Jul 30, 2015
Executives
Gee Lingberg - Vice President Ed Walter - President and Chief Executive Officer Greg Larson - Chief Financial Officer
Analysts
Smedes Rose - Citigroup Anthony Powell - Barclays Capital Anto Savarirajan - Goldman Sachs Thomas Allen - Morgan Stanley Wes Golladay - RBC Capital Markets Robin Farley - UBS Ryan Meliker - Canaccord Genuity Jeff Donnelly - Wells Fargo Securities Ian Weissman - Credit Suisse Shaun Kelley - BofA Merrill Lynch Chris Woronka - Deutsche Bank
Operator
Good day and welcome to the Host Hotels & Resorts Incorporated Second Quarter Earnings Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Ms. Gee Lingberg, Vice President.
Please go ahead, ma'am.
Gee Lingberg
Thanks, Jennifer. Good morning, everyone.
Welcome to the Host Hotels & Resorts second 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 Web site at 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 second 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 second quarter performance by market.
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 another quarter of positive results for the company, driven by strong rate growth and solid group demand. We’re also quite pleased with our progress on various transactions and value creation opportunities throughout our portfolio.
First, let’s review our results for the quarter. Adjusted EBITDA was $422 million for the quarter and 743 million year-to-date, reflecting a year-to-date increase of 3.3%.
Our adjusted FFO was $0.46 per share for the second quarter and $0.81 per share year-to-date, reflecting a 6.6% increase over last year. Both earning measures are in line with the consensus.
These results were driven by several factors. First RevPAR for our comparable domestic portfolio increased by 5.3%, which matched upper upscale industry performance despite continuing drag from ongoing renovation at a number of our hotels.
Well Greg will provide more detailed insight shortly, we were pleased to see that overall with the exception of Houston and New York, our portfolio performed in line or better than we had expected for the quarter. The strong domestic performance was driven by our group segment, which benefited from a 13% increase in association business leading to group demand growth of 2.7% and rate growth of 4.4% which translated to group revenue growth of more than 7%.
Our transient segment benefited from mix shift as our top rated segment which represent slightly less than half of our overall transient business improved demand by more than 2%. Planned reductions in our lower priced segments resulted in a modest transient demand decline, but overall rate was up 4.9% and our transient revenues increased by more than 4%.
Within the quarter for our domestic hotels, June was our strongest month as April was affected by renovation impact, and it suffered from difficult prior year comparison. Our group revenue growth outpaced transient growth each month, although because of successful rate mix strategies, our transient rate growth was stronger in all months except May.
Evaluated on a constant currency basis, our international portfolio performed well, selling 9% in the quarter when we exclude the Calgary Marriott, which was undergoing a very disruptive room renovation and the JW in Rio, which benefited significantly from the World Cup last year. Excluding those hotels, group room demand increased nearly 9%, while transient rates rose solidly.
When all of our comparable international hotels were included, we had a constant currency RevPAR decline of 5.9% for the quarter. Overall the comparable portfolio generated constant currency RevPAR growth of 4.8%, driven by rate growth of 4.5% and a slight increase in occupancy.
Year-to-date RevPAR increased 4.4% reflecting rate growth of 4.7%, partially offset by a slight decline in occupancy. I would note that the USALI mandated changes in accounting approach artificially reduced each of these figures by about 20 basis points.
Given the strength in the U.S. dollar, we have been watching international travels trends carefully.
Overseas arrivals excluding Canada and Mexico are up about 3% year-to-date through the end of May, with Asia travel up nearly 5%. However, Europe and South American travel are both down by roughly a 0.5%.
Data from our properties confirms that we have seen weakness in travel from the EU especially on the East Coast, but continuing strength on the West Coast where more travel originates from Asia. Comparable F&B revenues grew almost 5% in the quarter or approximately 2% on USALI adjusted basis, with excellent flow through as F&B profit improved by more than 7%.
Overall total comparable revenue growth was 4% for the quarter and 3.6% year-to-date. Comparable hotel EBITDA margins expanded 25 basis points for the quarter and 40 basis points year-to-date.
Again USALI negatively impacted both of these figures by 20 basis points. On the acquisition front, as we announced in June, we acquired the 643 rooms Phoenician, a luxury selection resort for 400 million.
This hotel is ideally located in one of the premium resort markets in the Southwest, in close proximity to nightlife, galleries, museums and businesses of downtown Scottsdale. It is a terrific hotel that we are excited to acquire and it also has several opportunities for value enhancement and redevelopment that we plan to take advantage of going forward.
On the disposition front, we sold three non-core assets during the quarter, including the Sheraton Needham for $54 million which we announced in June and the Park Ridge Marriott and the Chicago Marriott O'Hare for approximately 89 million. Our European JV also sold the Crowne Plaza Amsterdam for EUR106 million.
I would also note that we have a small non-core asset currently under contract for sale and expect to close on that transaction within the next few weeks for nearly $10 million. I would note that these activities have combined to improve the overall quality of our portfolio, while RevPAR is not always the best indicator of quality, it is worth noting that the average RevPAR in the domestic assets we sold this year is less than $100, while the Phoenician RevPAR is north of 220.
While the scale of our acquisition activity has outpaced our disposition so far this year, because of seasonality, we expect that the net -- of these transactions as a reduction of approximately 5 million in 2015 EBITDA. However on a full year pro forma basis, the favorable impact from these activities would be north of 12 million and we expect these transactions to benefit our 2016 EBITDA by this amount.
