Apr 30, 2015
Executives
Gee Lingberg - Vice President Ed Walter - President and Chief Executive Officer Greg Larson - Chief Financial Officer
Analysts
Anthony Powell - Barclays Chris Woronka - Deutsche Bank Smedes Rose - Citigroup Shaun Kelley - Bank of America Harry Curtis - Nomura Nikhil Bhalla - FBR Rich Hightower - Evercore ISI Ryan Meliker - MLV & Company Thomas Allen - Morgan Stanley Steven Kent - Goldman Sachs
Operator
Good day and welcome to the Host Hotels & Resorts Incorporated First Quarter Earnings Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Gee Lingberg, Vice President.
Gee Lingberg
Thanks, Noah. Good morning, everyone.
Welcome to the Host Hotels & Resorts first quarter 2015 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 described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed and we are not obligated to publically update or revise these forward-looking statements. In addition, on today’s call we will discuss certain non-GAAP financial information such as FFO, adjusted EBITDA and comparable hotel results.
You can find this information together with reconciliations to the most directly comparable GAAP information in today’s earnings press release, in our 8-K filed with the SEC and on our website at www.hosthotels.com. With me on the call today is Ed Walter, our President and Chief Executive Officer, and Greg Larson, our Chief Financial Officer.
This morning, Ed will provide a brief overview of our first quarter results and then will describe the current operating environment as well as the company’s outlook for 2015. Greg will then provide greater detail on our first quarter performance by market and discuss our margin results.
Following the remarks, we will be available to respond to your questions. And now, here’s Ed.
Ed Walter
Thanks, Gee. Good morning, everyone.
We are pleased to report that 2015 is off to a solid start with another quarter of positive results for the company driven by strong rate growth and solid group demand despite the headwinds of business interruption from capital investments. We continue to feel good about industry fundamentals and our outlook for the remainder of the year, which I will discuss in more detail in a few minutes.
First, let’s review our results for the quarter. Adjusted EBITDA for the quarter was $321 million, which reflects a 4.2% increase over last year.
Our first quarter adjusted FFO per diluted share was $0.35, which exceeded consensus estimates and reflected 6.1% increase over last year. These results were driven by several factors.
First, RevPAR for our comparable hotels on a constant currency basis increased 3.8% for the quarter driven by rate growth of 4.8%, which was partially offset by an occupancy decrease of 0.7 percentage points. As we detail on our call in February, our operating results at our comparable hotels were materially affected by a number of comprehensive room and meeting space projects at several of our larger hotels.
At the 15 hotels that were under significant construction during Q1, RevPAR declined by more than 13% and EBITDA fell by nearly $17 million when compared to 2014. When looking at the performance of our hotels that were not under construction in Q1 of either 2014 or 2015m RevPAR was up 5.5% and this portfolio saw meaningful improvement in market share.
RevPAR growth in the portfolio was driven by transient rate growth and a combination of rate and demand growth in our group business. Our transient rate was up more than 4.5% as we experienced strong rate growth in all segments of our business and now achieved the average rate achieved in the first quarter of the prior peak.
On the group side, demand increased by 1% driven by an 8.5% increase in our association segment. Corporate business was flat to last year, which means we booked over 15,000 rooms to offset the loss of the Super Bowl group we had in 2014 in New York City.
Group rate was up 3% leading to group revenue increase of 4%. Perhaps providing better insight into the strength of our group business, demand and revenues increased more than 2% and 5.5% respectively over last year when we look at the hotels unaffected by renovation in either 2014 or 2015.
While only about 9% of our EBITDA comes from foreign sources, the dramatic strengthening of the dollar did reduce EBITDA in the quarter by approximately $4 million. The solid rate growth and positive group activity led to comparable EBITDA margin expansion of 50 basis points and comparable hotel EBITDA growth of nearly 5%.
As you might expect, the margin expansion of the hotels not under renovation was significantly higher than the level we experienced in the comparable portfolio. Now let me spend a few minutes regarding our approach to capital allocation.
First, I want to be clear that we continue to have a positive view on the lodging industry and on the cycle. As most of you know, forecast for supply in 2015 and 2016 indicate it will fall short of the historical long-term and short-term demand level.
And while it is early to be predicting 2017’s supply, based on the construction sites announced to-date, we do not expect it to accelerate meaningfully. All this adjusted for at least the next two years provided there is no impact to the demand side of the equation, revenue should continue to increase better than inflationary levels, and the operating environment in our space will remain attractive.
As you might anticipate, we are not the only capital source with this view. Lending to our industry has continued to improve and equity capital has been drawn to the higher NOI growth our sector can generate.
The natural consequence of these trends as pricing has continued to improve and anticipated returns on acquisitions have contracted. Recognizing these facts, over the last two years, we have sought to take advantage of the market by selling assets generally in non-target markets or in suburban locations within our target markets, including some of our big BOSS Group hotels.
In fact, in the last 26 months, we have sold over $1.2 billion of asset. We expect to continue to improving our portfolio in 2015 with roughly $100 million to $150 million in sales in active acquisition currently and with a plan to market at least an additional $200 million to $300 million in asset over the remainder of the year.
Over the last two years, we have been clear about our desire to have a strong balance sheet view from both the coverage and a leverage perspective. Irrespective of our current view of the industry’s, history and experience has taught us that a strong balance sheet is our company’s and our shareholders’ best defense against an unpredictable world.
