Feb 18, 2009
Executives
Gregory J. Larson – Executive Vice President Corporate Strategy and Fund Management W.
Edward Walter – President, Chief Executive Officer & Director Larry K. Harvey – Chief Financial Officer, Executive Vice President & Treasurer
Analysts
David Loeb – Robert W. Baird & Co., Inc.
Napoleon Overton – Morgan, Keegan & Company, Inc. Celeste Brown – Morgan Stanley William Truelove – UBS William Crow – Raymond James Joseph Greff – J.
P. Morgan Felicia Hendrix – Barclays Capital Smedes Rose – Keefe, Bruyette & Woods
Operator
Welcome to the Host Hotels & Resorts Incorporated fourth quarter 2008 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.
Gregory J. Larson
Welcome to Host Hotel & Resorts fourth quarter earnings call. Before we begin I’d like to remind everyone that many of the comments made today are considered to be forward-looking statements under federal securities laws.
As describe 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 obligation to publically 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 the reconciliation to the most directly comparable GAAP information in today’s earnings press release, in our 8K filed with the SEC and in our website at www.HostHotels.com. This morning Ed Walter, our President and Chief Executive Officer will provide a brief overview of our fourth quarter results and then will describe the current operating environment as well as the company’s outlook for 2009.
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.
W. Edward Walter
Since we last spoke in early October the globally economy has deteriorated markedly which had a material effect on our business. Since the underlying economic and financial problems are continuing in 2009 we expect to face a very difficult operating environment for much of the year.
However, we are well positioned to face these challenges and to take advantages of the opportunities when the economy eventually improves. Before we offer some insights about 2009 let me spend a few moments on our 2008 results and trends.
Fourth quarter RevPAR for our comparable hotels decreased 9.4% driven by a decline in occupancy of 4.5 percentage points and a decrease in average room rate of 3.3%. For the full year comparable RevPAR decreased 2.6% as a result of the 2.4 percentage point decrease in occupancy which was partially offset by a seven tenths increase in average rate.
Food and beverage [inaudible] hotels decreased 10% for the quarter and 2.9% for the year. Overall comparable revenues decreased over 9% for the quarter and 2.6% for the year.
Aggressive cost cutting in light of the weak operating environment limited the decline in comparable hotel adjusted operating profit margins to just 290 basis points for the fourth quarter and 140 basis points for the year and resulted in adjusted EBITDA for hotel fees of $414 million for the quarter and $1.365 billion for the full year 2008. Our FFO per diluted share for the fourth quarter was $0.53 which exceed the consensus estimates by $0.06.
For the year FFO per share was $1.74. During the first three quarters of the year we experienced a definitive decline in demand as a result of the economic slowdown.
Through that period transient average daily rate weakened as a function of business mix shift rather than as a result of actual rate decline. However, in the fourth quarter as the credit crisis became even more severe and the economic slowdown intensified we began to experience absolute declines in average rate in our transient business.
For the quarter transient room nights were down 7% and the average rate was down 6.9%. Our mix of business continued to shift towards lower rated segment as our higher rated corporate and premium segments declined by almost 20% while the discounted segment increased by almost 4%.
More importantly beginning in October more aggressive price competition led to rate declines of roughly 4.5% in the corporate segment and as customers began to shop more aggressively for lower pricing and increased their use of discount rate channels we saw a decrease in discount rates of more than 5%. Our resort and luxury hotels were severely impacted during this period as transient rates fell by more than 7%.
Our group business was also heavily impacted by the decline in the economy and the accelerating weakness in the financial markets although not as severely as our transient business. Group room nights were down more than 7% for the fourth quarter but the average rate actually increased by 2% as we benefitted from business that had been booked prior to the downturn.
The decline in group room nights is generally attributable to a significant decline in our corporate group segment which feel by more than 17% in the fourth quarter as a result of cancellations, attrition and reduced short term activity. As you would expect our larger convention hotels performed better increasing share within their markets and only suffering a RevPAR decline of 7.3%.
Looking at 2009 we expect the turbulent economic environment to continue to impact our business as consumers and companies cut spending. The reduction in consumer spending will impact leisure destination such as Hawaii, Florida and business travel in all markets will be reduced by budgetary restrictions.