We continue to actively market properties both domestically and internationally. Given our current level of activity, we anticipate that we could realize proceeds of 100 million to 200 million from international sales by the end of the year.
Domestically we expect the market 100 million to 250 million of assets this fall, but any closings resulting from these activities would likely not occur until late in the year or early 2016. Proceeds from these transactions would generally be used to pay dividends, repurchase stocks or invest in new or existing assets.
Given the uncertainty with respect to timing of these transactions, the guidance I will discuss in a few minutes does not assume that we complete incremental sales other than a 10 million asset I just referenced. During the second quarter, we completed a number of highly disruptive capital projects, including the rooms' renovation of the Calgary Marriott, the Newark Airport Marriott, the JW Marriott, Houston and the JW Marriott, Washington DC as well as the lobby meeting space project at the Grand Hyatt DC.
Year-to-date, the company has invested a 101 million in ROI redevelopment project and $220 million in renewal and replacement CapEx project. Construction activity in the second half of the year will remain robust, with ROI redev is estimated to range from 170 million to 185 million and renewal CapEx ranging from 150 million to 135 million.
However, it is worth noting that we expect disruptions from these projects to not be as significant as we experienced in the first half of the year. As we have previously discussed, we continually look to match operator on property types and brand in an effort to maximize our operating results and asset value.
Last month, we reached an agreement to franchise the Sheraton Parsippany Hotel and ATI has assumed control of the property as the operator. We currently have 12 third party managed hotels, two of which are independent.
We are currently reviewing two other near term opportunities for conversion. Now let me spend a few minutes on our outlook for the remainder of 2015 as there are number of factors to keep us optimistic about our future results.
Our group bookings this year have been very soft and that trend continued in the second quarter. Group bookings during Q2 for the third and fourth quarter grew by more than 20% in terms of revenue.
Because there is a well documented calendar challenges both by the late Labor Day holiday and the timing of the Jewish holiday, our booked revenues are essentially flat to last year for the third quarter, but up by more than 6% for the fourth quarter. We have been pleased with our efforts to shift business into higher rated -- within our year-to-date occupancy running north of 77%, we expect that this trend will continue although it would be more pronounced in Q4.
Overall we expect RevPAR in the second half the entire portfolio will exceed our first half result. Despite these positive trends, we are reducing our EBIT outlook for the full year because our operating performance at the Four Seasons Philadelphia and Ritz-Carlton, Phoenix was weaker than we anticipated as those hotels approach their closing date.
And the severance expenses of these and other management transitions have increased slightly. We have also seen slight increases in the amount of business disrupted by some of our more significant capital projects, especially at the Calgary and Newark Marriott.
In addition as I discussed earlier, the net impact of our acquisition and disposition activity for the full year will reduce 2015 adjusted EBITDA by approximately $5 million. So finally while our overall operating outlook across the country is generally consistent with our slightly above our first quarter outlook, we do anticipate that both Houston and the New York will underperform our previous expectations.
With all this in mind, we expect our comparable hotel RevPAR growth for the year to be 4.5% to 5%. On the margin side given expected rate growth and solid group demand, we expect our adjusted margin increase to be 35 basis points to 55 basis points for the full year.
Based on these operating assumptions, our adjusted EBITDA will be 1.410 billion to 1.425 billion, which is a reduction of 17.5 million at the mid-point. I would stress that guidance for adjusted FFO remains at $1.52 per share to $1.55 per share as savings on interest expenses due to our ability to access new debt re-financings at low prices and the benefit of our stock repurchases have largely offset the impact of expected reduction in adjusted EBITDA.
In summary, we are very pleased with our results for the quarter and outside of the challenges posted by New York and Houston, we remain confident about the industry and our outlook for the second half of 2015. Looking into 2016, we are seeing very strong group bookings as corporations have booking events earlier to ensure that they have access to the best hotels on the desired date.
We’ve been ahead on room nights for 2016 since the beginning of the year. Now we are seeing strength in rate too.
Next year we will also have considerably less disruption from capital project and we will start to see the benefits of our redevelopment project. We feel very good about the health of the industry and how we are positioned for next year.
Thank you and now let me turn the call over to Greg Larson, our Chief Financial Officer, who will discuss our operating and financial performance in more detail.
Greg Larson
Thank you, Ed. Now let me provide some commentary on our market.
The market Southwest continues to be the strongest performing markets with a RevPAR increase of 10.2%. These markets benefited from strong transient and group business in the second quarter.
Transient revenues grew 10% over last year and group revenues were up 13.5% with an increase in average rate over 7% for both segments. San Diego, Seattle, San Francisco and Hawaii all achieved double-digit RevPAR growth in the second quarter.
RevPAR for our hotels in San Diego market grew an impressive 16% beating STAR upper upscale RevPAR growth by almost 500 basis points this quarter. The Grand Hyatt Manchester benefited from having full meeting space inventory as its renovations were completed in the fourth quarter last year.
This enabled our managers to book in-house group business that created compression, which drove group and transient average rates. For our hotels in San Diego, group revenues increased 19% and transient revenues grew 12%.
Strong group business facilitated the 32% increase in food and beverage revenues with a 40% increase in the more profitable banquet and catering business. Our Seattle hotels grew RevPAR 15.4%, predominantly driven by a 13% increase in average rates.
This growth was driven by solid market demand from city wide and the nearby US Open, which created compression and drove ADR. Group revenues increased 16% and transient revenues increased 14%.
Stronger business resulted in impressive growth in food and beverage revenues, which increased nearly 17% primarily from a 24% increase in banquet and catering revenues. San Francisco continued to outperform the portfolio with RevPAR increasing 10% this quarter.