Today, we are comfortable that we have the balance sheet strength that we believe is appropriate. As a result, going forward, at some unique circumstances, we would expect to fund additional investments through a combination of proceeds from asset sales, cash flow generated by operations, and modest debt issuance.
As market conditions have evolved, we have found it more difficult to identify assets that satisfy our return requirements. As a result, we have renewed our efforts to generate value from our existing portfolio.
Our initial success was the redevelopment of the Atlanta Perimeter Marriott and the Sheraton Indianapolis have lead to additional activity in this arena with the conversion of the Phoenix Ritz-Carlton to an independent hotel affiliated with the Autograph brand to be operated by Destination Hotels is just the most recent example. While there is near-term disruption from these types of investments, we expect that they will generate mid-teens or better returns, which clearly exceed what we expect to generate from acquisitions.
We’re also expanding our focus on acquisitions to include transactions which require this type of approach as we believe there is somewhat less competition and a greater likelihood of achieving our return requirements. While we are aggressively pursuing several investment opportunities and do expect to complete more acquisitions this year than we did in 2014, we would not be surprised if our sales activity exceeded our investments.
For that reason, our Board has approved a $500 million stock buyback program which will be effective once we file our 10-Q this week. While our level of activity under that program will depend on our stock price, our sales and operating activities as well as our other investment alternatives, we felt it made sense to have such a program in place to give us the opportunity to effectively enhance our investments in our great portfolio of hotels.
Purchases can occur during any of our open periods which generally begin after our earnings call and end slightly before quarter end. In that respect, we do view our stock is very attractively priced.
While we recognize the broader markets concern about the disruption we expect to incur from our increased capex spending this year, we believe the market is underestimating the benefit that capex will deliver in 2016 and 2017. While we have projected that we will lose $25 million of EBITDA in 2015 compared to last year and seven non-com hotels that are being closed in full or in part due to significant renovation.
We expect to reverse the projected $25 million in disruption this year and add an estimated $25 million or more benefit going forward. With respect to the disruption in our comparable portfolio I highlighted earlier in my comments, given our expectations of lower capex spending in 2016, we expect to see less general disruption next year that we are experiencing in 2015.
And while it seems to be fashionable to some to criticize the strength of our balance sheet, we would view our investment grade rating which leads to superior access to the credit markets throughout the cycle and our highly liquid stock is benefit worthy of a premium multiple not at discount. Finally, it is worth noting that we think the replacement cost for our portfolio which includes signature assets in virtually every major gateway market in the country average over 425 key [ph], well above our current trading level of 320.
Now let me spend a few minutes on our outlook for the remainder of 2015 as there are a number of factors that keep us optimistic about our future results. As I described earlier, fundamentals in the industry continue to be positive as key economic factors driving demand such as GDP growth and business investments will trend positively over the full year.
Overall, we expect group demand to remain solid through the remainder of the year. Continuing our experience in Q4 of last year, bookings in the first quarter for the year increased by more than 10.5% and the average rate was 8% higher than last year.
Due to the strong bookings in the first quarter, demand in the second quarter is now up more than 3% with rate up more than 3.5% resulting in revenue growth of more than 7%. Overall for the year, our group rate is up more than 2.5% with group revenue up nearly 3.5% which represents a significant increase from where we started the year.
Construction activity will continue to affect operating results with meaningfully higher year-over-year spending in Q2 although the impact in Q2 should not be as severe as what we experienced in Q1. Over the last six months, the dollar is appreciated by more than 15% against the international currencies relating to markets where we own hotels and it is expected to appreciate further going forward.
As a result, we now expect the year-over-year impact of this currency depreciation on EBITDA to be $25 million for the full year which is about $8 million worse than what we projected in February. Offsetting the currency decline, we expect to see better than originally expected benefits from some of our cost saving initiatives suggesting that our margin improvement for the year will be higher than what we indicated in February.
While we do expect to complete additional sales and acquisitions throughout the year, our guidance does not include any transaction activity beyond the one announced sale of the Delta Meadowvale Hotel, Canada. With all of this in mind, we continue to expect our comparable domestic hotel RevPAR growth for the year to be 4.5% to 5.5%.
On the margin side, given expected rate growth and solid demand growth we expect our adjusted margin increase to be 30 basis points to 60 basis points through the full year. Based on these operating assumptions our adjusted EBITDA guidance will remain at $1.420 billion to a $1.450 billion and a $1.52 to a $1.55 per FFO per share.
In summary, we are very pleased with our results for the quarter and remain confident about our outlook for the remainder of 2015. Thank you and now let me turn the call over to Greg Larson, our CFO who would discuss our operating and financial performance in more detail.
Greg Larson
Thank you Ed. As expected our market results for the first quarter were mixed, while there were some outstanding performing markets with double digit RevPAR increases and were partially offset by negative results for hotels in New York, DC, Houston, and Canada.
However it was encouraging to see that in most of our markets RevPAR growth was predominantly driven by rate increases. Let me now provide some commentary on our individual markets.
It was encouraging to see that for a first time in a long while in East Coast market Boston lead performance with an impressive 20.5% increase in RevPAR, resulting from a 6% growth in occupancy, coupled with a 9.5% ADR increase. Despite the negative impact from the record-breaking winter storms four of the five hotels in that market posted impressive double-digit RevPAR growth ranging from 13% to 37%, with two of those hotels benefiting from prior year room renovation.
