective. Despite that, we are pleased with our performance. Our track record of top notched margins has held up in all phases of the lodging cycle, due in part to our asset management best practices, which have been developed over the last 19 years. However, it is truly the people both in our office and on the ground managing the hotels who deliver these results. We own highly desirable assets in best locations within the top markets in the country and we look forward to continuing to deliver outstanding results at the property level while mitigating risk through thoughtful balance sheet management.

That completes our prepared remarks. Ken and I would now be happy to answer any questions you may have. Matt?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And at this time we'll take our first question which will be from Smedes Rose from Citi. Please go ahead.

Smedes Rose

I wanted to ask you a couple of things. Just first of all on increasing the buyback authorization, it's a pretty large number and you haven't been particularly active in that department previously. So, I'm just wondering is that just kind of sort of checking the box and have it there or how are you thinking about buyback activity now? And then the other question just sort of a little bit along the same lines is would you expect to have to make any kind of special dividend, given the gains on your sale of the Deca hotel?

Mike Barnello

It's not really the check the box in terms of the buyback. If that was the case I guess we would have done one a long time ago. The simple answer to that is really optionality. So a buyback authorization really is just another tool at our disposal to use whenever the timing makes sense. As far as the amount, the size, it does tie into recent proceeds over the last 12 months from the sales of our preferred, the Marriott Indianapolis, Casa, Shutters and the Deca, but it also represents an amount that we have capacity for, and it also represents an amount that we could do within the boundaries of our covenant. So, from that perspective, that's part of the reason we came with the size. But again, and we need to emphasize this, that having this tool does not mean we're going to use it soon or ever. We just want to be clear about that. It really just is another tool in the toolbelt.

On your second part of the question, the special dividend, it's really way too early for us to make any decision on a special dividend. We did have a gain on Deca, but we have the better of 11 months to go before we figure out what, if anything we can do -- and a lot of things have to come into that process in terms of how the hotels do; if we buy anything, if we sell anything, et cetera, et cetera. So we're a long way from making that decision.

Smedes Rose

And that wasn't a good choice of words on my side. I didn't mean to sound flippant there, checking the box. It's just been a long season. One last question if I could, could you just as a reminder, are there any markets where you are operating where you’re going to see sort of legislated raise in cost that we should just be reminded of? I think in New York, something phases in this year and then maybe something in Seattle. But just if you could sort of do a quick round up, that would be valuable?

Mike Barnello

I think the short answer is we've those as movements across the country, really DC, Chicago pretty much everywhere in the West Coast, and I'm certainly happy to walk you through any of those offline. The big picture is that, when you think about increases for us, for LaSalle last year the increases cost us in the neighborhood of about $1 million over and above the normal increases. And in ’17 once again, it’s actually less than that. Just one thing that’s important to note is we don’t have a lot of minimum wage employees. So we’re probably not as effective as many. But that is when you look across the entire country. So it’s got some impact, but I would not call it meaningful overall relative to the size of the Company.

Operator

We’ll now take a question from Shaun Kelley with Bank of America.

Shaun Kelley

Mike, you definitely alluded to this kind of throughout the prepared remarks; but you’ve been probably the bell weather of this sector over the last two years, helping us kind of think about what’s going on the margin in hotel? So the question for you is, and we heard people coming throughout earnings so far. But question for you is sort of, your frame of mine versus before the election and today, has it changed materially and do you see any greenshoots or anything post-election that have you at all more optimistic about where we sit?

Mike Barnello

I think it’s a good question. When you think about where we were before the election and you think about what’s happened since, there's been some activity that would suggest things have been more optimistic. So just looking for my notes. We met -- we had our call the third week of October and as mentioned in the prepared remarks, October ended up as the worst month RevPAR wise for industry. We then had -- in November, December and January, we had almost a 6% RevPAR in November, 2.3% in December and 3.8% in January. If I just freeze on those 90 days, that's a 4% 90-day RevPAR. It’s not a traditional quarter, because doesn’t end in the quarter, the normal quarter end calendar. But that 4% will be the best in 2015.