Strong transient demand and solid association group business helped the hotels and grew transient and group average rates, which were up 6.7% and 5.6% respectively, resulting in transient revenues of over 9% and group revenues of 8%. Looking at the remainder of the year, our hotels in the San Francisco market are expected to perform only slightly above our portfolio in the second half of the year, with one property that will begin its renovation in the fourth quarter and as construction at the Moscone Convention Center has negatively impacted group booking pattern.
Our Hawaiian hotels generated RevPAR growth of 12.6% which exceeded STAR upper upscale RevPAR growth by 500 basis points in the second quarter. Without the USALI resort fee allocation change, the second quarter RevPAR would have been up nearly 18%.
This was driven by strong group and transient demand from stable airfare and an airlift increase of 15% for last year as well as the completion of the renovation at the Fairmont Kea Lani. Food and beverage revenues increased 27% this quarter from solid increases in both banquet and catering and outlet sales.
Transient and group revenues were equally strong, both increased over 20% for the quarter. As strong as Hawaii was in the first half of the year, we expect our hotels in Hawaii to underperform the portfolio in the second half of the year due to weaker city wide events and a decrease for Japanese travelers.
Our Atlanta property increased RevPAR by 12.6%, driven by an occupancy increase of 5 percentage points in addition to average rate growth of 5.5%. Our hotels in Atlanta exceeded the STAR upper upscale market RevPAR growth by 220 basis points.
The room renovation at the Westin Buckhead last year contributed to the market's outperformance this quarter. Food and beverage revenues were up 15%, driven by banquet increases from solid group room nights at the Buckhead hotel.
In part, due to the renovations to the Westin Buckhead and Grand Hyatt Buckhead that were completed in the third quarter of last year, we expect Atlanta property to outperform the portfolio in the second half of this year. Our hotels in the DC market increased RevPAR 6.8% with excellent average rate growth of 8% as properties shifted from lower rated transient business to higher rated group segment.
Group room nights increased 12%, while transient room nights fell 11%. Both group and transient average rates increased by 6.7% and 10.8% respectively, resulting in group revenue growth of 19%, offsetting a transient revenue decline of 2%.
The hotels in DC underperformed the STAR upper upscale market result due to the renovation of three major hotels during the quarter. These renovations were completed in the second quarter.
The third quarter for DC will be challenging as certain city wides will not repeat in this quarter as well as the shift of the holiday into September this year. However, fourth quarter looks good as the property start to benefit from the renovations that began in December of last year and there will be no mid-term elections this year.
Unfortunately RevPAR growth in New York, Houston and Calgary continued to be constrained in the second quarter due to a combination of increased supply, renovation and oil issues. All these markets experienced declines in RevPAR for the quarter.
Our initial expectation was for RevPAR growth in New York to turn slightly positive in the second quarter and that did not transpire. However, although RevPAR declined 1.5% in the quarter, it is worth noting the positive momentum throughout the quarter as RevPAR sequentially improved each month with June resulting in positive RevPAR growth of 3.3%.
This was a positive sign. Having said that, the ability to increase rates has been hindered by supply that continues to negatively impact the New York market as well as a decrease in demand from international travelers due to the strength in the U.S.
dollar. Based on these issues, we have decreased our forecast for the remainder of the year, so we are still predicting slightly positive RevPAR in the second half due to easier comps, the completion of the renovations at the Newark Airport Marriott and a better group booking pace in the second half of the year when compared to first half of the year.
In Houston, while the renovation at the JW Houston was completed in April, RevPAR at our hotels in this market declined 8.4%. One major reason was the flooding that occurred in Houston in May.
In addition, declines related to the energy in this industry continue to negatively impact the Houston market. Further, Middle Eastern medical patient business declined at the St.
Regis which affected average rate in the quarter. We should also note that the Medical Center Marriott will undergo a rooms renovation beginning in September which will cause some disruption.
Finally, our Calgary Marriott had a RevPAR decline of 40% for the second quarter, mainly due to the continued extensive renovation at the hotel that was completed at June and also partially impacted by declining energy business as a result of falling oil prices. The decline in energy business will continue to impact our Calgary hotel for the remainder of the year.
Third quarter is expected to improve from second quarter levels that will continue to be challenged by oil issues. However, results for the fourth quarter should significantly improve to be positive as comparable results become easier due to the renovations that began in November of last year.
Shifting to our European joint venture, our assets in Europe had an outstanding quarter with constant euro RevPAR increase of 5.3%, resulting from a 5.5% increase in average rates. Increase was driven by strong transient business.
Transient revenues increased 10%, primarily from a 9.5% increase in average rates. Group revenues decreased 1.8% as occupancy decreased 5%, but it is important to note that average rates increased 3.5%.
Eight of the 18 European joint venture hotels achieved RevPAR results in excess of 9% in the second quarter. With major events in Venice and Milan, our properties in these markets had RevPAR growth of 32% and 16% respectively for the quarter.
Our outlook for the European assets remains encouraging even with the issues surrounding Greece and a potential exit from the euro zone. EVP performance across the region is improving, most notably in Spain and the Netherlands.
Since our last call, Spain's GDP forecast increased 50 basis points to 3% and the Netherlands forecast increased 40 basis points to 2%. Consumer confidence in these countries has been on the rise and tourism has been a large contributor to Spain's economic recovery.