Without the benefit of these renovations remaining hotels grew RevPAR over 13%. F&B revenues increased approximately 19% leading to EBITDA growth of nearly 200 basis points.
Our hotels in Boston outperformed the STAR upper upscale hotels in the market by 600 basis points. In addition to positive renovation impact at Sheraton, Boston [00:02:09], our managers in Boston focused on a strategy to improve group occupancy, especially at our two large hotels.
As a result, group occupancy in the first quarter improved 670 basis points at our Boston Copley Marriott and Sheraton Boston properties, which helped drive the increase in RevPAR in F&B revenues. Looking west, once again our hotels in San Francisco had an excellent quarter with occupancy growth of 3.6% each point, and an increase in average rate of 10.3%, resulting in RevPAR growth of 15.4% in the quarter.
This growth is even more impressive when taken into account that this is a comparison to last year's first quarter RevPAR growth of 25.3%. All five of our comparable hotels in San Francisco posted double digit RevPAR growth, benefiting from strong transient and corporate group demand in the market this quarter.
Group revenues increased approximately 15% and transient revenues improved 12.1%. Our properties in San Francisco are expected to have strong RevPAR growth for the remainder of 2015 and the city will continue to be a top performing market for us.
Our Phoenix assets also had a very strong quarter with an increase in RevPAR of 14.5%, driven entirely by strong ADR growth of 15.8%. Group revenues increased over 27% for the quarter.
Extraordinary demand was created by the Super Bowl, spring break, and baseball spring training allowing hotels to capitalize on the market compression which drove premium rates. We expect our hotels in the Phoenix market to be one of our stronger performers for the year.
Our hotels in Asia posted strong results for the quarter with RevPAR growth of 11%, with a significant portion of the growth coming from a rate increase of 9.2%. Our New Zealand and Australian hotels benefited from the demand generated from the Cricket World Cup matches held across several cities of both countries in February and March.
The strong events calendar allowed the hotels to yield both transient and group rates. Our markets had outperformed the portfolio in the quarter at Los Angeles, San Diego, Florida and Atlanta with RevPAR increases ranging from 6.3% to 8.3%.
Strong transient business and excellent average rate increases drove our performance at the hotels in these markets. In San Diego, strong citywide events created compression and drove growth group and transient rates for the hotels in this market allowing us to outperform.
All these markets are expected to continue their strong performance in the second quarter. Although the market conditions were strong in Chicago and Seattle in the first quarter, our portfolio was hampered by continued renovation, which limited our RevPAR increases in these cities to 2.5% and 2.3%, respectively.
The good news is that in both markets, although one renovation was completed in the first quarter and we anticipate the remaining project, the Embassy Suites Chicago rooms’ renovation will be completed in May. As expected, due to increased supply, renovation, and oil issues, RevPAR growth for the first quarter in your New York, DC, Houston, and Canada, was difficult to achieve as all of these markets experienced declines in RevPAR.
Our hotels in New York remain challenged because of the tough Super Bowl comparison, ample new supply, winter storms, and a lighter city-wide calendar continue to affect our hotels ability to drive rate this quarter. Our hotels had a rough start with January and February RevPAR down 17.7% and 5.3% respectively.
However, the bright spot was that margins results were exceptional with RevPAR growing 7.4%. It should be noted that the first quarter is usually the weakest for New York and we’ve anticipate that the rest of the year will perform better than the first quarter.
And in fact, we are expecting positive RevPAR growth in remaining quarters. We have not yet seen any impact from the strong U.S.
dollar to the New York and anticipate that some of our traveler tourists from abroad may be impacted by recent currency changes. Moving to DC, continued renovations and the absorption of the new supply in the market hindered results for the quarter.
Three of our larger hotels in the city continued to be under major renovation during the quarter, which was the main reason for DC’s 5% decline in RevPAR. We expect the performance of our properties here to improve in the second quarter as the group booking pace is strong and renovations are expected to be completed in the quarter.
I should also note that the city-wide are looking strong for 2016 and 2017. DC’s best convention center years were in 2005 and 2008.
The city’s booking pace for 2017 is very close to the peak of 2005 and has surpassed the pace achieved in 2008. In Houston, the continued renovation at our JW Houston and the decline in the energy segment negatively impacted RevPAR this quarter resulting in a decline of 9.7%.
While the renovation at the JW Houston was completed in April, the travel declines related to the energy industry, an industry that has commenced with nearly 50,000 layoffs recently, will continue to negatively impact the Houston market for the remainder of 2015. Finally, our two hotels in Canada had a RevPAR decline of 21.7% for the quarter mainly due to the continued extensive renovation at the Calgary Marriott.
The room renovations are expected to be completed by the end of June and the meeting space renovations of property is expected to be completed by the end of August. This renovation disruption combined with the declining oil prices translates to continued underperformance for our Canadian asset in comparison to our portfolio for the remainder of the year.
Shifting to our European joint venture, our hotels in Europe had a great quarter with RevPAR increase of 4.2% on a constant euro basis. Strong transient business more than offset the softer group business and help drive the RevPAR increase this quarter.
With a strong increase coming from transient customers, outlet revenues increased 2.8%, but were offset by banquet and AV revenue declining 3.4% resulting in a total food and beverage revenue decline of 80 basis points. Even with the decline in food and beverage revenue, our hotels in Europe were able to generate a 3.6% increase in food and beverage profit with productivity and cost control initiatives.