Group demand will continue to decline as companies further cut travel spending leading to cancellations and reduced attendance at events. The combination of these factors has led to booking pace for 2009 to be down more than 15% for the full year with the first quarter off by more than 19%.
Although the anticipated booking rate remains slightly higher than last year we are now expecting a material decline in group revenue. It is worth noting that our pace for the remainder of the year is better than the first quarter trend especially for the second and third quarter although, given the weakness in short term booking pace it would not be surprising if our full year group pace declined further over the next few months.
On a slightly positive note we have seen some group business move from luxury hotels in high profile markets such as Las Vegas to our large urban convention hotels. Our past experience shows that these large group hotels tend to outperform during periods of economic decline.
In 2008 we invested $695 million in our capital expenditure program in our hotels. Approximately $321 million was spent on return on investment and repositioning projects.
As we said last quarter we expect our level of capital spending to decline materially in 2009 and guide you to a full year amount of approximately $340 to $360 million. The majority of our spending will be dedicated to projects that are already in process such as completing meeting space additions at several hotels including the Swissotel in Chicago and our Washington Marriott at Metro Center both of which will be completed during the first half of this year.
Given the $1.8 billion investment we made in our portfolio over the last three years, we are very comfortable with the physical conditions of our properties and are confident in our position versus the market. During the fourth quarter we repurchased $100 million of our 3.25% exchangeable senior debenture for approximately $81.5 million given us an effective yield of nearly 19% on our investment and at the same time improving our liquidity by eliminating debt at a meaningful discount.
These efforts proved to be an effective way to take advantage of dislocation in the hedge fund industry instigated by [inaudible]. On the domestic front, yesterday we sold the Hyatt Regency Boston Hotel for total proceeds of approximately $113 million.
We will continue to work on additional asset sales this year with the focus on selling assets that are not part of our long term core portfolio but are attractive to the few buyers that are active in the market today. Given the current state of the credit market which continues to post significant challenges for buyers needing financing.
It is difficult to predict the likelihood of future dispositions. On the domestic front in both domestic and international markets we are seeing few transactions today that might satisfy our return and quality requirements.
However, as the year unfolds we would expect to see deal flow improve as the combination of looming debt maturities and depressed operating results create more motivated sellers. We intend to be opportunistic as market conditions evolve and frankly are optimistic about the future prospects in this arena.
Now, let me turn to our outlook in 2009. As all of you know the recessionary economic environment expected for this year which translates in to declining GDP, employment, business investment, corporate profits and consumer spending will negatively impact the demand for lodging in both the corporate and leisure components of our business.
Unfortunately, new supply in 2009 while only moderately above the historical average level is also occurring at a point in time when lodging demand is contracting. RevPAR results for the first six weeks of 2009 have taken another big step down and are running at roughly 20% behind last year’s levels.
Given the volatile economic environment, visibility is very limited making it incredibly difficult to predict how our operations will play out for the year. [Inaudible] economic forecast suggests that the economy will strengthen somewhat in the second half of the year.
As the year-over-year comparable base line does get easier, especially in the fourth quarter but at this point there are few favorable indicators relating to our business. With all this in mind we thought the most helpful insights we could provide you with respect to 2009 was the sense of how we thought our assets and company would perform giving a broad range of RevPAR performance.
Accordingly, we would generally anticipate that if comparable RevPAR were to decline 12% for the year and our cost containment efforts continue at their current pace, comparable hotel adjusted profit margins would decline approximately 500 basis points leading to adjusted EBITDA of hotel fee of roughly $930 million. Achieving this level of performance will likely require that the economy exhibit some strengthening in the second half of the year.
If the current weakness persists and we simply get the benefit of the weaker second half comp then full year RevPAR for 2009 could decline 16%. This would suggest a comparable adjusted margin decline of roughly 580 points and full year adjusted EBITDA for hotel fee of $850 million.
Based on these assumptions we anticipate that our FFO per diluted share for the year would range $0.79 a share in the 16% scenario to the $0.91 a share in the 12% case. Keep in mind that the FFO range is approximately $0.04 per share lower due to the new 2009 accounting rules on convertible debt that we referenced in the past and that Larry will talk about in a few minutes.