International travel demand has been strong into European countries with a weakened euro. Year-to-date U.S.
travel into our hotels in Europe has increased approximately 5%, but the third quarter figure is looking stronger. This goes well for the band of our European portfolio for the remaining summer months.
Moving to our forecast for the rest of the year, we expect RevPAR to accelerate in the second half of this year with fourth quarter performance significantly exceeding our third quarter performance. As many of you are aware, third quarter last year was our best performing quarter and as a result, it will provide for a difficult comp for the upcoming third quarter; coupled that with the negative calendar impact from the later Labor Day, and the shifting of the Jewish holidays; we expect slower RevPAR growth in the third quarter than the first half of this year.
Inversely, because of the calendar shift and easier comp than last year’s fourth quarter, we expect the fourth quarter will be the strongest performing quarter of the year. As a result, we expect third quarter to generate only 45% of the remaining EBITDA for the year.
During the second quarter, we repurchased 6.55 million shares of our common stock for a total purchase price of 131 million. We have 369 million of repurchase capacity under the program.
With regards to dividend, we paid a regular second quarter dividend of $0.20 per share, which represents a yield of approximately 4% on the current stock price. Given our strong extended operating outlook and significant amount of free cash flow, we are committed to sustaining a meaningful dividend.
In summary, we feel good about the industry fundamentals and our results. Our domestic portfolio performance has been solid and the positive pace of the industry upper upscale RevPAR results and we expect our comparable RevPAR to accelerate in the second half of the year.
This concludes our prepared remarks. We are now interested in answering any questions you may have.
Operator
Thank you. [Operator Instructions] Our first question comes from Smedes Rose with Citi.
Smedes Rose
I wanted to ask you just on the portfolio sales, I think you said you have a total of 200 million to 350 million of international and domestic properties currently being marketed. What are your thoughts around acquisitions I guess at this point?
And kind of what kind of markets would you be primarily focused on?
Ed Walter
Smedes, I think we are -- I want to correct what you said about the sales, we have a number of international sales that are on the market now. We’re expecting to put a lot of domestic properties on the market more in the fall, which is why the closings on that are going to be a bit delayed.
I think on the acquisition side, we are looking at opportunities that would be in markets where we’re underrepresented some of the West Coast market, especially around say LA or in Seattle are markets we might still be trying to buy and certain markets in South Florida too. I think we’re being provided reasons including where our stock price sits in order to move forward with an acquisition, it needs to make sense in the context of an alternative of buying our stock back and so I wouldn’t put us in the aggressive path in terms of acquisitions, but whether the right opportunity to create value we’d like -- well, we'll look to take advantage of it.
Smedes Rose
And I just wanted to ask you maybe just kind of bigger picture sort of I guess strategy. I mean you guys are always trying to sort of I think recycle the bottom kind of tier of your assets.
Would you ever think about maybe pulling that forward and possibly spinning out kind of a subset or carving out or potentially selling to another REIT to whom those kinds of asset might be attractive or to kind of just overall improve the quality of your portfolio more quickly rather than over a period of years?
Ed Walter
No, I think certainly that is a thought that we’ve looked at repeatedly over the course of the last probably 18 to 24 months. I think probably the more efficient execution in the long run would be a sale as oppose to a spin out.
I think there is a spin out, well it looks good on paper, you really got to be thoughtful about the kind of company that you’re creating and making certain that that company has a [indiscernible] on its own or you’re not going to get the valuation that you might think you get. So if there are opportunities to sell whether it was to other REITs or other parties in scale, we would certainly be open to that.
Again I think we found so far, every time we have tested some of those theories about doing a larger sale, the reality is we've come back to the fact that the best way to maximize pricing is one-off transactions that are heavily marketed.
Operator
And next we’ll here from Anthony Powell with Barclays.
Anthony Powell
On the group demand, how is it in the quarter for the quarter group booking pace in the second quarter and how do you expect that to trend over the rest of the year?
Ed Walter
We were modestly down in the quarter for the quarter because we had started the quarter in such a strong position. I would say as we look towards the end of the year, I think we'd probably for the third quarter I would imagine that we would -- we might trend just a touch.
Fourth quarter, I would expect to see that we’ll see more bookings based on the trending that we’ve been seeing which is that we’re booking more as you look at least a quarter out, we’ve been booking more in those quarters for the last three quarters in a row right now. I think what we are experiencing here which is a good think -- and I think we've had this confirmed by all of our operators is that corporations are starting -- recognizing that hotels especially hotels that can accommodate groups running at high occupancies and are getting increasingly filled up.
And so consequently, we are seeing better bookings as we look outwards for the second half of ’15 or ’16 even for ’17 as company start to realize that they need to lock in the spaces that they want for the events that they want to have in order to make it certain that they are getting the right date in the right hotel, so I think that’s a very favorable trend.
Greg Larson
I agree with that, the long-term trends are good, but I would also say that even the short term trends the bookings in the quarter for the entire year for 2015 if you look at that way, the volume was up 13.5% and the average rate book it was up approximately 4.5%.
Anthony Powell
And switching gears I guess to some of your franchising activity, you completed a number of these transactions this year and you have some more to go. Could you just broadly discuss the economics of these deals?
Are you paying lower fees? Have you had more control over the asset or how are you looking broadly at this going more towards a franchise and third-party operator model?
Ed Walter
I think what we’re finding, there is a variety of different situations that we've had this year, so in some cases it just moved. We may or may not be changing the brand and may or may not be creating a different type of a hotel by become -- looking to be something like what we’re doing at the Logan or at the Canby, so there is no one great story, but I think broadly speaking what we’re finding as we evaluate these opportunities to convert to a franchise operator and a little bit more of the local market focus on the marketing side.