Our outlook for the European asset remains encouraging as sentiment in the eurozone has turned positive. The economic outlook for the eurozone significantly improved in April from 1.1% to 1.5% driven partially by quantitative easing policies, cheap oil, and a cheap euro.
Most notable increases in our economic outlook for the rest of the year were in Spain and Germany with both countries GDP forecast increasing 50 basis points from the prior forecast. We continue to expect that domestic and international demand will improve in Europe with these stronger GDP forecast and the benefit of the cheap euro.
Moving to our margins. Our comparable hotel EBITDA margin increased 50 basis points in the first quarter on RevPAR growth of 3.8%.
This margin increase would have been 20 basis points higher without the USALI adjustment. We are pleased with the increase be achieved in the first quarter as our hotels attained impressive rooms and food and beverage flow-throughs.
More than anticipated rooms, wages, and benefits and changes in cancellation policies contributed to strong rooms flow-through. In the past room reservation could be cancelled up at 6 PM on the date of arrival.
Beginning in 2015, certain hotels had changed the policy so that reservations must be cancelled within 24 hours or the guest will be charged for the room for tax. This policy will continue to improve room profit going forward as the hotels have been somewhat lenient in the beginning that will begin enforcing this policy in full force going forward.
Other factors such as utilities and property insurance expenses help increase margins this quarter. Utility expense was down 7.7% and part due to energy ROIs completed in 2014 such as the steam to gas conversion at the Sheraton, New York.
Property insurance was also down 10.3% in the quarter. Looking forward to the remainder of 2015, we believe that RevPAR growth will continue to mainly be driven by average rate growth, which should lead to solid rooms flow-through.
On the other hand, our incentive management fees will continue to increase at a more normalized level and we also anticipate real estate taxes to increase well above inflation as our property values have grown. In addition, as Ed mentioned in his prepared remarks the strength in U.S.
dollar is expected to continue to impact our EBITDA for the full year. With this in mind, we continue to expect 2015 comparable hotel EBITDA margins to increase 30 basis points to 60 basis points.
As previously mentioned, we estimate that without the USALI adjustment, 2015 margins would be higher by 20 basis points. In summary, we feel good about the industry fundamentals and our results.
We are focused on executing our renovation and repositioning plan to deliver long term value for our shareholders. This concludes our prepared remarks.
We are now interested in answering any questions you may have.
Operator
[Operator Instructions] And we will take our first question from Anthony Powell with Barclays.
Anthony Powell
Hi good morning guys.
Ed Walter
Good morning.
Greg Larson
Good morning.
Anthony Powell
Ed, thanks a lot for the comments on the renovation and also you’ve appetite to do more acquisitions that could require some Capex, does your renovation activity imply that you are having more positive view of a lodging cycle then maybe some censuses right now?
Ed Walter
I don't know that I’d, I would say, it shouldn’t be compared to what other people think, but I think we certainly do have a very positive view on the lodging cycle as I outlined in my comments and feel this certainly is the time to benefit from the investments we're making in the properties that we already own.
Anthony Powell
Thanks. And I guess, also on the change in the investment team, has that changed your target markets for acquisitions or your overall acquisition philosophy for the rest of the cycle?
Thank you
Ed Walter
No it doesn't. I think actually the changes that we've made will hopefully allow us to focus even more carefully and thoughtfully on the markets that we are interested in acquiring in, but by splitting up to U.S.
between Jim Risoleo who was our Chief Investment Officer previously and now is located out in the West, and then bringing in Nate Carroll, who is the senior leader within the company, who has been an active member of the investment committee and a very strong executive. Putting them in charge of the Eastern half and the Western half of the country, I think will allow us to be even more focused in our investment efforts and I’m expecting to see good results out of that change.
Anthony Powell
Just one follow-up, final follow-up on the repurchase of $500 million, how did you come up with the $500 million number was there leverage ratio you were targeting or just what were your thoughts on that number versus maybe a larger number like $1 billion?
Ed Walter
I think in part, I would say that we typically, when we were issuing stock we tended to look to get authorization to do that up to $500 million and I think in terms of buying back stock we felt that $500 million was sort of a good round number. It obviously, if we execute fully on that program there is the opportunity to initiate another one, but a lot of this was tied to our expectations around sale activity.
Anthony Powell
Alright. Good quarter.
Thanks a lot.
Ed Walter
Thank you.
Operator
We’ll take our next question from Chris Woronka with Deutsche Bank.
Chris Woronka
Hi, good morning guys. Wanted to ask you may reference to potentially doing some more brand or manager changes and that kind of thinking to the history of your company, you guys have successfully renegotiated some management contracts overtime.
I think you’ve typically done them kind of in bunches at once. Is there any thought to going back to some of your operators and just revisiting certain things?
Ed Walter
Chris, I would say that we are always looking at opportunities to may be make changes in one property and then acquire benefits in another. We’ve done it a couple of times where we done what I would sort of view is very large transaction, both of those with Marriott when we renegotiated our contracts back in 2002 and then again in 2005.
I would say what more likely to happen in the near term is something similar to what happened in Calgary, where we agreed to extent the Calgary contract in written for getting flexibility on to other properties one which we subsequently sold. Flexibility that we acquired was the ability to sell that property unencumbered by management.
And so, we are always looking at opportunities like that. I think it’s reasonable to assume that over the course of the next couple of years or couple of more opportunities like that would develop.
Chris Woronka
Okay, very good. And then just a quick follow-up on the share buyback and I think you just mentioned that it could relate to some future asset sales.