Turning to our dividend, we expect the amount of the dividend to be approximately $0.30 to $0.36 per common share in 2009 as a result of carryover income, 2009 taxable income and gain on asset sales. We planned to declare the dividend early in our fourth quarter and it will be paid before the end of 2009.
We should note that we fully appreciate the debate and various perspectives over the relative benefit of stock versus cash dividends and consequently will delay the decision of whether this dividend will be paid entirely in cash or if we will take advantage of the IRS ruling which would allow us to pay up to 90% of the dividend in the form of stock until later in the year. Our ultimate decision on this issue will be driven by the operating and capital environment at the end of the year as well as our outlook for 2010.
Given the trends we have described and the current economic outlook, it should be no surprise that we expect 2009 to be a very challenging year. Our strategy for confronting this challenge will continue to be focused on several key themes.
We will continue to emphasize maintaining a high level of liquidity and proactively address and extend debt maturities. Our current cash resources more than cover our near term maturities and we are broadly evaluating the market for the best forms of debt to deal with out years.
Our very strong flexible balance sheet represents a tremendous competitive advantage which we tend to exploit but we will act to position ourselves conservatively until the economy begins to recover. We understand that after avoiding events caused by maturing debt our most important decisions relate to allocating capital.
We have an outstanding portfolio and irreplaceable assets that have been recently renovated which are located in top markets and which will be able to compete successfully for business even in a difficult environment. Because of the investments we have made we can afford to reduce our near term capital expenditures but we will not avoid any expenditures that may be required to preserve our hotels.
Our asset sale program is very targeted with the goal of selling only those assets that do not fit our longer term plan at prices we believe are attractive in the current environment. As we look to acquiring assets in the future, we will be seeking high quality hotels located in the markets we expect will outperform in the next recovery.
I should note one final item, the market is significantly undervaluing our portfolio. Based on our stock price last night our portfolio is valued at less than $125 per key which is what I am told it costs to construct a new suburban Courtyard or Hilton Garden Inn.
[Inaudible] we estimate that the average replacement cost of our assets ranges from $340 to $360 per key, this value represents the largest discount to replacement value in our history. After we get through this current debacle the laws of supply and demand will still apply and hotel construction should be negligible until RevPAR and operating profits increase meaningfully.
We will ultimately see the benefits of that improvement in our valuation levels. Now, let me turn the call over to Larry Harvey, our Chief Financial Officer who will discuss our operating and financial performance in more detail.
Larry K. Harvey
Let me start by giving you some detail on our comparable hotel RevPAR results. Looking at the portfolio based on property types, our airport hotels performed the best during the fourth quarter with RevPAR down 7.9%.
RevPAR for our downtown hotels fell 8.8% while RevPAR in suburban hotels decreased by 9.2%. Our resort conference hotel RevPAR decreased 12.8% as our two hotels in Maui continued to struggle due to reduced airlift and overall weak demand.
When you exclude the two Hawaii hotels from the resort conference property type the RevPAR for the fourth quarter declined only 7.2%. For the full year our urban and airport hotels performed the best with RevPAR declining by 2.2%.
RevPAR for our suburban hotels decreased 2.9% and our resort conference hotels decreased 4.3%. Turning to our regional results, the south central region performed exceptionally well with RevPAR growth of 7.2% as our Houston properties benefited from strong group demand generated by Hurricane Ike recovery efforts and renovation in the fourth quarter 2007.
Our San Antonio properties also performed well as group business was strong and the property benefited from renovations in the fourth quarter of 2007 as well. Our DC metro region RevPAR declined only 4.2% as group business held up better than in other markets although there was lower transient demand in the suburbs.
We expect that downtown DC hotels to have a strong first quarter in 2009 given the transition with the new administration. RevPAR for the mid Atlantic region increased 8.5%.
Our New York properties experienced a RevPAR decline of 8.9% as average daily rates fell approximately 4.7% and group demand declined. In addition, business and leisure transient demand fell.
As we expected the Philadelphia market outperformed in the fourth quarter on a relative basis as RevPAR decreased only 4% due to better group business. RevPAR dropped 10% for the Florida region driven by declines throughout the state with the exception of the Harbor Beach Marriott where RevPAR actually increased over 8%.