So we are expecting in each instance to varying degrees to see a better revenue blocking. And in most cases, this is because these hotels are less dependent on group business and a little bit more focused on corporate transient.
And then we’re definitely seeing a leaner expense model which is lean enough or more lean than our existing model enough to offset the slight increase in fees that we incur in some instances when we convert from a managed to a franchise model. So the bottom-line is in each instance like we’re making the switch, we are ending up with what we expect to be an improved NOI once the new operator have had an opportunity to come into the hotel and for operations to stabilize.
Operator
And next we’ll here from Steven Kent with Goldman Sachs.
Anto Savarirajan
This is Anto Savarirajan for Steve Kent. You periodically review your exposure to different markets.
Understand your view that you would like to have your footprint concentrated in the major markets. But given current trends, would you say you are overweight in a few markets that you would like to move out off and I mean New York City we understand the longer term view there, but is there a view that you are overweight in the market and would like to trim exposure in maybe few of those markets?
And the second question, you did mentioned that New York, you have towed down your expectations for the back half of the year, when we look through to 2016 and 2017, how are you thinking about the ability to get back pricing as the supply pipeline accelerates? And are there things that we are missing that perhaps you have a better view off?
Ed Walter
Well, I don't know that I necessarily know everything that you know, so it may be hard for me to figure out what you're missing. But I can certainly understand the thrust of your question.
As we look certainly New York's been a challenging market and while we expected to be stronger in the second half of the year in terms of 2015, it has been a challenging market for us too. As we look at next year, I would agree with your point that supply look to be increasing next year.
I would note that as we all look at those statistics is that at least as we -- based on the numbers that we’ve look at, it tends to be a consistent over prediction a year out of the supply that's going to be delivered in New York and then what it has actually delivered is less. I can’t assure you that that trend will happen in 2016, but we have seen that trend happen in the last two years or three years.
Having said that I think that supply will be the concern again next year. The thing that could offset that would be stronger predicted growth in the U.S.
in general in terms of economic growth and investment and to the extent that that also would perhaps benefit in terms of additional activity in the financial sector that would clearly be a plus for New York. International travel has been a big benefit to New York.
I think this year is probably a bit of a drag on New York. This is one of the reasons why we've seen some weaker performance there.
I can’t predict what happens with currencies for 2016, but if the delta and the change in currency with the dollar relative to the oil and some other things would perhaps potentially be different next year than it has been this year where the increase in the dollar's value is not as great. That could vote favorably for New York and these trips that were postponed from 2015 happen in 2016.
I'd say the other thing that I would note is that as we look at the booking pace for next year at least as it relates to our portfolios, we were looking at a considerably down booking pace in 2015, we are looking at essentially a flat booking pace at this point for 2016, which again is certainly trending in a better direction than where it was. As it relates to our exposure in New York, I think we’re probably a little over allocated to New York.
Having said that I think we’re looking seriously at marketing one of our assets and there will probably be -- I think any sale that we would do in New York would be certainly contingent on getting a very attractive price. We do view the markets in the long run as an important market to be invested in and it's not easy for us to find assets that we like in the market, so we would want to be thoughtful about exiting one of our hotels, but if we can attract the right size, we would be open to consummating a transaction.
Greg Larson
And Anto, keep in mind based on obviously our acquisition this year the small disposition that we have this year in New York and actually the underperformance of New York this year, if you look at New York as a percentage of our EBITDA at the end of this year, it's going to be closer to 12%.
Anto Savarirajan
And you spoke of the Phoenician a very large asset. Not a lot of people would have the wherewithal to do such a transaction, Host can.
When you look at your opportunity set, do you lean one way or the other where you find that you have an edge with some of these larger transactions compared to some of the other opportunities? And again, would Host at some point think about adding on a select service portfolio, given the popularity it seems to be enjoying now?
Ed Walter
I'm sorry, didn’t hear, what type of portfolio?
Anto Savarirajan
Select service hotels.
Ed Walter
Select service, I would say that to your first point, we certainly recognize that on larger transactions because of our scale and because of our excess capitals that we have an ability to buy those and other and maybe in environment where it's a little less competition than what we might see in other properties, that doesn’t mean that we’re just going to focus on those opportunities, but it is something we certainly recognize as we look at different acquisitions. In terms of adding a select service portfolio, I think I would -- that we would be comfortable on adding select service assets.
There is no reason why you could do or purchase a portfolio of those assets, but that would really be driven far more by where those assets were located and what the growth prospects were for those assets located and what the growth prospects were for those assets as opposed to making a strategic movement to adding select service per say.
Operator
And next we will hear from Thomas Allen of Morgan Stanley.
Thomas Allen
Can you just help us bridge your revised 2015 EBITDA guidance? I think you cut the low end by $10 million, cut the high end by $25 million.
You obviously cut the high end of your RevPAR guidance and then you also named a number of other kind of drivers. But can you just like maybe quantify each one of them if you could?
That would be very helpful. Thank you.
Greg Larson
Yes. I think the simple way to do this really is that if you look in terms at the midpoint where we talked about $17.5 million decline, look just a hair over 5 of that is attributable to that the delta between the EBITDA generated by the Phoenician and the EBITDA that's lost by the asset delta we have consummated already this year.
As you look at the other three sources that we identified for the reason why the EBITDA declined, it's pretty much an even allocation across those three items.
Thomas Allen
And then just as a follow up. Can you just help us with The Phoenician seasonality?