So on one hand you might say, alright, well we're off to the races, things are great, and we’ve certainly taken note to that. But when you dig into that, there's a couple of things that are of importance. One, we did have some pent-up demand in October that I think fell into November. What I mean by that? We had Jewish holidays that did curtail October’s results. I think some of that picked up in November. There was an additional increase, certainly in New York with the Trump election that caused Manhattan to do much better, really the last months, November, December and January. And we had an inauguration in January, which obviously we only have one through four years.

So that part is still better, as well as some of the things that people have been talking about, and we did mention a little bit on the remarks. Deregulation tax reform, those things, they're put in the place with the intention of getting more corporate business, and having the S&P [Indiscernible] do better, well that should translate into more travel for us. So we would be the beneficiary of that, and so we feel about that. However that takes a while. And then when we look at what's happened in February, a little of that is turned off. If you look at the first 18 days of February Shaun, on a day-by-day basis, the travel numbers are negative 1.3. And then we look at our markets, upper upscale in Urban, the upper upscale are down 2.7 and urban is down 1.2.

When you add the February year-to-date to January, we're in the range of mid-to-high-ones for year-to-date, which is currently not horrible. It's just not the boom that I think we were -- people were hoping for at the end of last year. So I think there is a lot of optimism about things and clearly will be a beneficiary if a lot of that happens. But what we're trying to root our year on is what we can see and the things that we can see or we know what's going on from a supply perspective, we know what's going on from a city wide perspective, we know how our pace is. So from that perspective it tempers some of the enthusiasm that would come of the optimism.

Shaun Kelley

So it's perfect. Thank you, Mike. And then the other question I had was just sort of the obvious and next step is a number of our companies I think are sensing some of that optimism, but also seeing the movement in the stock prices and the change in their cost of capital have been more optimistic about acquisitions in 2017. Obviously, you sold that hotel Deca and you're raising your authorization for buybacks. So where does that put LaSalle and you in terms of the frame of doing acquisitions.

Mike Barnello

I think it just puts us in a framework of being ready. When we answered the question on the buybacks, it's giving us optionality, and that optionality, the question was directed to buybacks but it could just as easily be directed at acquisitions. We're constantly looking. I know that some people have said that we're actually trying -- some other peers have said that they are more active trying to find acquisitions. We look at whatever is out there. But for us it's -- it's looking at what is in front of us in terms of potential acquisitions. It's measuring what's going on in the short-term and the medium-term and then it's looking it relative to alternatives. So we would love to grow the portfolio. We think it's better for the shareholders to have more diversity in terms of the number of assets.

And generally when we buy an asset, we are able to find some efficiencies that we didn’t underwrite. So we would prefer to grow the business versus shrinking it. But as far as making any kind of statement as to Board direction will definitely go in 2017, that's so hard to say given what happens and what could change one month, three months, six months from now, especially since we have most of the year in front of us.

Operator

At this time will move to Thomas Allen with Morgan Stanley.

Thomas Allen

You mentioned your CapEx numbers for 2016 and 2017. 2017 does see some acceleration in CapEx. But when you think about your investment activity, should we view it as a net positive or net drag on RevPar growth in 2017? Thanks.

Mike Barnello

So the way we think about the CapEx Thomas, is that we're currently just reinvesting in the properties to A, make sure they are fresh, attractive to the customers, and also if we can find ROIs wherever in the portfolio that usually turn up seeking investments for the shareholders. When we look at the CapEx range that we have, it was the same range we gave last year. We actually just ended up investing less. It's heavily tilted toward Q4. If you look at the first three quarters, there's pretty much no impact, Q1, 2 and 3, that are fairly benign. If you look at Q4, if we go forward with all the projects that we have, which is not a guarantee, because sometimes we push things out of year or decide not to change the project, then the impact in Q4 would be somewhere in the 1.5 to 2 points of RevPAR range, and on an EBITDA basis in Q4 somewhere in the neighborhood of $2.5 million to $3 million of EBITDA.

