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Apple Hospitality REIT Inc  (NYSE:APLE)
Q4 2018 Earnings Conference Call
Feb. 26, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Apple Hospitality REIT Fourth Quarter and Full-Year 2018 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kelly Clark, Vice President of Investor Relations. Please go ahead.

Kelly Clarke -- Vice President, Investor Relations

Thank you, and good morning. We welcome you to Apple Hospitality REIT's fourth quarter and full year 2018 earnings call on this, the 26th day of February 2019. Today's call will be based on the fourth quarter and full year 2018 earnings release, which was distributed yesterday afternoon.

As a reminder, today's call will contain forward-looking statements as defined by federal securities laws, including statements regarding future operating results. These statements involve known and unknown risks and other factors, which may cause actual results, performance or achievements of Apple Hospitality to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Participants should carefully review our financial statements and the notes thereto as well as the risk factors described in Apple Hospitality's 2018 Form 10-K and other filings with the SEC. Any forward-looking statement that Apple Hospitality makes speaks only as of today, and the company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.

In addition, certain non-GAAP measures of performance such as EBITDA, EBITDAre, adjusted EBITDA, adjusted EBITDAre, FFO and modified FFO will be discussed during this call. We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com.

This morning, Justin Knight, our Chief Executive Officer; Krissy Gathright, our Chief Operating Officer; and Bryan Peery, our Chief Financial Officer, will provide an overview of our results for the fourth quarter and full year 2018 and an outlook for the sector and for the company. Following the overview, we will open the call for Q&A.

At this time, it is my pleasure to turn the call over to our CEO, Justin Knight.

Justin Knight -- President and Chief Executive Officer, Director

Thank you, Kelly. Good morning, and thank you, for joining us today. As we begin 2019, the macroeconomic backdrop continues to be relatively strong with healthy GDP growth, low unemployment, rising corporate profits and high levels of consumer confidence, despite some political uncertainty in the US and abroad. Although the hotel industry experienced only modest growth during 2018, fundamentals are stable and we remain optimistic that 2019 will be another year of steady performance for Apple hospitality REIT.

Our performance during the fourth quarter of 2017 related to the two hurricane recovery and restoration efforts in Houston and parts of Florida create a difficult year-over-year comps for us, which were exacerbated by the margin impact of the 2018 hurricanes Florence and Michael and ramping new supply in many of our markets. For our portfolio, comparable hotels RevPAR declined 0.8% during the fourth quarter and 0.2% for the year, adjusted EBITDA grew approximately 2% for the quarter and the full year.

Through continued strategic mix management and effective cost control measures, we were able to achieve comparable hotels, adjusted hotel EBITDA margin of 35% for the quarter and 37% for the full year, well within guidance provided at the onset of 2018 and above the revised guidance -- or above the revise guidance despite revenue challenges. We are incredibly proud of both our asset management and on-site management teams, especially during this period of moderate to flat top line growth with continued wage and expense pressures.

We anticipate, we will continue to see moderate demand growth in 2019 with property level performance challenged by new supply and continued expense growth overall including increases in labor cost driven primarily by a competitive labor market. From a capital allocation standpoint, we returned $380 million to shareholders in 2018 and over $1.2 billion since listing through dividends and share buybacks. While we anticipate that funds used to buy shares will ultimately be offset by proceeds from asset sales, we were able to utilize our balance sheet to take advantage of what we saw as significant discrepancies between public and private market valuations, as hotel stocks traded down during the fourth quarter.

As we have highlighted in the past, we will continue to evaluate share repurchases and act where we see opportunity to create incremental value for our shareholders. In addition to share buybacks, we continually seek opportunities that are additive to our portfolio and build upon our strategy to enhance shareholder value over the long term. During the fourth quarter of 2018, we purchased the 127-room Hyatt Place Jacksonville Airport for $15 million, bringing our total 2018 acquisitions to five hotels for a $152 million. We are excited to have our first Hyatt branded hotel and look forward to adding additional Hyatt hotels when appropriate. While we build scale within the higher brands, we believe that we will be able to leverage our experience with comparable Hilton and Marriott rooms-focused product to enhance property operating performance.