Our Ritz Carlton properties were particularly affected by lower transient demand and group cancellations. Results for the quarter were impacted by room renovations at three hotels in the fourth quarter of this year.
Overall RevPAR for our pacific region declined 11.8% for the quarter however results varied by market. The San Francisco and Orange County market outperformed on a relative basis as RevPAR decreased only 5.8% and 7% respectively due to better group activity.
RevPAR for our Hawaiian properties fell 25.4% because of lower leisure and group demand as well as less airline lift in to Maui. Atlanta had another weak quarter with RevPAR declining 14.4% due to lower overall group demand and higher group attrition rates which led our hotels to seek lower rated segments in order to generate occupancy.
Business and leisure transient business was also down. As we anticipated with the New England region with a RevPAR decrease of 16.7%, had a challenging quarter due to fewer city wide group attrition and cancellation and softer leisure demand.
Given the strength of the first half of 2008 in New England and Boston in particular, we expect this region to struggle in the first half of 2009. For the full year international has been our best region with RevPAR growth of 7.3% in US dollars or 4.5% in constant US dollars followed by the central region where RevPAR growth was 1%.
The Atlanta region where RevPAR declined 7.7% and the north central region were RevPAR fell 6.5% has been our weakest performers. The AIG affect has had a significant impact on our business.
RevPAR for our luxury hotels was down 5.3% through the end of the third quarter and the RevPAR decline accelerated in the fourth quarter falling 16.1%. Excluding our luxury hotels, our RevPAR decreased 8.2% for the quarter and 1.6% for the full year.
Our European joint venture had a weak quarter with RevPAR calculate in constant Euros declining by 13.6%. Similar to our experience with the domestic portfolio, the decline in operations accelerated as the quarter progressed.
Our properties in London and Venice underperformed due to renovations and weak transient demand. While our three properties in Brussels and the Sheraton Warsaw outperformed.
For the full year, RevPAR calculated in constant Euros was down 5%. The Brussels property, the Sheraton Warsaw and the Westin Palace Madrid all finished the year with positive RevPAR while the London and Venice properties underperformed for the full year as well.
For the fourth quarter comparable adjusted operating profit margins decreased by 290 basis points. Our efforts to control cost through the implementation of contingency plans at each of our properties held to constrain the margin deterioration.
While we were able to reduce total costs by more than 5% the decrease was not strong enough to offset the decline in RevPAR and the 10% decline in food and beverage revenues. The decline in food and beverage revenues were due to lower group volume combined with much more conservative customers spending patterns and the implementation of certain contingency plans that resulted in closing certain outlets and reducing restaurant hours of operation.
Although utility costs increased by approximately 3% for the quarter the remaining unallocated costs decreased by over 3% reflecting the impact of the cost cutting measures. Real estate taxes increased by 7.2% and property insurance costs decreased by more than 25% and incentive management fees fell 40%.
For the year our comparable adjusted operating profit margins decreased by 140 basis points. Wage and benefits were essential flat for the full year.
Unallocated cost excluding utilities which increased 5.2% or up only 1%. Property taxes increased 7.6% and property insurance declined 20%.
For the year incentive management fees fell nearly 22%. Our managers have been actively cutting discretionary spending including training, employee relation costs and amenity packages.
They have been proactive in continuing to implement cost saving measures. Additional savings were realized by reducing staffing levels and combining positions and by closing restaurant outlets or modifying their operating hours.
We also expect some benefit as our asset managers and operators further refine and implement cost reducing contingency plans given the extent of our RevPAR decline. These measures would include the further implementation of the closing of floors or section of floors to improve productivity and energy conservation during valley periods and the redeployment of the sales force to business segments that are less volatile in tough economic times such as AAA, government and eChannel business.
These programs are frequently modified to reflect the changing economic environment and the overall level of business. Looking forward to 2009 we expect that wage and benefit costs will decrease by approximately 2% and that unallocated costs will decrease by 2% to 3%.
We believe that utility costs should increase a little over 1% and property insurance will decrease slightly for the year and property taxes will increase 7%. Incentive management fees are expected to decrease over 50%.