As far as -- and we mentioned little bit in the prepared remarks, a number of those hotels are in San Francisco. The reason for piling on there is because that would mean we would be doing renovations in Q4 of '17 and then part of '18, and as you guys all know, the tough part of San Francisco is going to be this year and next year, but '19 we're looking at a record city wide pace and really not much supply. So we think San Francisco will probably be, if not the best one of the better markets in the country at that point. So to be renovated would put us in really a great position from that perspective.

Thomas Allen

Alright then, on the last one you sold, you talked about San Francisco, you said that part could be slightly positive or slightly negative. You weren't ready to say anything. I think a lot of your peers have said over about two days that they think RevPAR's going to be slightly negative for 2017. Do you agree with that or how are you thinking about it?

Mike Barnello

I think since that time we've actually gone through our budget. Some things have improved. If you think about -- the city wide pace didn't improve for San Francisco. That pace was down about 37%. Our pace actually did improve for San Francisco. I think we're down pace by 10, about 10%. So given that pace with kind of the headwinds we're facing, Thomas, it's hard to see a positive story come out of San Francisco this year with the tough comparison. So I tend to agree it's going to be negative. Now how much, that's a harder question to answer but the likely answer is negative.

Operator

At this time we'll take a question from Wes Golladay with RBC Capital Markets.

Wes Golladay

Hey guys, looking at the renovations in 4Q, is it going to be standard renovations or you're going to do anything ROI related at the hotels?

Mike Barnello

The list that we have is pretty much standard at room renovations. Just happens to be a number of the bigger hotels. We'll be doing the Westin Coply, which is 800 rooms. That's planned, and then during the second quarter and then later again next year we're doing the San Diego Paradise Plain, which is not quite, 500 rooms. But the rest of it, when you think about it, we have -- depending on what we'll do, seven or eight projects and of those projects, they'll probably come in in the $45,000ish per room level. That's mostly guest rooms and bathrooms, but nothing that we have planned right now along the lines of say what we did at Park Central years ago, if that's what you're thinking about.

Wes Golladay

No, I just think maybe there're smaller projects but okay, looking at supply how do you feel about it for next year relative to this year? Typically, how are you looking at weighted average?

Mike Barnello

The way we look at '17 versus '16…

Wes Golladay

I'm sorry, '18. Looking at next year?

Mike Barnello

Oh, next year. Actually, our weighted average right now where we do it is -- first of all, we're looking at only CBD, less -- to be clear not MSA. And from a CBD perspective, our weighted average is actually -- the number is pretty much the same. It's 3.9% in '17. Its 3.9% in '18. And that's the rollup that we're using in the market. So just via the macro?

Wes Golladay

No, just the macro. Kind of getting that. And then I guess when you see it just starting to fall, is it probably too early to make the call on '19?

Mike Barnello

We've a roll up for '19. There's a number of markets with some pretty big numbers. It's a little lower. Our weighted average is just under 3.8 and it starts to moderate after that in '20 and '21.

Operator

We'll now take a question from Bill Crow with Raymond James.

Bill Crow

Mike, a follow-up to Shaun's question on acquisitions. Would we read a positive message into an acquisition on your part?

Mike Barnello

Well I would hope that anything we buy would be positive. I'd hope we'd have great story with it.

Bill Crow

No, I don't mean that. I mean more from the macro perspective. Is that -- is it going to really take increased conviction on your part for the outlook in order to pull the trigger on an acquisition?

Mike Barnello

I think I'd have to really reiterate what we just talked about, which is look, we had a look at the short term versus the medium term, because we're obviously very positive on the long term in terms of the real estate and the markets we're in. And then we have to look at the alternatives, Bill. So we doubt [ph] we'll be able to convince ourselves, our Board and then you guys, and the shareholders that what we did, whether it was big or small was better than waiting or better than buying back our stock. And if we tend -- get through all those gates, then we will buy an asset. You know as well as we do that it comes down to the pricing and what we can do with the asset. But we really haven't ever seen ourselves in the year. We've shutdown the door on one thing or the other, where we've said there's no chance for buying or there's no chance that we're selling. We haven't operated that way. It's a long year and we'll evaluate both opportunities as we see them.