We have six additional hotels under contract for acquisition with a combined purchase price of $162 million, including a recently signed contract for the existing 160-room Hampton Inn & Suites in St. Paul, Minnesota for $32 million. This asset along with the five hotels highlighted on previous calls, which are new construction projects, augment and strengthen our existing portfolio. We anticipate construction of the 128-room Home2 Suites in Orlando, Florida will be completed this spring and construction for the remaining four hotels will be completed in 2020.

All of the new built projects are with trusted developers and our contracts have enabled us to lock in attractive perky pricing in the current rising cost environment. As we add hotels to our portfolio, we assess our existing assets and look for opportunities to exit where we are able to achieve attractive pricing and where we feel proceeds can be redeployed in ways to further enhance shareholder value. During 2018, we completed the sale of three hotels and entered into a contract with a private equity buyer for the sale of 16 assets. The total combined sales price for the 16 assets of $175 million represented just under a 12 times multiple on 2018 EBITDA after PIP or a 7.5% cap rate on 2018 results after anticipated PIP costs and an industry standard FF&E reserve.

In February, the buyer for the 16 assets, failed to meet its obligations under our contract and we entered into a new contract at a similar multiple for a subset of the initial portfolio representing nine of the original hotels with an anticipated closing over the next couple of months. The buyers $7 million deposit is non-refundable. With the first quarter rebound in the public markets and continued availability of debt for quality hotel assets, we view portfolio transactions as increasingly likely over the coming months. We continue to closely monitor new hotel supply growth in our markets, which has approximated national averages for our product type, despite demand growth across much of the US, ramping supply continues to create a headwind for our portfolio in a number of markets.

At the end of the fourth quarter, approximately 64.3% of our properties had one or more upper mid scale, upscale or upper upscale new construction projects within a 5 mile radius, a slight uptick from last quarter. We are optimistic that as construction costs continue to rise, new supply will begin to peak over the next 12 to 18 months and begin to represent less of a headwind for us. We are confident that the strength of our brands, our consistent reinvestment, our locations within markets and the quality of our on-site management teams position our portfolio to remain competitive over the long term. Despite near term increased competition from newly opened hotels.

Apple hospitality was intentionally structured to mitigate risk of investing in the lodging industry and maximize operating results through all phases of an economic cycle. With the focus on providing our investors with consistent dividends and appreciation in the value of their underlying investment, we owned hotels with broad consumer appeal that are diversified across a variety of US markets and aligned with the best launching brands and hospitality management teams in the industry. We consistently reinvest in our hotels, we follow a disciplined approach to capital allocation and we maintain financial flexibility with low levels of debt. Today with 241 hotels diversified across 88 US markets, we are the largest publicly traded REIT focused on the rooms, focus segment of the lodging industry and we are confident we are well positioned for continued success this year and beyond.

I would now like to hand the call over to Krissy to provide additional detail on performance across our markets, during the fourth quarter and full year 2018.

Kristian Gathright -- Executive Vice President and Chief Operating Officer

Thank you. As Justin mentioned, the fourth quarter 2018 was challenging from a comparison standpoint due to elevated hurricane related demand in late 2017. During the quarter, we also experienced a net positive impact from demand associated with the 2018 hurricanes and to a lesser extent the Boston area gas explosions. RevPAR excluding the markets affected by these events was 130 basis points higher for the quarter and 20 basis points higher for the year.

In 2019, we estimate that the headwind from hurricanes Harvey and Irma should materially subside side by mid-year, elevated demand from Hurricane Florence reduce first quarter results, but along with the fourth quarter benefit from the Boston area gas explosions will create a headwind in the fourth quarter. And benefits from Hurricane Michael recovery business in Panama City should continue throughout the year, leading to an expectation for a slightly more favorable comparison in 2019. While the impact of the government shutdown is difficult to quantify, it weighed on January results.