As a result we expect comparable hotel adjusted profit margins to decrease 500 basis points at the low end of the RevPAR range and decrease 580 basis points at the high end of the range. We finished the quarter with $508 million in cash and subsequent to quarter end our cash balance increased approximately $113 million with the proceeds from the sale of the Hyatt Regency Boston.
Our current cash balance of over $600 million and our $400 million of remaining available capacity under the credit facility should give us more than ample capacity to fund our business plan for 2009 and 2010. We continue to maintain higher than historical cash levels because of the uncertainty in the credit markets and we will continue to do so until the credit markets stabilize and the timing of economic recovery is more clear.
One last item, a new accounting pronouncement related to the treatment of our exchangeable senior debentures is effective January 1, 2009. As we have previously disclosed, starting with the first quarter of 2009 we will be required to separately account for the debit and equity components of securities.
At issuance the debt is recorded at its fair value which is calculated based on the non-convertible interest rate at the date of issuance which range from 6.5% to 6.8%. The discount which equals the value of the equity component is amortized as an increase to interest expense over the expected life of the debt.
On January 1st our debt balance will decrease by approximately $85 million as this amount represents the remaining unamortized discount. There is no affect on our cash interest expenses but interest expense will increase by approximately $30 million resulting in a decrease to our 2009 FFO of approximately $0.04 per share.
This completes are prepared remarks. We are now interested in answering any questions you may have.
Operator
(Operator Instructions) Your first question comes from David Loeb – Robert W. Baird & Co., Inc.
David Loeb – Robert W. Baird & Co., Inc.
Larry, that was very helpful about the bonds and actually answered two of my three questions. We’re assuming that amortization in your interest and we’re still coming up a bit short.
Can you talk about what your LIBOR assumptions are and what else might be affecting your interest balances?
Larry K. Harvey
You mean as it relates to our projection for 2009?
David Loeb – Robert W. Baird & Co., Inc.
Yes, exactly.
Larry K. Harvey
I would imagine our LIBOR assumption is [inaudible] so it’s probably in the .5% to 1%, no higher than that.
David Loeb – Robert W. Baird & Co., Inc.
Then there is something else wrong in what we’re doing. Is there anything else in interest that is unusual?
Larry K. Harvey
You’re short of our number? You’re counting the $30 million in?
David Loeb – Robert W. Baird & Co., Inc.
We’re counting the $30 million and we’re still coming up short of your number.
Larry K. Harvey
Why don’t you circle back with us offline and we’ll see if we can help you.
David Loeb – Robert W. Baird & Co., Inc.
As long as there’s nothing big in there then that’s fine we’ll figure it out and we’ll be happy to circle back. But, the $30 million clearly is a big entry and that’s what we’ve got.
Operator
Your next question comes from Napoleon Overton – Morgan, Keegan & Company, Inc.
Napoleon Overton – Morgan, Keegan & Company, Inc.
A couple of things, how much of the 3.75% exchangeable notes remain outstanding?
Larry K. Harvey
There’s $400 million of that issue that remains outstanding today.
Napoleon Overton – Morgan, Keegan & Company, Inc.
And that’s puttable to the company in 2010, correct?
Larry K. Harvey
That’s correct.
Napoleon Overton – Morgan, Keegan & Company, Inc.
In addition to that, what other debt maturities, what are total 2010 debt maturities?
Larry K. Harvey
That’s the only debt that comes due in 2010.
Napoleon Overton – Morgan, Keegan & Company, Inc.
I believe you own two Hyatt Regencies in Boston, which one of those was the sale property?
Larry K. Harvey
The one that we sold is the one that was located in downtown Boston. We still own the one that’s located in Cambridge.
Napoleon Overton – Morgan, Keegan & Company, Inc.
Would you be able to share with us anything to give us the perspective on the valuation of that sale in terms of EBITDA the property generated last year?
Larry K. Harvey
We sold the property to a private buyer who one of the requirements of the sale is that we provide very limited exposure with respect to it. Maybe a couple of metrics I can give you though is first off the property has 495 rooms.
So, the sale price represented $227,000 a key. The other thing I would broadly say is that everyone should feel comfortable in look at the multiple we sold if for based on our expectation for 2009 for the asset, it was sold at a premium to our current EBITDA multiple.