Bill Crow

I did have a question on the sale. You referenced the Deca as non-core. Just curious, what made it non-core, because I think that typically would be considered kind of a core asset?

Mike Barnello

I think that was a mistake on the part. Reading it, we'll tell you that it should have been a core market for us. It's actually not Downtown Seattle but yes, it was a core market for us. So, a good catch on your part.

Bill Crow

I'm just trying to figure out, because these portfolios evolve over time. Okay, appreciate that. And then finally, I don't know if you'll bite on this, but it certainly would be helpful when we hear your views, do you have a baseline RevPAR view for the industry for this year? We've heard anywhere -- various companies give their views on their portfolios, but do you have anything that's kind of a base line to you?

Mike Barnello

No. I know some companies actually give it out. We try to look at it really on our portfolio base. We obviously look at what other folks are predicting, but no we haven't played the prediction game ourselves.

Bill Crow

And then finally from me, you referenced '19 -- your roll up of '19 supply still being like 38. How many of those projects are actually in the ground? How many -- or we heard somebody earlier today talk about supply in their markets, which are obviously in some cases different markets? But being halved, supply growth been halved in '18 versus '17, and talked about all the projects that are -- they are falling out of the pipeline. So how much conviction do you have at this point on that 19 number?

Mike Barnello

Well, right now we feel it's all we can have. We do check it regularly. But your questions are fair when relative to '19. Anything it happen. That's still two years away to get to it, and easily can be delayed or cancelled. The big markets for us that we’re looking at to supply, that has been claimed in ’19, Boston has a big number, Philadelphia has a big number, San Diego, so -- and Seattle. Part of this quite frankly Bill is there's a number of big projects that are announced. So in some respect it's a little binary. If the big hotel gets cancelled, then that can change the number a lot. But unfortunately, people are quick to announce a plan to build something. They’re not so quick to announce plans the cancel something.

So unless you’re just seeing it drag on, there is just no chance they can get it completed. It’s hard to just dismiss it. It's something that’s actually going to be cancelled, especially as far out as 19, where a lot of things could still get built. Yes, so somebody is promising’17 and they haven’t started, that’s not going to happen. But we’d be thrilled once these projects got cancelled, [indiscernible] revenues.

Operator

At this time, we’ll move to Chris Woronka with Deutsche Bank.

Chris Woronka

Good afternoon guys. I think one of the things that obviously kind of impacted you guys negatively in ’16 was the mix shift. You kind of built some occupancy, but you didn’t get the rate categories that you wanted. Do you think based on what your group position is now, and what you are seeing on transient, and I know it's short-term, but do you think that could reverse a little bit this year?

Mike Barnello

Well, last year, we went out with the Heads in Beds philosophy when we get it and we’re trying to do two things. One, create a better pace obviously filled with sustainable business and try to minimize expensive business. In some markets and some hotels we were able to do that, and some we weren’t. But as you noted in the remarks, our group and our transient growth was about the same for the course of the year. When you think about it this year, what I would tell you is the teams are really doing everything they can to find business. That sounds a little ironic when your portfolio is running 84% occupancy. But depending on the market, some folks have holes in their pace and some folks don’t. So they’re open -- all of our teams are taken to finding the best business; but in some cases Chris, to just finding business and it really depends in the market and the property and the circumstances. So I know it doesn’t exactly answer your question, but it’s too broad with 45 hotels to have really one answer to that.

Chris Woronka

Yes. No problem and I appreciate the data points on January. Can you maybe share with us what percentage of the quarter of January is roughly? I'm guessing it's not necessarily a third?