Our January comparable RevPAR declined almost 1%, aided in part by more favorable Super Bowl Comparison and Valentine's Day shifting one day before, February results have improved with RevPAR increasing in the 2% range through the first full three weeks of the month. Market performance continues to vary across our geographically diversified portfolio. Many of our Sunbelt markets are benefiting from increased population growth due to their warmer climate, strong job growth and relative affordability. Our East South Central region RevPAR grew 4% in the quarter with several Alabama markets benefiting from multi-year manufacturing and government projects. Our Phoenix and Tucson markets continue to perform well with a solid outlook in 2019, including additional benefit from the ramp of our downtown Phoenix Hampton Inn & Suites, which opened in May 2018.

Our Pacific region performed well, with a robust convention calendar in San Diego, strong technology demand in Sacramento and San Jose, some additional lift from wildfires in the Los Angeles area and earthquake, government and energy related demand in Anchorage. Diminished hurricane recovery business as well as supply related pressures resulted in declining RevPAR for several Florida and Texas markets in the fourth quarter. The Houston market was the largest underperformer with RevPAR down 23%. Houston remains one of our most challenging markets with RevPAR declining 20% resulting from lower hurricane related FEMA demand, ongoing renovations and increased supply. As three of our Austin area hotels come out of renovation in the first quarter, we will be well positioned to take advantage of new demand generators including Apple's campus expansion, construction of the University of Texas' new world-class arena and the new MLS Soccer Park stadium.

Looking into profitability, we are extremely pleased with our fourth quarter and full year results, achieving a strong hotel EBITDA margin of 34.6% and 37.2% respectively. Same-store expenses grew a modest 40 basis points for the quarter and 1.4% for the year. Excluding fixed expenses, our operating margin only declined 30 basis points in 2018. While wage pressures persist, our proactive implementation of labor management tools, combined with the intensive oversight of our asset management team, enabled our operators to improve scheduling efficiency, reduce overtime and increase productivity.

At the end of 2018, 90% of our operators had implemented a labor management system, approximately half of our operators had fully implemented systems at the beginning of 2018. And for that subset of hotels, we completed an analysis of the key components of the savings. We focused our analysis on hourly wages in the rooms department and found that the average pay rate increase was 4.6% with a 2.2% overall reduction in hours with a net 2.3% increase in rooms hourly wages. On a per occupied room basis, the rooms wage increase for the subset was 2.7% compared to 3.4% for the remainder of the portfolio.

As a percentage of total hours, overtime hours decreased 4% to 3.5% of total hours. Total same store wages both hourly and salaried increased 2.1% for the year or 2.9% on a per occupied room basis, just under our target of 3%. Our favorable reduction in workers' compensation expense and in-line benefits costs produced an even lower increase in total same store payroll dollars of 1.9% or 2.6% on a per occupied room basis. Considering that we are still challenged by a tight labor environment and associated satisfaction and retention remains a high priority. Our target is to be at or below 4% same store wage growth in 2019.

While much of the efficiencies from the labor management systems have been realized. There are still savings to be achieved by the management companies that were not fully operational for the entire year. We have also seen success from Green choice programs which allow guests to forgo services in exchange for loyalty points and the take rate continues to grow as guests become more familiar with these programs.

Our teams diligent focus on maximizing parking and cancellation revenue continues to produce impressive results. Other revenue dollars on a same store basis grew 23% or 60 basis points as a percentage of revenue in the quarter and 18% or 40 basis points as a percentage of revenue for the year. Our highly effective process from executing timely renovations that minimize disruption to detailed benchmarking enabling solid cost control to initiating sustainability projects that reduce energy consumption. So a sharp focus on driving ancillary revenue have enabled us to maintain solid margins in a low revenue growth and increasing cost environment

For 2019, we will continue these efforts as well as investing in additional internal resources to work with our operators on enhancing their revenue strategy capability, ensuring that revenue management sales and digital teams are working collaboratively and proactively to drive the optimal mix depending on individual market conditions.