To the extent you do that, do you envision that being more of a programmatic buyback or would it kind of be more opportunistic and price based and spread out or maybe come together in a short period of time.
Ed Walter
I would say that given that our basic plan is to fund it primarily through asset sales, I would suggest that it would more likely be spread out. But having said that, consistent with how we both pursued stock buyback programs in the past and stock issuance in the past and a lot of that relates to where the stock price is.
So to the extent that the price where to be more attractive than we might – we would accelerate our buying in those circumstances and in situations where it would might increase significantly then we may be out of the market for a period of time. So it will be dictated a bit by the pace of sales and then furthermore – and then offset by to the degree to which sales might be reinvested in other assets, your existing ones or new ones and then ultimately also affected by the stock price.
Chris Woronka
Okay, very good. Thanks, Ed.
Ed Walter
Thanks.
Operator
We will take our next question from Smedes Rose with Citi.
Smedes Rose
Hi, thanks, its Smedes. I also just wanted to ask you on the buyback.
It seems like in light of your comments about 2016 and even some early comments about 2017, why wouldn’t you want to frontload this now using your line and I am not suggesting you trash the balance sheet or something. But if you feel it fairly confident that you could pay it down pretty quickly with the proceeds from asset sales, why not take advantage of what looks to be really a very compelling discount to NAV particularly in light of what you just threw out as kind of per key value.
Could you may be speak to that a little bit?
Ed Walter
Steve, I think the point we are trying to make in our comments is we do feel good about the cycle and we do feel the part of that cycle that we can predict is the supply side, which we can reasonably predict that. And we are not seeing at this point any problems on that side.
Having said that I think there is always risks on the demand side, so I think we are comfortable with where we are. We will have flexibility to perhaps do a bit of what you were describing as we move forward, but I think some of that again is tied – I mentioned we are looking at some deals that we want to be thoughtful about how we fund those transactions and would obviously like to see the asset sales occur that [indiscernible] going to use to fund the buyback.
So it doesn’t all have to happen sequentially, you don’t have to sold the property in order to fund the buyback but you want to have a reasonable expectation that the sales will occur in order to fund the buyback. And of course some of this gets tied to just the availability of those periods of time when you can actually be in the market to buy.
So I get your point and I don’t disagree with it in total, I just think we – at the same time I don’t believe that the Board was comfortable with the notion that we would aggressively frontload that program in anticipation of things that would happen. I think, that alludes - I've seen people do, maybe move aggressively on expectations in the past and the world can change on you and surprise you as a matter of fact.
Smedes Rose
I guess just on that as well, is there any thought to maybe reducing your exposure to international markets, which have proven to be maybe extraordinary relative versus the domestic market?
Ed Walter
There certainly are some international assets that are part of for sale program for this year, so that’s something that we are looking at.
Smedes Rose
All right, thank you.
Operator
We will take our next question from Shaun Kelley with Bank of America.
Shaun Kelley
Hi good morning guys. Maybe just a follow-up on the last question, but very specifically Ed, is there a magnitude of discount to NAV that makes it so attractive that you need to look at buybacks instead of doing an acquisition, is there like a, kind of a, I mean is it 20% or 30% type number that just makes it – that makes that the compelling rational?
Ed Walter
Yeah, I haven't thought about it specifically in terms of a percentage reduction to NAV, but certainly as we’re looking at other alternatives we are looking at both what's the opportunity with that acquisition versus what do we think the return would be on the stock and to the extent that the stock is a more compelling investment then that's going to see more capital.
Shaun Kelley
Okay, thanks to that. And to switch gears, you know you talked about keeping some fire power for continued M&A and so the question there is, I think in the past you guys have talked about and maybe it was even just last quarter, some potentially larger scale, I think single asset, but probably at larger scale type deal that might be out there, do you still think that larger or bigger assets are available or things we looking at more opportunistic smaller scale and more like some of these independent hotel deals we’ve seen around this sector recently.
Greg Larson
We’re looking at a combination of both. Some are larger single asset possibilities and then we are also looking at a number of the smaller deals that might be out there.
So, both of those would potentially be on the play.
Shaun Kelley
And has anything changed from your comments last quarter in terms of just the availability of some of those big assets?
Greg Larson
No I don't know, I wouldn't think that we see a difference in terms of where we were last quarter, maybe one point that you are getting at indirectly is that we - when we talked about the options that we had last quarter, I think we suggested at that stage that we might be in an either or position relative to stock buyback versus investing. And I guess what I would say is as we look forward as we look at what we would be interested in trying to sell this year and have thought about that, the conclusion that we reached is that we probably have the capability to both do new investments and buyback stock, obviously the relative balances of those two will change and will obviously work our way through the year.
But we didn't see it as an either/or proposition and so that's why we wanted to go ahead and implement the program at this point in time because our stock price is attractive. We do want to have the ability to be able to purchase it and then we will - the degree to which we execute on one version versus the other will be based upon the relative returns that we’d see from each of those alternatives.
Greg Larson
Yes, certainly we can do both of those things, but I would add we could also put out over $600 million in the form of a dividend.
Shaun Kelley
Great, thanks guys. I appreciate the color.
Operator
We’ll take our next question from Harry Curtis with Nomura.
Harry Curtis
Good morning guys. Following up on renovations, I don't know, I jumped on the call late, Ed as you look at the make-up of your portfolio today do you see a more large-scale renovations for 2016 that are likely to get done?