Mike Barnello

Percentage of the quarter, it's not a third. You are right. I don’t know. Do you know what the exact number is? March is the biggest. I recall -- I thought it was more or like 30 to 40. So it might be 25 or 30 for us, and we don’t have an exact number for you. It's obviously the lightest of the three.

Operator

Will now take a question from Michael Balzary with Baird.

Michael Balzary

Just wanted to focus on OTAs. How has this channel changed as a percentage of you room nights of the portfolio over the last say six or 12 months or so, and what are you seeing coming from that?

Mike Barnello

OTA has been a big channel for us, and if you look at the mix, we have gone to -- it's about 28% overall of total room nights. That's up about 15%, over 15.

Michael Balzary

Got it. And then the international demand comment that you made, how much of that business being stronger is leading to increase in the OTA usage? Is there a co-relation there?

Mike Barnello

We don’t have that number in terms of how much the international is of the OTA. We can probably dig through it but we've mentioned in a couple of the calls, this international data is getting better every quarter as we work with our teams to make sure they grab it accurately, as well as getting it from the OTAs who in the past hadn’t been the best at articulating the source. So what we feared over last year is that we don’t really know if some of the international increase is just true increase or is it just capturing the source accurately, don’t know. But we are tracking it the best we can and we're looking for the countries of origin. It's the same countries that you would expect but I don’t think -- it's hard to predict what that means for 2017, Mike.

Michael Balzary

Got it. And then just one last one on this. Increase, how much of that increase do you think is attributable to the re-ramp at Park Central, WestHouse in New York?

Mike Barnello

I think it was about 13% without and about 9% or 10% without. That's pretty -- I'm grabbing it as we speak. But pretty close actually. 13% with, including it, and 9% without. So it had some impact.

Operator

Will now move to Ryan Meliker of Canaccord Genuity.

Ryan Meliker

I wanted to ask about LA, as we look out to 2017, first, can you remind us what type of impact Porter Ranch gas leak had on you guys in the first and second quarters and if you're starting to see an impact now, on the reversion of that this year.

Mike Barnello

Yes, absolutely. So we can give you a quarter Ryan. So last year the Q1 in LA was up just under 20% and about half of that was Porter Ranch. Although it is an exact, and the reason I say is because people are filling up, we're filling up, you start charging more for other rooms, but we sold about half. When you think about the quarter, I guess rather than just pinpoint that one, I think I would push it, point you towards three abnormal data points. One was that one. The second one was the Super Bowl in San Francisco. If you combine those two, they had about a 280 basis point impact to Q1 last year. Conversely and I guess conveniently, the inauguration is about the same impact in Q1 this year. So we gave that -- that number -- we were up 95% in January in DC for inauguration, as a result of inauguration. So that run through for the quarter will be just shy of 300 basis point increase. So they're kind of a wash but that's probably the easiest way to think about it.

Ryan Meliker

Okay, that's really helpful, because that washes out. And then was there any further impact from Porter Ranch in 2Q, that we should be thinking about as well.

Mike Barnello

So the numbers we gave out for 2Q for LA were about 17% for the portfolio and the Porter Ranch impact was less. We had about 4%. So you know, it kind of ended really towards the end of April, maybe a little bit of May. But that was it. By -- it's safe to say that by May 1 it's almost no impact at that point.

Ryan Meliker

Okay, that's helpful. And then you had also mentioned -- in your prepared remarks you talked about the Hyatt Century City going offline, and significant amounts of supply coming online this year. Does that lead you to believe that error? Should we think that LA's going to be a pretty tough market in 2017, more so than some of the others you operate in?

Mike Barnello

Absolutely. We think it's going to be one of the tougher markets. That's a tough combination. Think about it, that was our best market in '16. We were up 13% -- I think 13% for the year. And so conversely, because -- it was our best because they had a couple of strange phenomenon. When we had no supply, we had Porter Ranch and then we had a super strong music entertainment business in our submarkets, and while the entertainment music business has still been strong that's one of the three. Porter Ranch clearly not repeating and the supply is going from benign to significant. So absolutely that will -- on paper that looks like one of our tougher markets for the year.