I will now turn the call over to Brian to provide additional detail on our financial results.

Bryan Peery -- Executive Vice President and Chief Financial Officer

Thanks, Krissy, and good morning. Summarizing some of our results for the quarter and year, total revenue was $295 million, an increase of 2% from the fourth quarter of 2017. For the year, total revenue was $1.3 billion, an increase of 3% from 2017. Adjusted EBITDA was $95 million in the fourth quarter and $449 million for the full year of 2018, more than increase of 2% from the same period in 2017. Modified FFO per share was $0.36 per share, flat compared to the fourth quarter of 2018 and we were down 1% to $1.72 per share for the full year compared to 2017.

Consistent with our normal annual spend, we invested $71 million in capital expenditures in 2018, anticipate spending $80 million to $90 million in capital expenditures in 2019, a slight increase due to a planned renovation at one of our three full service hotels in completing anticipated property improvement plans related to two of our 2018 acquisition. Finished the year with $1.4 billion in outstanding debt with a weighted average maturity of approximately 5.2 years, and an average rate of 3.7%. Availability under our credit facilities totaled $231 million at the end of the year. Almost 75% of our debt was effectively fixed rate with a weighted average rate of 4% and an average remaining term of 4.4 years.

Krissy and Justin touched on it, but in addition to the revenue disruption, we did experience additional costs in the quarter related to Hurricane Michael. Two of our hotels in the hurricanes path have named storms, insurance deductibles due to their location. As a result, we incurred approximately $900,000 in the fourth quarter to remediate and repair the affected hotel, which represented 30 basis points of the 50 basis point margin decline in the quarter.

Continue to work through the insurance claims process and although the hotels are operational, we do have certain remediation tasks to complete. However, we do not anticipate any additional costs that will not be reimbursed by insurance carriers associated with hurricanes Florence and Michael and we do anticipate receiving business interruption proceeds in 2019. Proceeds will not be recognized until received. Our 2018 adjusted EBITDA and hotel EBITDA margin percent were in line with the midpoint of our guidance provided in February of last year and above the high end of our expectations in early November. Based on our operating performance to-date, our announced transactions and our expectations for the year, we anticipate results for 2019 to be in the following ranges. Net income between $168 million and $192 million comparable hotels, RevPAR change between negative 1% and plus 1%, comparable hotels adjusted EBITDA margin percent between 35.4% and 36.4% and adjusted EBITDAre between $423 million and $443 million.

The discussed disposition of nine hotels is completed as currently anticipated at the end of the first quarter, we do not believe the RevPAR change and hotel EBITDA margin percent change will be affected. However, our adjusted EBITDA range will be reduced by $7 million at the end of each range. Our guidance does not reflect the company's adoption of the new lease accounting standard of effective 1/1/19. Anticipate adoption of this standard will increase our adjusted hotel EBITDA margin percent and adjusted EBITDA as we will have four ground leases reclassified from operating to financing leases.

As a result, these leases will reduce current ground lease expense and increased interest and depreciation expense. Company anticipates recording a total right-of-use assets in the first quarter of 2019 between $110 million and $125 million of which between $100 million and $110 million relates to the four ground leases that will be classified as financing. We do not plan to restate any prior periods. Justin highlighted, we acquired over 6.5 million shares of our common stock through our share repurchase program for a total of just over $100 million since the end of the third quarter. The weighted average purchase price was $15.79 per share. We currently have a written trading plan in place, intended to comply with 10b5-1. Our repurchase program may be suspended or terminated at anytime.

During the fourth quarter, the company paid distributions of $0.30 per share or a total of approximately $69 million. For the full year of 2018, the company paid distributions of $1.20 per share or a total of $276 million. The annualized $1.20 per common share represents an annual 7.2% yield on our February 21st closing price of $16.76.

Thank you for joining us this morning and what we know is a very busy morning. We will now open the call up for questions.