Ed Walter
Harry, there are a few projects that we are going to start at the end of this year. That will be sizeable renovations of individual hotels that will happen during the beginning of 2016.
Lease based upon our current expectation, but overall when we look at the program that we are envisioning for 2016 and compare it to 2015, we expect that the dollar amount that we invest will go down and the impact of those activities next year will be less than what we are feeling this year.
Harry Curtis
By what magnitude, please.
Ed Walter
I don’t want to give you a number right now because we are very early in the process on the capital budget. But I think it’s – I’m not talking 5% or 10%, I’m talking more than that.
Harry Curtis
Yeah. I mean it is important with respect to return of capital to see that CapEx being to come down and to give investors a sense of what percentage of your assets still need innovation.
Ed Walter
You know, Harry, the one thing to recognize in our sector is you’re always in some level of renovation. And I know you know that.
A big chunk of the larger investments that we are making this year, it relates to the – really what we call ROI or redevelopment projects and I continue to believe that those are the projects that you also want us to be doing because, as I mentioned in my comments, we think the returns from those investments are in the mid-teens and those are attractive way to both enhance value of the portfolio and enhance the valuable of our cash flow. So that part of what we’re doing to me is very much value accretive.
I think the part that – and I would like to do more of those to the extent that those opportunities such as what we are going to end up doing in Phoenix with the Ritz-Carlton, which present themselves. On the other hand, what we’ve talked about before in the first quarter, I think we talked about in February and are continuing to highlight is, both Greg and I talked about in our comments is, we did have a number of larger renovation projects to comparable hotels, which certainly had a negative effect on those comparable hotel performances during the course of the first quarter.
That CapEx, which deals more with maintaining the portfolio, is accelerated a bit in the beginning of this year because of some contractual negotiations we had whether it was with extending a ground lease or extending a management contract in return for other benefits. That level of capital is what I expect will be declining next year and that’s why I believe the level of disruptive will be lower.
But we will know more about that as we work our way through the year. Our budget process, we’re coming up with next year’s capital program really happens over the course of the summer.
Harry Curtis
Okay. Thanks, Ed.
And just a quick question on the importance of scale in the REIT segment. It certainly matters in the C-Corp segment.
And do you think for the REITs that the bigger the better? And to that extent, do you expect any consolidation within the lodging REITs this cycle?
Ed Walter
I think there are certain benefits of scale that just relate to either your ability to access the unsecured debt market as the foundation of your portfolio and sort of your ability to perhaps develop in-house capabilities in certain areas. In our instance, I think our ability – our scale forces us to develop a really comprehensive construction team, which I think makes the difference in terms of what we been and when we are pursuing construction project and the like.
So I do think there are some benefits to that. On the other hand, I wouldn’t say that scale in and of itself, certainly for us at this stage, enhancing that scale is not necessarily a goal.
For us, it is about enhancing profitability and share value. In terms of predicting what’s going to happen within the sector, I think many of you have commented that there – you could certainly see some logic for some consolidation that hasn’t happened in our sector in the past, I think it will be hard to predict, but it’s necessarily going to happen in the near term.
Greg Larson
Harry, I think the other big benefit as you know from size is just – increase stock liquidity as well.
Harry Curtis
Okay. Thanks, guys.
Operator
And we will take our next question from Nikhil Bhalla with FBR.
Nikhil Bhalla
Hi, good morning, Ed, Greg, and Gee. Just a couple of questions here.
The first question is for Ed. I think you mentioned early on that the market may be underestimating the positive impact from renovations into 2016 that you might expect.
I just want to kind of dig in a little bit into that, specifically, what kind of gives you confidence that going to be the case, is it your pace for 2016, that continues – got stronger than 2015 or just city-wide in your major markets that look a little bit stronger next year than this year, any color? Thank you.
Ed Walter
Yeah, Nikhil, what I was referring to there was that, we – my sense is that the market may be underestimating the benefit that be expected to arrive out of the seven projects that are essentially going on are non-comparable this year because we’re closing parts of those properties. And as a result of closing parts of those properties, all parts of those properties this year, we are losing about $25 million in EBITDA this year compared to last year.
As we – most of those projects with the exception of the San Diego will be coming back online no later than the first quarter ’16. And so as we are in ’16 and ’17, we would expect to both recapture the $25 million that we are losing in 2014 because they won’t be closed anymore and then based on the rationale under which we undertook those projects, we would expect to see another $25 million or so of incremental EBITDA that would flow to the company in ’16 and ’17 as a result of our successful completion of those projects.
So that’s what I was talking about as part of my comment. So it’s not – its inherently the assessment and the underwriting of those individual project takes into account what’s going to be happening in those markets.
And so the strength of the convention cycle is San Diego in ’16 is one of the benefits that we expect to derive from having our ballroom complete. But I was really referring to those projects as opposed to a blanket statement about how well the portfolio of the industry would perform in 2016.
Greg Larson
Ed, I agree with that but I also would say that we are also experiencing a lot of disruption in our comp portfolio as well. And so for instance, as I mentioned, three of our largest hotels in D.C.
were all under renovation in the first quarter. So as those hotels, as those renovations are completed by call it May of this year, then those hotels will start outperforming this year and obviously in 2016 as well.
Again, the same thing, I think we mentioned the Calgary Marriott, a lot of disruption going on there. The RevPAR is actually down 42%.