Ryan Meliker

Okay, that's helpful. And then just the last question, just curious where you're headed out on this. You know, this is now the second year in a row where you've decided not to issue guidance, I respect that, I understand. I'm just wondering is there any point in -- what's it going to take for you to change that view? Or is this the new paradigm for LaSalle where you're going to give as much clarity as you can across your markets and across your portfolio, but guidance isn't something you want to deal with any more.

Mike Barnello

It's a heck of a question. I don’t know. I mean I think if we see a lot of people getting good at it; that might be one thing. But right now -- the things we said in prepared remarks, they mean a lot. We're a in a business where very little of our business is actually on the books by the time we release these -- the fourth quarter. And not only going to change, but it can cancel and go backwards. So we don't have a lot of clarity as to what the year unfolds, and we found that it's just much more competent of us to actually to lay out the pieces, so that we can present a year and then manage as best as we can. I think that hopefully the same people have realized over last year is that there's nothing wrong with the portfolio, because we can't come with a couple of goal posts in that we performed very well throughout each quarter and then last year as a whole. And our game plan is to continue to do that in any environment. But as far as when we should-- can tell you exactly when we can give you some numbers, I don't have a great answer for you, Ryan.

Ryan Meliker

So, from how I understood that was basically, it's not so much that you have less visibility today than you've had historically or even last year that you had historically. It's just the fact that the business is very transient in nature and you haven't had a lot of visibility ever. Now isn't necessarily more or less so than that and it's difficult to forecast, to guide in that environment. So why bother given the challenges the industry has with it? Is that a good paraphrase?

Mike Barnello

I don't think I would say it that way. No, no, no. We started last year because there wasn't clarity and we're still having the same mixed signals. And you're seeing a lot of what people want to be positive in terms of enthusiasm, optimism, about how things are going to unfold throughout '17. The facts still remains as rosy. And so there's conflicting reports. So to come up with a range with those conflicting goals is just -- is very difficult. If there's a time we see a line of green lights ahead of us with nothing else in front of us, it is much easier to give an outlook when everything lines up. But you have to look at all the pictures, and goal pieces that we put in place over the course of last year and this call in terms of where we see our pace citywide supply, demand et cetera. And when you see that, it doesn't seem like we've a place where we can land on with any comfort. So, that builds into it. Not just heck it's too hard and we don't have any visibility ever in life, I wouldn't say that. But at the same time I can tell you that there's -- we're going to turn on guidance any time soon or we're going to give you a year. We will turn it on.

Operator

At this time, we'll move to Anthony Powell with Barclays.

Anthony Powell

If I could ask an industry question a bit differently, I believe in April last year you said that the industry was in or approaching a downturn. Since then you've had moderate RevPAR growth and your EBITDA has been slightly better than expected. It sounds like that may continue somewhat into January in the first quarter. So if you could update that statement, just where the industry is right now. Are we in a downturn, is that still coming? That would be great.

Mike Barnello

Anthony I think what we're seeing is that the environment that was slowing down through the end of -- through '15 and then again in '16, it's continued one off slow growth. And so the things that we’re looking at industry-wide are that eight of the nine --last nine quarters have been decelerating RevPAR growth. You’ve seen demand. It did kick-up in the end of ’16. But demand over the last couple of years has decelerated.

And so from our perspective, that decelerating environment is still -- we still see it in the same perspective, whether you want to say it’s approaching a downturn or it’s a slow growth environment. In our minds, it’s a little bit of the same, because it’s lower than it had been. We’re still late in the cycle. Where we said that statement, we didn’t actually guarantee anything was going to happen in a quarter or even a couple of quarters. That's what we're seeing. And so when we get to this part of the cycle and we see the supply move up and continue to ramp and demand soften, that’s when we get more and more concerned. But that’s our view and there is clearly no guarantee as to what happens the rest of this year and next year.