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Kasey O'Brien -- KeyBanc Capital Markets Inc. -- Analyst

Hi, good morning guys. This is Kasey O'Brien (ph) calling for Austin Wurschmidt. With respect to the portfolio disposition, you mentioned the nine assets under contract will still be sold as similar multiple as 7.5 cap rate. And I was curious, if you are still actively marketing the remaining seven assets that were in your original '16 asset portfolio?

Justin Knight -- President and Chief Executive Officer, Director

Good morning and thanks for joining us. Yes, that is correct. We were able to resign the nine assets at a similar multiple to the initial deal and, we continue to explore opportunities for other assets within our portfolio, including the balance of that portfolio.

Kasey O'Brien -- KeyBanc Capital Markets Inc. -- Analyst

Okay, awesome. And then also, one more question, with the stock split of $16, how much buyback capacity do you have relative to your leverage targets and would you consider buying back stock prior to the closing of the portfolio sale in February?

Justin Knight -- President and Chief Executive Officer, Director

Good question. We, so from a -- from a capacity standpoint, we have more than enough capacity. We have $360 million approximately available under our share repurchase authorization and we have roughly $200 million immediately available on our line of credit. Our expectation would be that future share repurchases would be funded with proceeds from disposition in an effort to preserve our balance sheet. That said, should we encounter a situation like we did in the fourth quarter where there is a massive displacement, we have flexibility to act near term using our balance sheet and then to pay down the debt with proceeds from the sale at a point in the future.

Kasey O'Brien -- KeyBanc Capital Markets Inc. -- Analyst

Okay. Awesome. Thank you.

Justin Knight -- President and Chief Executive Officer, Director

Thank you.

Operator

Our next question comes from Anthony Powell with Barclays. Please go ahead.

Anthony Powell -- Barclays -- Analyst

Hi, good morning, everyone. Another question on this -- good morning. And another one on the dispositions. So, what caused that original buyer to reduce their commitment and have you seen other buyers come in with interest in the space, especially given the disconnect between public and private market valuations.

Justin Knight -- President and Chief Executive Officer, Director

So I highlighted at our last call that this particular buyer -- like many of the buyers that we've interacted with responding to reverse increase was relatively new to the space and this transaction for this particular buyer with the larger transaction and the buyer had done in the past. We've resized the portfolio to be a better fit for the buyer and this buyers' capacity with the intention that to successfully completing this transaction we might pursue additional transactions with them in the future. The makeup of the subset of the portfolio is fairly similar to that broader portfolio. The average age of the portfolio that we currently have under contract is 14 years. We have RevPAR for that portfolio approaching $75.

The remaining assets, to the assets that were pulled are slightly younger about a year younger and about $10 more in RevPAR. But otherwise relatively similar in terms of geographic distribution. As I highlighted in response to your earlier question, we continue to explore opportunities for the remaining assets as we look at opportunities with other assets in our portfolio as well.

Anthony Powell -- Barclays -- Analyst

Thanks. And last year there is a big hope or expectation, I guess that you would see signings and infrastructure starts in the self-storage space

decline given higher interest rate cost and higher labor costs. Did you see that you said you expected, and are you seeing a bit more of a pickup in though the metrics this year as financing costs, I guess, come back in line.

Justin Knight -- President and Chief Executive Officer, Director

It's a good question. We haven't seen a material change in our at least beneficial change in terms of the cost structure for these deals we continue, as you know to underwrite for our own purposes a number of development deals and have seen construction costs driven by labor and the cost of raw materials and land continuing to go up, so we haven't seen a major change there. The most notable pattern that we've recognized as we've looked at this quarter-to-quarter and year-over-year is that, there is a meaningful discrepancy between pipeline and anticipated deliveries and what we actually are seeing delivered in our markets. And so that could be 100 to 200 basis points variance.