Operator
Your next question comes from Celeste Brown – Morgan Stanley.
Celeste Brown – Morgan Stanley
Two questions, first just to clarify on your dividend, hopefully they won’t be worse but if things are worse then what you’re currently expecting could the dividend payment go below the $0.30 to $0.35 for the fourth quarter? Then, my second question relates to the asset purchases in the European JV, it wasn’t clear to me in the press release as to whether or not you wouldn’t be closing on those in the future or is that deal off the table?
W. Edward Walter
Let’s deal with the dividend first. I would say that obviously the final result for 2009 could have some affect on that number but I think probably unless we strayed radically from the estimates we provided we wouldn’t expect to fall short of the low end of that range, so not below the $0.30 level.
Then, as it relates to the European transaction, I think at this point because of some confidentiality requirements that exist with respect to that transaction we’re really frankly not at liberty to say a lot about that today. But, what I would say at this point is that the contract is terminated and I would generally view it as unlikely that we would be closing on that transaction.
Operator
Your next question comes from William Truelove – UBS.
William Truelove – UBS
Just a couple of questions, first on the sale of the Hyatt the $113 million is that gross proceeds or net proceeds after any debt that was associated with the property?
Larry K. Harvey
There was no debt on the property so that would be a net proceeds after transaction costs.
William Truelove – UBS
Second question, the San Diego Marriott Marina which has I believe has some mortgage debt coming due this year, can you give us an update on that?
Larry K. Harvey
That property has $175 million in mortgage debt that comes due in the middle of the year and I think it’s a July 1st date and we’re in the process right now of having fairly comprehensive discussions with a lender regarding the refinancing of that property. We don’t have anything to announce yet but I would say we continue to make good progress on refinancing that asset.
William Truelove – UBS
My third question is more of an operation kind of question especially at your luxury properties, I’m sure as you went in to this downturn you had multiple stages like stage one through stage three of cost cutting, where are we? I assume we’re on stage three, are we now adding stages four and five with the operators?
And, how willing are they to impact customer service because everything that we’re hearing is that they’re trying to do things around the edges. Are they willing to do more upfront customer impactful cost cutting things?
Larry K. Harvey
Bill, I would say that on some aspect we’ve blow page stages one, two, three, four and five and I’ve been suggesting to our asset management team we need to be contemplating six and seven. Some of that is in jest and some of that is in truth.
The process that you go through while it’s nice to be able to describe it in different stages the reality is that the worse the operations get at a particular property the more things that you try to do. Certainly as you look at the luxury end of the portfolio it’s getting hit fairly hard.
It underperformed in the fourth quarter and for the full year. It is clearly underperforming at the beginning of this year, there’s a whole host of reasons that I think many of you have already highlighted in your various analyst reports.
Having met and talked with those Ritz Carltons and Four Seasons about this, I think they’re trying to be as thoughtful as they can about trying to balance the need to maintain their reputation for a luxury hotel and at the same time recognize that both of us need the hotel to perform at some level and we can’t just blindly maintain a service level with our recognizing what that means to the bottom line. So, I think in the case of both of those luxury operators that we work with, they are looking for ways to cut.
I think they have shown flexibility with respect to brand standards as the other owners have and they’re being as thoughtful as they can. Clearly, their margin declines are going to be larger than what we would see for the whole portfolio so based on what we’ve seen and the discussion that we’ve had I think the level of margin decline for that quality of a hotel will probably makes sense in light of the RevPAR decline but, it shouldn’t be radically worse than what we would be seeing in our other full service hotels.
Operator
Your next question comes from William Crow – Raymond James.
William Crow – Raymond James
A couple of question there, first of all Ed can you talk about your view towards future exchangeable note repurchases and how you weigh that against the common stock at $4 a share? Along the same lines have you considered at all or done any homework on potentially buying back or purchasing in the open market other peers exchangeable notes or debt?
W. Edward Walter
As it relates to the exchangeable taking advantage of the market in the fourth quarter buying that back at the discount that we were able to achieve was a great transaction. It was an effective use of our cash, the return on it is fairly high and it obviously was helpful to the balance sheet too.