Anthony Powell

Got it. Thanks. And then if you can talk about leisure travel, that will be great. I believe one of the plans you mentioned that what you call retail transient was at 5% in the fourth quarter? What was your leisure business like in the fourth quarter? And where do you think that can be in 2017?

Mike Barnello

We have no idea. I mean that sincerely because I don’t know how to track leisure business with our portfolio. We track corporate, we track transient, we track the source in terms of OTA, but we haven’t done a good job asking some people when they come ring our bell, why they’re here. If you look at weekend, week day for Smith Travel, over the course of the year, week day RevPAR was up 2.1 and weekend was up 2.9. If you want to look at that as a proxy for leisure, then that would suggest that leisure was a little stronger. It is a proxy, because not every weekend stay is leisure, of course. But that is one way that we look at it. But we tend look at really corporate transient. We look at a group, we look at government, we look at international et cetera. But we don’t really break it into leisure versus corporate. Because even though our corporate is only 10% to 14% of our overall business, the reality is, the business that's coming with Sunday through Thursday for the most part is corporate. They just don’t have a special account with us. So we’re not tracking them as a special account. But they are there on business, especially in our urban hotels. And our resorts, the mix there is it's only rarely -- say in the case of Key West where it’s mostly individual leisure. The other resorts are heavy group components. So they wouldn’t even give that answer either. So I don’t mean to be flippant on the question. It's just that we don’t have good data on that and we haven’t seen it prepared quite frankly from an industry perspective to give you either.

Operator

We’ll now take a question from Lukas Hartwich with Green Street Advisors.

Lukas Hartwich

Just looking at Smith Travel data, the urban and suburban trendlines look like they\ve crossed recently with urban outperforming suburban. Do you have any thoughts on what's driving that? Is it temporary, is there something more permanent there?

Mike Barnello

Lukas, are you talking about 2016 or are you talking about the last six weeks or so?

Lukas Hartwich

It started kind of in the fourth quarter last year and then it’s continued into this year as well.

Mike Barnello

I don’t think that's -- we didn’t see that. We actually mentioned in prepared remarks -- I mean Urban and upper upscale, if you look at it and pulling up the data but 2014, 2015 and 2016, those two segments have underperformed the industry.

Lukas Hartwich

I'm sorry. I meant like in November and December, I was thinking when it started to flip, and pretty much every week we've been getting this year, it feels like it's been that way.

Mike Barnello

I just gave you the February. February is late, right. So if you look at -- I'll pull it up again. So if we look at February day-by-day, just to give you some example, means we have pull up January, but February, the industry negative 1.3, upper upscale is negative 2.7, and urban is basically the same, 1.2, so they are flat. Then in January, you are right. I think that the industry was 38 for a number of scale there. Yes, so in January urban was 6.5 and upper upscale was 4.6. So those -- that, January, you are correct. February is going back to the other way.

Ken Fuller

Well, January would be heavily influenced by inauguration.

Mike Barnello

Also, I'm looking at December. You mentioned December. It didn’t happen in December. So in December the industry was 2.3; urban, 1.9; upper upscale, 0.8. I don’t have November right in front of me. But Max does. So November was closer, was 5.9 for the U.S., 6.5 for urban and 5.1 for upper upscale, pretty close. So that would make sense. If you think about the lift that happened in New York and the shift from Jewish holidays in October, that business I think went into November as well as the bump that the cities got in terms of the Trump in New York et cetera. So it makes sense that urban kicked into gear in that month. So little bit -- a touch higher in November, backwards in December, a little higher into January and then backwards in February.

Lukas Hartwich

That's helpful. And then kind of similar question with New York. New York has been doing better more recently than I think many people have expected. Do you have any views on what's driving that?

Mike Barnello

Yes, we've been digging into that, because you are absolutely right. So what happened is November, December and January were great. So -- and a little backdrop, the first 10 months in New York were negative, right. So we saw 10 months of struggle. Then we saw three months that were actually very strong in Manhattan, and then unfortunately it kind of came to an end, right. So we saw that February right now, again if you look at say Manhattan or Times Square Submarkets, which is not the MSA, just day-by-day those numbers are down about 3.3 to 3.8 depending on the segment.