And what we are finding is that, it's taking longer for projects to get completed even once they're in the ground. We've experienced this firsthand with our Home2 project in Florida and have seen it with other projects in markets where we anticipate a project will come online long before it actually ends up getting delivered, and that's the most consistent trend. And as we highlighted in our remarks, we continue to anticipate that the dynamics, driven largely by continued cost increases and this slow growth within the overall economy will over time produce fewer new hotels. But right now, there is a meaningful pipeline and it's taking longer for those deals to be delivered. And as a result, we think there will be continuing supply coming online for the next 12 to 18 months before we begin to see a noticeable decline.

Anthony Powell -- Barclays -- Analyst

Got it. And maybe one more from me. I think, Hyatt has -- has changed sort of its food offering at Hyatt Place, and I believe that, resulted in some RevPAR volatility at those brands in the fourth quarter. What's your view on that process? And how does that impact your view of the brand going forward?

Kristian Gathright -- Executive Vice President and Chief Operating Officer

Andy sorry I missed that. Are you talking about the Hyatt Place, or Jacksonville performance for the fourth quarter?

Anthony Powell -- Barclays -- Analyst

Just Hyatt select-service brands in general, I believe, they changed some of their food offerings.

Kristian Gathright -- Executive Vice President and Chief Operating Officer

Sorry, sorry, I missed that. Okay. So in terms of the, the Hyatt Place product, the Hyatt Place -- Hyatt Place in order to grow, to strengthen their loyalty program actually made a change that for those who book directly and that are World of Hyatt members, they're able to receive guest or complementary breakfast before it used to be open to everyone. So that should result in two additional benefits. Number one is that, it should hopefully grow and we are monitoring that increased loyalty members and increase direct bookings, which then reduces distribution costs.

And the second impact of that and we have one Hyatt Place at this particular moment. We've looked to acquire -- we look forward to acquire more, but the second benefit of that is a favorable reduction -- a slight reduction from what we've seen and talking to our operator, so far, but a favorable reduction in complementary cost as well.

Anthony Powell -- Barclays -- Analyst

Great. That's it from me. Thank you.

Justin Knight -- President and Chief Executive Officer, Director

Thank you. Thanks for joining us.

Operator

Our next question comes from Bryan Maher with B.Riley. Please go ahead.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

Yeah, good morning.

Justin Knight -- President and Chief Executive Officer, Director

Good morning Brian.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

You alluded in your comments very briefly the potential for portfolio transactions on your part, on the acquisition side. Can you give us little bit more color as to what the scope and scale of something like that might be?

Justin Knight -- President and Chief Executive Officer, Director

I appreciate the question. Really, I was speaking to the likelihood of them happening from our perspective on the disposition side rather than the acquisition side. And as we've highlighted -- in direct response to your question, as we've highlighted in past calls, we continue to underwrite both individual assets and larger portfolios. What we have found given the size of our portfolio is to-date, we've been far more effective at pursuing individual assets, which complement our broader portfolio, then purchasing larger portfolios, given pricing and then disposing of the assets that aren't a good fit. The friction cost related to those types of transactions have made them less desirable for us.

That said, we've highlighted over the past several calls, the fact that we continue to receive inbound increase from private equity buyers, looking for small portfolios of assets. That dynamic continues to exist. We feel reasonably good about the portfolio we currently have under contract and are continuing to explore similar opportunities with other potential buyers. That said, what we found or have found is that the interest, private equity buyers in our sector is somewhat correlated to the performance of hotel REIT stocks and when we saw the massive trade down in the fourth quarter across that, the public markets, that private equity buyers and for a period of time inbound inquiries declined. With some stabilization and continued strength in the debt markets, we're seeing that stabilize.

And that on top of the fact that what we're seeing in the markets, in terms of available assets is a significantly greater number of assets, similar to the types of assets that we would be looking to sell and or buy. And we think, that bodes well for the market. Finally, freeing up after a number of years have been relatively quiet.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

Thanks for that. And maybe a question for Krissy, and I really appreciate the details that you gave us on your labor cost. But can you just kind of share with us where your operators are sourcing new labor in such a tight labor market we see across the country?