That hotel is actually in our com set. So again when that hotel – we will look at that hotel next year, my guess is that RevPAR growth can be substantial.
Nikhil Bhalla
That’s very helpful. Thank you for that.
And one other question on asset acquisitions, do you still see some assets in portfolio that you might be interested as the price will rise, both nationally and internationally.
Ed Walter
Yeah, I don’t want to necessarily comment on any one company portfolio, but you should assume that we regularly look at whatever the brands are interesting in selling, we have strong relationships with all of the brand. And so we would always be in conversations with them about what options might exist.
Nikhil Bhalla
Thank you.
Operator
And we will take our next question from Rich Hightower with Evercore ISI.
Rich Hightower
Hi, good morning everyone. Two questions here.
The first is a follow-up to the earlier question on capex for this year. Correct me if I am wrong, I think that the ROI portion of the total capex budget is going up slightly from what was announced last quarter.
And if I am correct in saying that, is that an increase to the budget versus what was originally expected or is that just pulling forward some of those other 2016 projects that you mentioned just pulling them forward into this year. And then I’ve got one follow-up after that.
Ed Walter
Sure. Yeah, I would say as usual in this area, it tends to be a combination of factors.
So as part of some of the redevelopments that we are looking at, we have identified some incremental opportunities that we think will add value including a one I would say a meaningful energy ROI project where we’ll end up producing our own power for our particular hotel which we think will significantly reduce our utility cost. So some of it is an increasing scope, some of it is the fact that as we look at the timing for when we’re going to be completing some of the improvements, the reality is we are hopeful of being perhaps completing things a little bit earlier and then that result would further dollars allocated for this year to go up a bit.
Rich Hightower
Okay, that’s helpful. Thanks.
And then my follow-up is just on the guidance largely unchanged from prior. It does sound like FX is getting a little worse than you expected and you said that was offset by cost savings.
But in the prepared comments, it did sound like group booking activity and some of the forward numbers that you guys are looking at are getting a little bit better incrementally. So I am just wondering if that’s the case, why guidance didn’t go up slightly on that alone relative to these other factors.
Ed Walter
I guess what I would say is, first of all, I think you’ve assessed all that correctly in the sense that we basically are feeling a bit more pain from the current or anticipating that we will feel some more pain on the currency side, which is being offset by the margins. And I’d say you’re right about what's happening on the group side and we were very encouraged by the strong increase in rooms booked in the first quarter and perhaps even more encouraged by the fact that the rate was up 8%, compared to what we booked last year.
So our group booking pace for this year is continuing to look better and better as we work our way through the year. We certainly hope that that trend continue and I think to the extent that we benefit from that trend continuing that might offer an opportunity for an improvement in our top line estimates, but it’s really, it was just one quarter and I think we just simply - we are certainly - in a sense we've improved our guidance because we've offset the decline in the currency impact, but it obviously doesn't show up when you look at the aggregate numbers in nominal dollars, but we're feeling good about where the year is headed and hope we continue to feel good.
Rich Hightower
Okay, that's it from me, thank you.
Ed Walter
Right.
Operator
We'll take our next question from Ryan Meliker with MLV & Company.
Ryan Meliker
Hi guys most of my questions have been answered though one thing, I was hoping you could give us some color on was back in the third quarter 2013, you guys issued equity via the ATM at around $18.39 [ph] now with the stock $2 higher and essentially trading at the same forward multiple and consensus estimate, you guys have instituted a buyback and I think that's great, I'm just curious how you reconcile those two things? Is it just based on the opportunities you have for investment then versus now or is there something else are you not even concerned about the fact that you wish you clearly had a price $2 below where the stock is trading now in terms of buybacks, just how do you think about that, that's helpful, thanks.
Ed Walter
Ryan I can't necessarily tie that specifically to that particular issuance of stock and I'm not debating your numbers, I'm just simply saying, I don't know that we would necessarily tie specifically to that, but as we approach issuing equity through this last or five years, one is I know that the average multiple that we issued that activity at whereas a couple of terms higher than we always did today, more than a couple of times higher. So, I think we felt very comfortable whenever we were issuing equity previously that we were issuing at a premium to our NAV.
I think at this point in time as we look at where our stock sits and having achieved the leverage objective that we have, we tend to view our stock is trading at a discount to that NAV. So, I think the way, the general way we looked at this is that we've tried to issue stock when it’s above our NAV, we used that to buy assets, we did not interesting pay down debt, we used that to buy assets as we grew and then at this point in time given where we are we are perhaps a bit – while we would like to continue to buy assets as I indicated in my comments just looking at where the markets are [indiscernible] prices if we were to sell more and so in an environment like that when we think we are buying the stock at less NAV, we think that's a fair trade.
Ryan Meliker
Okay.
Ed Walter
The stock, as the market gets better and as the value of the portfolio improves the stock is going to go up. I’m comfortable with any of the stock issuances that we made because as we worked our way through the cycle, we are working more now than when we issued that stock previously, but at this point in time, I think we are not as being as fairly valued as we should be, which creates the opportunity to buy stock back.
Ryan Meliker
Okay, just out of curiosity, I would be curious about your perspective if you talk about trading at a discount to NAV today, but a premium to NAV when you were issuing the equity, do you think that's more driven by the underlying cash flow growth in the assets, or do you think cap rates have compressed in your assets over the past couple of years?
Ed Walter
Probably a combination of both and then we clearly had strong cash flow growth in our portfolio and the cap rates have certainly compressed leading out certain individual markets. I think they did compress from earlier in the cycle.