Again, that's just February, for 18 days. So we were hopeful that things were kind of turning around, again November, December and January because it was looking better. What we're hearing from all properties is quite frankly a lot of it is being attributed to Trump. The crowd surrounding the activity from election through inauguration were substantial, creating a lot of groups, a lot of media, a lot of visitation. And while there was no way to know when he moved into the White House, that just came to a screeching halt, but it does coincide. It's too big a market to lay it all at one event, but it does seem like that's the answer we keep getting from our properties. So back to the hope, it'll be great if all of a sudden we could reverse and we would do better rest of the year. But based on our outlook for New York and our pace on New York, it's not as optimistic as it has been for November, December and January, unfortunately.

Operator

We'll take a question from Neil Malkin with RBC Capital Markets.

Neil Malkin

First question is about acquisitions. Have you guys thought at all about looking at different markets, maybe outside the core coastal cities that you got -- you obviously have a bias towards. The reason I ask is the whole barriers to entry thing has kind of been turned on its head, you know in this cycle. And also one of the trends you've seen in all these markets there's liberal political administrations which tend to make operating cost much higher. So I was wondering how you guys maybe think about that, going forward or when you look at acquisition?

Mike Barnello

Think it's a great question and the answer is yes. We're constantly looking at other markets. We have -- if you look at what has always been our core eight, we have bought outside of this markets, over the last couple of years -- we've sold non-core as well but we bought in Key West, and Philadelphia and Portland and we are looking at other places. So I wouldn't want to give you a list of places that we've looked, we have looked at or we will look at. But it's fair to say that the core eight were always places that we would absolutely look at hotels. But it's never been exclusive and you are absolutely right, that the barriers to entry have changed this cycle probably more than other cycle. We've seen developers, lenders have gotten it right and they've moved to build where the demand is, was and so you've seen an increase of supply in those markets, more so than secondary or tertiary markets. But a lot goes into it, you know exit strategy, what we can do with the hotels. It's often in terms of brand independent, how we can operate it, pricing et cetera, but it's totally fair question and we're not beholden just to the eight markets. They've just been where most of our hotels have been, and we would continue to look there.

Neil Malkin

Okay great, that's helpful. And then last one from me is your sector in particular has had a lot of you know moving parts and sorry headwinds from Airbnb to cancel and rebook that has kind of plagued the short term ability to have pricing integrity, I'm wondering if there's anything that you guys see on the horizon, or if there's anything that maybe keep you or your property managers up at night when forecasting that could be on the horizon, something similar that could negatively impact your ability to garner pricing power at your hotels.

Mike Barnello

Is the question you're asking -- is there something similar like short term rentals or is it a question.

Neil Malkin

No, no, no. Any impact, any occurrence, any trend you see emerging that could have some sort of similar impact, be it demographics or technology or anything along those lines.

Mike Barnello

No, we haven't. And I think we'd just say that I know that many of the C Corp, the peers have announced strong occupancy. Like I said, we'd just tell you that with an 84% occupancy portfolio we don't feel like there's a lack of demand for our product in our markets. That's a macro statement obviously. Each property is different, each market is different. But that's continuing to growth. So, obviously we've to deal with whatever trends are evolving, and that means with dealing with finding a product that our guests want to be in or find more guests, and so I think our guys are generally doing a pretty good job of that, but that'll continue to evolve. So, there's nothing else really to add about that, that we haven't talked about over the last year or so.

Operator

This time we've no further questions, I'll turn it back over to our host for any additional or closing remarks.

Mike Barnello

Thanks, Matt. Thanks everyone for listening in to our fourth quarter earnings call. Looking forward to seeing many of you guys in the conferences over the next month and updating you on our first quarter results in April. Thank you.

Operator

And again, that does conclude today's conference call. Thank you all for your participation.

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