I think that’s the sort of opportunity that we will continue to be alert to over the course of the next 12 months as it relates to our existing exchangeable but it will end up coming down to an assessment of what the pricing is on that, what’s available in that marketplace and what our cash resources look like. I think as it relates to buying our stock I couldn’t agree more with what you’re really suggesting which is our stock is an incredible bargain but having said that I’d go back to part of what I said in my prepared comments which is in general visibility is pretty ugly right now.
Until we have a better feeling for when the recovery is going to start and how strong that recovery is going to be I think that the most prudent thing for us to do is to really focus on making certain that we have all of our debt maturities covered. I feel very good about the progress that we’re making on that front and I feel very good about the progress we’re making in general at finding additional sources of debt and ultimately on the fact that at some point I’d like to think we’ll see some additional asset sales happen.
But, at this stage to think about buying back your stock in this environment without having a little better visibility about the future I just don’t think that would be a prudent step for us to take today. As it relates to investing in other company’s converts, if I was going to buy any convert I would buy ours because if I was going to buy anyone’s stock I’d buy ours.
If I’m going to invest in any company I’m going to invest in ours. So, at this stage again, until the market were to change in a more positive way than what we’re seeing right now, I think our cash will be focused inwardly.
William Crow – Raymond James
Next question, the sale of the Hyatt in Boston, it wasn’t laden with debt so how did the buyer, if you could take us inside that perspective, how did they finance the acquisition?
W. Edward Walter
I don’t know if we’re completely privy to exactly how they structured their financing of the asset. Our sense that at least for the part of the transaction that we were privy to was that they bought it all cash.
I would assume that they’re going to find financing from some other source later. But, our sense was it was a cash purchase.
William Crow – Raymond James
Final question here, as you’re dealing with meeting planners on future group bookings, are you getting increased pressure to reduce or eliminate cancellation or attrition fees, penalties based on kind of the current environment, especially from financial services firms?
W. Edward Walter
I think you’re starting to see that happen. Some of that is happening on some of the business that’s being discussed for 2009 right now because people will begin talking about booking an event and then not necessarily wanting to sign up for a significant cancellation fee when they’re uncertain as to whether they’re going to have it.
I guess what I would say is the reaction to that will vary meaningfully from one hotel to another. If you’re talking about a time period of the year where you’re very confident based on historical results that you’re going to be able to do business at that time then you may be reluctant to allow the rooms to be booked or the meeting space to be booked by somebody who’s not willing to stand behind the commitment.
On the other hand, if you’re talking about somebody who’s interested booking business during a need period where frankly we don’t have another great solution for that particular time, say it’s a weekend or something like that then I think you’d find that the operator would be a bit more flexible in their approach to cancelation fees. It’s clearly becoming a topic and I think it’s something – and not dissimilar frankly to what we saw back in 2001 and 2002.
As the balance of power shifts a little bit in this negotiation from us as the seller to the customer whose the buyer, you tend to see that some of these things start to slide their way a little bit.
William Crow – Raymond James
I know I said that was my last question but your answer gave me another thought which is what’s going on with 2010 group bookings? Are you seeing cancellations this far in advance or are people kind of just sitting back saying, “We’ll see what the economy does.”
W. Edward Walter
I don’t think Bill that we’re seeing a trend of cancellations or certainly not to the degree that we’ve seen them over the last four or five months related to 2009. What we are generally seeing across the market is a slowness in bookings and we were talking about that last year that we were generally finding that during the course of the year that we were not booking at the same rate that we had in the prior year and I think that would also apply to 2010 right now.
Operator
Your next question comes from Joseph Greff – J. P.
Morgan.
Joseph Greff – J. P. Morgan
Most of my topics have been addressed except for one small one, your cap ex guidance for ’09 how much of that is related to maintenance?
W. Edward Walter
I would probably say about half of that is what we would traditionally think of as maintenance cap ex and then the other half by definition would be larger projects and the completion of the repositioning items that we had started last year.
Joseph Greff – J. P. Morgan
At that level, how long could you have that level of maintenance capital before it starts to impact things? I mean, could you be at that level for two or three years?
W. Edward Walter
I think we could easily be at that level for two to three years. That’s one of the points I was trying to make in our comments is we really feel good about the money that we invested in our portfolio over the last three years and just the comprehensive nature of the work we did has truly positioned our portfolio well by asset by asset and in each of their individual markets.