I believe that's a very seasonal property where you actually lose money during the summer, but could you just help us think about it?
Greg Larson
Yes. I'd say that you are right in your assessment of the property, it's probably a desperate season during the course of the summer and it probably generates about two-third's, actually it probably generates about three quarters of its profit during the first five months of the year and about one quarter of its profit over the remaining seven months of the year.
Operator
And next we will hear from Wes Golladay with RBC Capital Markets.
Wes Golladay
You mentioned about the group outlook getting a little tighter, people scrambling to get rooms forward out. Are you seeing any interest in moving to secondary markets and out of these high occupancy gateway markets?
Ed Walter
We don’t have a lot of hotels in those secondary markets necessarily. So it'd be probably be a little bit -- we probably don’t have great way to quantify that, but I think one of the reasons why you're seeing the secondary markets at some of the lower price points, begin to perform better is because they have -- they run at lower occupancies and then they have had an office, so they have more room to take on groups and things like that.
So I think that's why when you look at what -- as broadly across the industry, the secondary markets have for about last 12 months had bigger occupancy gains and I think it's in part because of what you identified.
Greg Larson
It's certainly helping out Atlanta for instance, that's right.
Wes Golladay
And then when we look at New York, we always hear about the crisis of confidence in that market. I was just wondering how much of that do you think that was actually potentially mix shift is getting more of the lower rated leisure customers in the market.
Just curious about how the business transient customer is in that market? Are you able to have pricing power with that customer?
Greg Larson
I would say that off the markets across the country, New York is one of those ones where you have the least pricing power right now. I think that's frankly part of the problem that we have all been grappling with.
Now you got to remember when you look at New York is that the first quarter you had a very difficult comp that related back to the Super Bowl. And the first quarter of New York has always tends to be the quarter where New York runs at lower occupancy levels compared to its overall stabilized level of occupancy for the year.
So in the environment where you have some increase in new supply slightly demand than what we have experienced in the prior year leaving out the Super Bowl equation, you ended up with a fairly competitive environment, even despite the factors that markets landed at a very high overall occupancy level. We do think that as you work your way into the fourth quarter that scenario starts to look a little bit more effective because the market runs at even higher occupancy levels in fourth quarter than it does the rest of the year.
Having said that, I think we are still finding that it's not easy to push rates especially for transient business.
Operator
And we will now hear from Robin Farley with UBS.
Robin Farley
Two questions; one is you may have said this in your introductory comments and I missed it, but you mentioned the group bookings were up for 2016. But I don't think you gave the same, didn't give the percentage numbers the way you did for second half.
So I wonder if you could just be a little more specific on group bookings for 2016?
Ed Walter
Yes. Robin at this point, it looks like our group bookings for ’16 are trending up close to 6% from a revenue perspective.
Robin Farley
Okay. And then the construction disruption, previously you guys had quantified that as being 25 million for the full year.
Is that, there wasn’t a reference to that figure in today’s release. I America just wondering if you felt that was still the best way to quantify it.
Ed Walter
Okay. Now remember Robin that number refers to the disruption that we were expecting to see in our non-comparable hotels as opposed to the comparable ones.
So that number is capturing the delta that we are experiencing year over year in say the Ritz Carlson in Phoenix or the Four Seasons in Philadelphia, the Axiom in San Francisco. Those hotels where they’re being closed for part of the year or in the case of the San Diego Marquis where we eliminated a major chunk of our meeting space in order to build the new ballroom.
I would say that number had trended up just and that is really what part of what we were referring to in our comment about the increased loss in effect because of the severance and weaker operations at the Ritz Carlson and the Four Seasons in the spring. But in the bottom-line those Hotels was simply that with as the hotels were focusing -- essentially as the management teams and employees focusing more on closing and what they were going to do next, and we overestimated the profits that we thought we would generate during next period.
We have been conservative but it just turned out to be weaker. The good news is with that problem has no impact on what happens with the hotel next year.
Greg Larson
Correct. Obviously increased severance cost this year, obviously we’ll not impact next year.
Robin Farley
Okay. That is great, thanks.
And then just a quick clarification on the group comments for 2016, the revenue up close to 6%. What was specifically the Q2 bookings in Q2 for 2016, the change?
Ed Walter
Robin, I don’t have those handy.
Robin Farley
Okay, no problem. Thank you.
I can get that.
Ed Walter
The bottom line though is the same trend that we had otherwise been seeing was that we were our situation in ’16 and in ’17 during the course for the second quarter.
Operator
And we’ll move on to the question from Ryan Meliker with Canaccord Genuity.
Ryan Meliker
I just had a couple of follow-ups for you, just to piggyback off what Smedes was asking earlier with the potential to sell incremental assets. You guys are obviously doing a lot of things that are creating value whether it be ticking off assets to sell one by one, or converting to third-party operations, or buying back stock at lower levels, which all make sense but none of it seems to move the needle that much given your scale.
You mentioned the willingness potentially to do a larger portfolio transaction. Obviously you guys have historically trimmed the portfolio on the bottom end.
But if you were going to do a larger portfolio transaction I guess how do you guys think about your portfolio in terms of the size that you might be willing to dispose of given the right opportunity in the market?
Ed Walter
Ryan I think that’s a hard question to answer any abstract. And I wouldn't want to leave people with the sense that we think we need to sell a large number of our assets.
We think we have a very strong portfolio at this point and we’re very happy with how the bulk of it is performing. So I think it really comes down to, we’re going to continue to, as you described, we’re going to sell if the weaker assets within the portfolio.