Kristian Gathright -- Executive Vice President and Chief Operating Officer

Absolutely. So for our particular portfolio, contract labor still remains a small percentage of our overall payroll dollars. It's actually less than 10%. In certain markets we are funding with the Hospitality Industry having so many open positions that we do need to use contract labor. But for the most part, with our individual operators, they're using the traditional online resources, whether it be different indeed.com, different online sourcing models as well as in many cases they've actually increased the HR resources internally and in some cases have hired internal recruiters to go out and source the additional labor.

So the one of the main things that we are making sure that we're doing which is helping with increasing associate retention and ultimately reducing turnover cost is making sure that we are regularly surveying the market to make sure that we are paying competitive wages. And that, in doing that, we're finding that we're able to fill positions faster and you were also able to increase associate satisfaction.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

Yeah, thanks. That's all from me.

Justin Knight -- President and Chief Executive Officer, Director

Thank you for joining us.

Operator

(Operator Instructions) Our next question comes from Michael Bellisario with Robert W. Baird. Please go ahead.

Michael Bellisario -- Robert W. Baird & Co. Inc. -- Analyst

Good morning, everyone.

Justin Knight -- President and Chief Executive Officer, Director

Good morning.

Michael Bellisario -- Robert W. Baird & Co. Inc. -- Analyst

Just on the one-off acquisition front, can you maybe give us little bit of background on the St. Paul transaction and how you source that. And then also how you're thinking about balancing acquisitions and buybacks with your investment capacity and disposition proceeds today?

Justin Knight -- President and Chief Executive Officer, Director

Okay. Certainly. So the St. Paul acquisition is with or was developed by a group that has sold a large number of hotels to us and they currently manages a portion of our existing portfolio, it's a group we've had a great relationship with historically and a group that builds extremely high-quality assets, which are uniquely positioned in markets to, we think, have -- have extended longevity and relevance within those markets. The particular deal gets us into our market, where we have not had a presence and the location of this particular project, we think is ideal within that market. As we look at -- the second part of your question was related to share buybacks and the purchase of individual assets. And as we've stated in the past, we continue to look at both at the same time and pursue the opportunity that's the most favorable for us at any given point in time.

As I highlighted in my remarks and in response to one of the earlier questions, given current market dynamics and what we see as value in maintaining the strength of our balance sheet the most likely scenario on a go forward basis through this year is that acquisitions and share buybacks would be funded with proceeds from the sale of assets, and given our activity last year leading into this year, there is even a positive (ph) and given market dynamics, the most likely scenario would be that we would be on the margin net sellers of assets in today's environment. That's said, I think what the past couple of years have proven is that the situation can be volatile and we feel, we are uniquely positioned to take advantage of opportunities as they present themselves like the opportunity we saw in our stock in the fourth quarter. And I think, we'll continue to act when we see those opportunities to drive meaningful value for our shareholders.

Michael Bellisario -- Robert W. Baird & Co. Inc. -- Analyst

Got it. That's helpful. Thank you.

Operator

I would like to turn the call over to Justin Knight for closing comments.

Justin Knight -- President and Chief Executive Officer, Director

I would like to thank everybody for joining us today. We know this is a busy day. And we hope as always that, as you travel, that you'll take opportunity to stay with us at one of our hotels. Have a great day. Look forward to talking to you again soon.

Operator

This concludes today's conference. Thank you for your participation.

Duration: 40 minutes

Call participants:

Kelly Clarke -- Vice President, Investor Relations

Justin Knight -- President and Chief Executive Officer, Director

Kristian Gathright -- Executive Vice President and Chief Operating Officer

Bryan Peery -- Executive Vice President and Chief Financial Officer

Kasey O'Brien -- KeyBanc Capital Markets Inc. -- Analyst

Anthony Powell -- Barclays -- Analyst

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

Michael Bellisario -- Robert W. Baird & Co. Inc. -- Analyst

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