So, I think we would be able to run at that type of a level without any problems for a couple of years.
Operator
Your next question comes from Felicia Hendrix – Barclays Capital.
Felicia Hendrix – Barclays Capital
A few basic questions, just the sensitivity that you gave in place of guidance just wondering if things actually deteriorated even further than you anticipate can we just take the kind of every one percentage point of RevPAR to $20 million EBITDA which is implied by your 12% to 16% sensitivity or does it get more accelerated after that?
Larry K. Harvey
I would guess that if you were talking about a point or two of additional RevPAR decline that that’s probably as good a metric as we could provide right now. There is some point where it becomes difficult to mitigate the margin decline when you begin to have even more excessive RevPAR decline but I think in the realm of another couple of points or so I think that clearly would work.
Felicia Hendrix – Barclays Capital
And it would flow through to FFO in the same way, correct?
Larry K. Harvey
I think if you just look at what the EBITDA decline would be then once you do the math on the FFO it should track. There’s nothing else in that analysis Felicia that’s really moving because our interest expense shouldn’t really be changing so it’s just EBITDA that’s changing in that equation.
Felicia Hendrix – Barclays Capital
Could you just give us guidance for depreciation or corporate expense for ’09?
Larry K. Harvey
The corporate admin will be up because in the numbers we have targeted corporate admin up about $10 million and the bulk of that is from restricted stock in ’08. We’ve got very little restrictive stock so now in our forecast we have it at the targeted level.
From a standpoint of depreciation we’ve got about $600 million this year, it’s up slightly versus $580 so that’s about a $20 million difference.
W. Edward Walter
Felicia I’d add one thing to Larry’s comments there, if you looked at the absolute level of our overhead leaving out the sort of year-over-year issue that you can run in to because of bonuses and restrictive stock really at historically lows this year for the company what you’d find is we’ve actually reduced our admin year-over-year from ’08 to ’09 by about 10% and then depending upon how we perform those numbers will be adjusted at the end of the year. But, net/net if you look at what we’re actually carrying from an overhead level, it’s down compared to last year.
Operator
Our final question comes from Smedes Rose – Keefe, Bruyette & Woods.
Smedes Rose – Keefe, Bruyette & Woods
You’ve answered basically all of our questions but I’m just wondering kind of off Felicia’s question about things being possibly worse or maybe better could you just talk a little bit now I guess kind of what are your top four or five markets that you are going to get most of your earnings out of given that RevPAR has performed badly across all markets but some worse than others? What are kind of the key needle movers for you for this year?
W. Edward Walter
I think if you look at the markets where we have the largest ownership in, it typically shows up as Washington DC which I think is the market that’s going to do well. You have Florida broadly defined which I think we’re concerned at least some of those markets will see some softness this year.
You have New York which I think will be one of the underperforming markets for the year. I think those are really the big three.
Atlanta would be the fourth and I think Atlanta will be a middle of the pack market. I think there are a couple of other markets that we think will do better.
We’re sort of anticipating some better performance out of San Francisco we have a fairly sizeable presence there and we’re also feeling a bit better about Chicago this year. There’s a fairly good group calendar in Chicago.
We also suffered from some renovation effect last year and we’ll have less of that going on this year so Chicago is one of the markets that we’re counting on for better performance.
Smedes Rose – Keefe, Bruyette & Woods
On your dividend you mentioned that it reflects capital gains and some carryovers from 2008 so is it fair to say that with the guidance you’ve given you’re not really looking for any taxable income for this year?
W. Edward Walter
We talked a little bit about that earlier but I would generally say that expected capital income affect on this year’s dividend at the levels we’ve suggested today is relatively minor.
Operator
That does conclude our Q&A for today. I will turn the call back over to Mr.
Walter.
W. Edward Walter
Thank you everyone for joining us for the call today. We appreciate the opportunity to talk about our results for 2008 and also discuss what we see coming at us in 2009.
We look forward to giving you an update on how first quarter played out and what are thoughts are going forward in late April. Thanks.
Operator
Thank you ladies and gentlemen. Once again, that does conclude today’s conference.
We thank you for your participation and have a wonderful day.