And as we continue to do this over the course for the last number of years, the quality of what we’re seeing continue to improve. But I wouldn’t want to start to speculate on what a larger transaction might look like, because I wouldn’t want to raise the expectations that something like that was likely.
Ryan Meliker
Okay, that is fair enough. And then just the second question I had was, Greg, you had mentioned that New York started to turn in June but you are still somewhat wary about New York because of slowing international travel.
We've heard from others that they haven't seen any slowing in international travel. I know the airline data is lagging, but that is not showing any slowing in terms of the in-planements and de-planements for travel abroad.
Is this specific to data that you're getting from your hotels associated with international bookings or is there some other data source; I guess what gives you confidence that you are seeing a slowing in international travel to New York?
Ed Walter
I think the airlines added that we are seeing nationwide is suggesting that travel from Europe is off a bit, and specific data that we’ve got in for our individual hotels in the market has suggested that we have seen weaker travels from Europe over the course of the first half of this year. Now as you then look at -- I would point out that on Europe, a lot of the analysis on Europe has been EU currency countries are down in terms of travel.
The UK where the currency has been stronger and travel from Switzerland which I think has been much smaller piece of it, has actually been up a bit. But we’ve also seen, I think in some of our assets we have seen that travel from Asia has offset this decline in EU and in other hotels we have not seen that I think that in a lot of cases this has to do with for travel booking that the individual hotels have gone after, it has to do with their group pattern.
So it is tricky to draw broad conclusions. We’ve done the best we could to interpret sort of variety of different data points to give you a sense that when we look at it overall we feel as if international travels been off slightly from New York this year.
Ryan Meliker
And then just one last follow-up on New York. It sounds like sequentially things got much better in June.
We heard from one of the smaller hotel REITs that their New York in July was up 7%. Are you seeing continued sequential improvement?
I am not asking for guidance or detail, but just are you seeing that trend that you saw in June persist well into July?
Ed Walter
We look at the first few weeks of July; I say we’re roughly in line with what we saw in June. I want to say we’ve seen acceleration.
But I think we’re still comfortably positive. So hopefully that will continue for this week and to the rest of the summer.
Operator
And next we’ll move to a question from Jeff Donnelly with Wells Fargo.
Jeff Donnelly
Just sticking with New York, I mean the supply/demand outlook there for 2015 and 2016 certainly seems challenging. I think it has been talked about quite a bit.
And it could cause some maybe rockiness in cash flows. I am curious, Ed, what is your perspective on the direction of asset prices in New York in light of that environment?
Because we certainly had robust prices; it seems to have disconnected a little bit from the operating cash flows. Do you expect that to sort of reconnect one way or another?
Ed Walter
Imagine that the cap rates will say low Jeff, just because there is no inherent attraction to the market, but I would say that I would, is that one of the things that I think we’re going to find out over the course of the fall, with our intention to move forward in marketing and asset is to get a sense of exactly how strong the market would be. A lot of the activity that you've seen so far as the more attractive prices has been international buyers.
I think they are going to continue to be attracted to the market, because they have perhaps a longer perspective in terms of what’s going about the attractiveness in the New York market and they may have different motivations in terms of the returns that they are trying to achieve with their capital. So overall I would expect that at least when looked at in the context of cap rates then New York will continue to be one of the more attractively priced markets.
One of the issue will be what the NOI is that that cap rate is going to be applied to.
Jeff Donnelly
And if it will be -- I am thinking, my recollection is that you guys couldn't take action on it until sometime in early second quarter maybe of next year. Are you contemplating bringing it to market in advance of that?
Will the closing sort of be well-timed? Or do you feel you need to wait until you are clear to sell that you can begin marketing?
Ed Walter
I would say that we are not looking at one of our two largest assets in terms of marketing we are looking at one of our more mid-sized assets, that we think has a more unique story that could be successful -- successfully executed in today's market there.
Jeff Donnelly
And just maybe I'll switch gears, and correct me if I am wrong. I thought your original 2015 guidance had no assumption for net investment activity.
So is the reason that the year-to-date net investment that we have seen of about $260 million is impacting your 2015 guidance simply just a timing issue? In effect the seasonal contribution of The Phoenician as you mentioned in the second half just isn't enough to offset what is probably a pretty high cap rate on the non-core asset sales?
Ed Walter
I would say that it's a high cap rate on a non-core sales just to make that a general point there. We have been selling -- that assets that we have sold when you take into account the asset and then you -- that might be associated which is I think only significant in the phase of one of the sales.
We have been getting very attractive cap rate and this fixes for those deals. It is what you survive which is fireline as it's in the desert, you make your money in the first part of the year.
And you don’t make that much in the last seven months of the year. The assets that we sold -- you think about Boston and some of those other markets, even Chicago tend to be stronger in the summer and in the fall and tend to be relatively weak in the winter and in the very early spring.
So we just ended up in the scenario when you look at it for '15 is we ended up buying an asset that's strongest performance has been in the period of time before we acquired it. And the assets that we were selling not to the same degree, but to some degree have a stronger second half of the year than the first half which is why the net delta is negative this year, but on a pro forma basis would be positive and certainly we would be expecting when we look at it in the context of 2016, we are confident we have added to EBITDA of 2016 virtue of our assets.
Operator
And now we will move on to a question from Ian Weissman with Credit Suisse.
Ian Weissman
Yes. Good morning.
Just shifting gears a little bit on Houston. Clearly it came in weaker than you had anticipated.
I guess my question is, is the business drop-off in that market just companies delaying business or you are seeing cancellations?