We are at a point in the cycle with now, where I think you’d like to see cap rates generally - you are comfortable if they continue to maintain their position, but certainly over the course of the cycle we have seen cap rate compression and we have benefited from that.
Ryan Meliker
All right, thanks for the commentary, as it’s all from me.
Ed Walter
Thanks.
Operator
And we’ll take our next question from Thomas Allen with Morgan Stanley.
Thomas Allen
Thank you, sir. Can you help us think about trajectory of RevPAR growth quarter-by-quarter in 2015.
It’s been a pre-coming in a lot of lodging earnings call this quarter. I think companies, if they expect U.S.
RevPAR growth to continue accelerating through 2015? And then for you specifically, can you just help us think about kind of the renovation impact and also group trends and seasonality in specific markets like New York and how to think about the overall impact.
Thank you.
Ed Walter
It sounds what – I think your first part of your question was just to talk about maybe our RevPAR growth as we progress through the year. As you know, we really do not give quarterly guidance.
We give full year guidance. Having said that, I think when we look at our quarters for this year, I think the strongest quarter for us should be the fourth quarter.
Greg Larson
And in general, if you look at where our expectations are and our guidance are for the full year, it’s clear that the first quarter is all that. So we are obviously expecting things to improve as we work our way through the year.
Thomas Allen
Okay, helpful. Sorry...
Ed Walter
And then what was – I think you had some questions about some of the individual markets.
Thomas Allen
No. That was basically what I was trying to get out of it.
You obviously have company specific things going on. So it was kind of a two-part question.
One, kind of asking what your thoughts on general market U.S. RevPAR growth and if you try – to accelerating in the second part was just idiosyncratic if something happened for your portfolio specifically.
Ed Walter
Yeah. The other thing I would mention Tom is obviously RevPAR is important but margins are important as well if not more important.
I would say that clearly when we look at our – we had a great first quarter with an increase in margins of 50 basis points. I think when I think of the second, third, and fourth quarter, the fourth quarter clearly will be the best quarter from a margin growth perspective.
So that way, that helps you in modeling the quarters as well.
Thomas Allen
Thanks. And then just a quick follow-up, on the European JV RevPAR was obviously 4%, but you had food and beverage, it was down 1% and we heard some comments about [indiscernible].
Do you think that, that decline in F&B is anything, is it indicative of group trends at all or is it just really one-off things. Thanks.
Ed Walter
Yeah. I would say that group tends to be a little bit lighter in the first quarter and allow European hotels anyway.
So I think that that was – I don’t know that I would read a lot into that in terms of full year in Europe. I would say about Europe is the best as we could tell is that, we did get some good look from enhanced international travel coming into Europe.
And so I think actually it’s just obviously – just the first part of the year and the summer travel season will be more significant in that respect. But it looked like our visitation from the U.S.
was up 6% to 8% in the first quarter compared to last year, but I think that’s one of the reasons why we lease to price RevPAR growth in Europe.
Thomas Allen
Great. Thank you.
Operator
And we’ll take our next question from Steven Kent with Goldman Sachs.
Steven Kent
Hi, just to follow on Tom’s question, on the international travel front, you mentioned earlier that you might see some weakness into some of your gateway cities from Europeans. I think you mentioned that.
As we get further in the year, what’s the normal booking curve for your international customers meaning are they booking two months in advance, six months in advance, 10 months in advance, so maybe that’s why we haven’t seen that negative implication yet. And the counter is as you just noted, you maybe saw some benefit of Europe for Europe or U.S.
to Europe. Is that a shorter booking cycle?
Ed Walter
Yeah. Steve, a lot of that has to do with where the source of the travel.
So in other words, the tourists tend to book a bit longer out. I think that individual travel is probably a bit shorter.
It hard to put a specific timeframes around that, but I would imagine based on this example as opposed to real data that you and I would both be comfortable with. The individual piece of it is maybe 60 days to 90 days but the tour business tends to be a bit longer.
We certainly – we are obviously aware of the changes in the currency and the dollar relative to – especially the euro. And so, we’ve been interested to see what that was going to do to our business.
In terms of best international travels that we see unfortunately ends in December, but I was surprised to see that at least in the month of December, even during a period of time when the euro had already started to fall appreciably compared to the dollar and same I think with the pound too, are two largest countries that send folks to the U.S. and UK.
And Germany was actually up in December compared to the prior year, which I thought was a good sign. What we are hearing so far here is that there has not been any real trend of less international travel into our hotels in the gateway market.
I think there is a sense on the West Coast that the Asian travellers are really – other than Japan, are continuing to grow at a pretty rapid rate in terms of their visitation to the U.S. Now as you circle back to the East, we do think – we continue to think that there could be some risk in terms of travelling to New York and into Florida.
But a gain the feedback that we’re getting from the hotels so far is they are not seeing a reduction in reservation and so we are going to watch that carefully over the course of the summer.
Steven Kent
Okay. Thank you for that
Operator
And this does conclude the question-and-answer session. I would like to turn it back to Ed Walter for any additional or closing remarks.
Ed Walter
Yeah, well, thank you for joining us on the call today. We appreciate the opportunity to discuss our first quarter results and outlook with you.
We look forward to providing you with more insight as to how 2015 is playing out on our second quarter call later this summer. Have a great day.
Operator
And this does conclude today’s conference. Thank you for your participation.