Greg Larson
I think it's a little bit of both Ian. And as I mentioned we also had some other issues in the quarter whether it is disruption or the flooding that I talked about.
I think when we look out into the second half of the year, certainly Houston was better than the RevPAR decline that we announced this morning for the second quarter. But having said that, I think when we look at our second half forecast today for Houston, it's slightly lower than what we were predicting a quarter ago for Houston.
Ian Weissman
Your expectations for Houston I mean today Shell announced they are laying off 6,500 people and 1,000 of those will be felt in the Houston marketplace. Is your expectations for Houston taking into account a worse economic environment and more job layoffs or are you feeling like your outlook is on sort of steady as you goes, business operations in that market?
Greg Larson
Right. We try to take into account all those factors.
The negative factors that you just mentioned, the group booking pace actually the third quarter is actually quite weak, the flip side is that the group bookings phase in the fourth quarter in Houston is extremely strong. And so we are trying to take into account all those things including the fact that some of our disruption will be behind at this time.
Ian Weissman
Okay. Thank you very much.
Greg Larson
Yes, I think trying to keep in mind, Ian, is that Houston is really about 2.5% to 3% of our -- So obviously pretty likely move for us.
Operator
And now we will hear from Shaun Kelley with Bank of America Merrill Lynch.
Shaun Kelley
Hey, good morning guys. Thanks for taking my questions.
So I just wanted to talk a little bit more about some of the international hotels in the portfolio. So thinking about what we are seeing out of Brazil and Canada which have been obviously particularly weak.
A question sort of is as you look forward Ed, and you are starting to focus a little bit more on refranchising or franchising away from managing in some of the US markets, do you think that some of these smaller international markets are starting to become bigger distractions and those are areas where you could look to prune the portfolio a little bit or are these still I think part and parcel to the Host strategy at this point?
Greg Larson
No I think we are. I would say that we have a disproportionate number of international hotels in the market right now.
And some of that is a I say that part of that's strategic and part of that is also tactical from a standpoint that we look across the portfolio, there are five different metrics that we use in purchase deciding what asset to sale. These were assets there moved up on the listing - I would say that in terms of what's happening in real and what's happening in Calgary and the back of the growth international RevPAR down significantly.
The Calgary has been a challenging room renovate, but long-term it's been a good market for us. Short-term it's suffering both for the renovation and long-term it’s been a good market for us, short permit suffering both from the renovation and then some of the same issues that exist in Houston, because that’s also, that’s probably and it’s equivalent of the Houston market.
But certainly as a general asset, but I wouldn’t see that as a distraction. In the case of the real assets we continued to understand what's happening in that market from capital flows and things like that.
We know we got a strong year probably next year with the Olympic, I think if we saw the right opportunity to execute to sale, we would be open to that. But we also want to be thoughtful about capturing good prices there too.
Shaun Kelley
Thanks, Ed, I think it is really clear. And just to be, just to go back to the international or the marketing of the hotels that you talked about, because I missed some of the upfront comments.
Just to be clear, included in any of the international sales are you a net seller in Europe or are you actually -- is nothing in I guess the JV contemplated there?
Ed Walter
I would say, we expect to be a net seller in Europe this year. We are still -- that is the market that we are still interest in acquiring.
So that is what we are certainly looking aggressively there. But I would say looking in our overall level of activity and handicapping that, I would say that we have already sold one asset there.
We got very good pricing on that. And I think we’re more likely to be, we’ll be in net seller in Europe this year more likely than a net buyer.
Operator
And now we’ll move to question from Chris Woronka with Deutsche Bank.
Chris Woronka
Just one for me. Can you guys maybe talk a little bit about as you look out to next year and I’m really not asking for guidance?
But on the renovations, which obviously have had kind of a disproportionate impact for you this year, how much comfort do you have that those, that the impact will kind of naturally reverse in terms of whether it is group bookings at some hotels or your discussions with the corporate room buyers or anything like that?
Ed Walter
Chris, as it relates, as we talk about those non-comp hotels which is where the bulk of the problem this year, the one that have been close. We’re certainly based on the initial results we’re seeing, We feel good about how those properties will perform next year.
But having said that, but also say that we’re in the midst of construction; our management company has just taken over. All of those hotels tend to be a little bit more transient than group dominated, I am thinking more specifically of the one in San Francisco as well as both Phoenix and the Philly assets.
So I don’t know that we have a lot of good indicators right now other than our overall underwriting of how those assets is performing in those market. We should have better insight into that as we get into the third quarter fall, and certainly as we get into the next year’s first fall, only from the standpoint, but that point the operators will be in place, the product will start to be more visible in the market and we’ll have a better sense of the bookings.
But we’re expecting across the board in those hotels, but not only recapture the loss EBITDA from this year, but also to be adding meaningfully to EBITDA over the course with 16 and 17. So I think that I’m certainly confident that we’ll recapture most of the, all of a lots EBITDA next year.
And then the real question is how much is that expect to growth and we have been 16 versus 17.
Operator
Thank you. And that does conclude our question-and-answer session.
I’d now like to turn the call back over to Mr. Walter for any additional or closing remarks.
Ed Walter
Well, thank you all for joining us on the call today. We appreciate the opportunity to discuss our second quarter results and outlook with you.
We look forward to providing you with more insight in the remainder of 2015 and third quarter call in the fall. Have a great day.
Enjoy the rest of the summer. Thanks.
Operator
Thank you. That does conclude today’s conference call.
We do thank you all for your participation.