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Hersha Hospitality Trust (NYSE:HT)
Q4 2019 Earnings Call
Feb 25, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Hersha Hospitality Trust, Full Year and Fourth Quarter 2019 Conference Call and Webcast. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Greg Costa, Manager of Investor Relations. Please go ahead.

Greg Costa -- Manager of Investor Relations and Finance

Thank you, Jason, and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust full year and fourth quarter 2019 conference call. Today's call will be based on the full year and fourth quarter 2019 earnings release, which was distributed yesterday afternoon. Prior to proceeding, I'd like to remind everyone that today's conference call may contain forward-looking statements.

These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the Company's actual results, performance, or financial positions to be considerably different from any future results, performance, or financial position. These factors are detailed within the Company's press release, as well as within the Company's filings with the SEC.

With that, it is now my pleasure to turn the call over to Mr. Neil H. Shah, Hersha Hospitality Trust President and Chief Operating Officer. Neil, you may begin.

Neil H. Shah -- President and Chief Operating Officer

Good morning, and thank you for joining us on today's call. Joining me this morning are Jay H. Shah, our Chief Executive Officer, and Ashish Parikh, our Chief Financial Officer. 2019 was the most [Technical Issues].

Operator

Pardon me. We seem to have lost audio from the speaker line, please stand by.

Neil H. Shah -- President and Chief Operating Officer

Sorry about that. Trade disputes inhibited demand throughout 2019 as corporate confidence waned, leading to less corporate travel and growth from international travelers, which subsided in conjunction with the strength of the US dollar and impacted gateway coastal markets. In addition, weaker convention calendars in most major cities, coupled with increased supply deliveries led to 33% less compression nights, the largest decline since the great financial crisis.

These factors, combined with difficult comps in most of our markets like New York City, lead to softer results than we and all industry prognosticators forecasted at the beginning of the year -- beginning of the year. On our third quarter call, we expected the fourth quarter to be challenging in many of our markets, particularly in October with the Jewish holiday shift. And the quarter was indeed challenging. But results in December, most especially in South Florida, came in more positive than we had anticipated, and provided a good runway to kick-start 2020.

However, the industry still faces numerous challenges this year, not only from elevated supply deliveries and operating costs increases, but from exogenous and unpredictable macro events, which may impede operational growth. With these anticipated headwinds for 2020, we initiated two strategy shifts during the fourth quarter. Cost containment initiatives to aid margins, and accretive dispositions at attractive multiples to reduce debt. Ash will spend some time on the cost containment initiatives we have put forth, but let me highlight our progress on the dispositions front.

As disclosed in our press release yesterday evening, we've entered into binding commitments on four hotels for a total asset value of $144 million at extremely attractive multiples. The sales prices of Blue Moon and the Duane Street Hotels resulted in over $400,000 per key and a blended trailing 12 month economic cap rate of 2.6% and a 30.9 times EBITDA multiple.

These results in Miami and New York City highlight the intrinsic value of this enduring real estate in two of the most valuable markets in the United States, with demand from a buyer pool of international and domestic corporations, family offices and private equity. In Boston, we were able to take advantage of an accretive off market deal with our current joint venture partner to buy out our remaining interest in the Courtyard and Holiday Inn Express South Boston, for a blended trailing 12 month economic cap rate of 4.9% and a 17.7 times EBITDA multiple.

Not only does this exit provide for more simplified operations and a significant gain on our investment, but it allows our asset management team to dedicate their focus on our wholly owned assets, resulting in more value creation for the portfolio. We are very encouraged by the results from these asset sales and the overall interest level in first class real estate in urban gateway markets of which our portfolio is comprised.

We will use proceeds from this transaction to pay down $97 million in debt, and by selling these three hotels, we will avoid disruptive capital projects in 2021 and 2022. We do have a second tranche of hotels identified that we could market for sale should private market transactions continue to yield multiples substantially higher than our current public market valuation.

For now, we remain focused on closing the currently announced transactions and on property level operations this year, driving EBITDA to generate free cash flow. Before transitioning to Ash, I want to discuss our fourth quarter performance beginning in Miami, a market poised for a multi year recovery.

Our South Florida portfolio was our strongest during the fourth quarter, generating 17.7% RevPAR growth and outperforming the market by close to 1,700 basis points, bolstered by performance at our Cadillac Hotel & Beach Club. The hotel generated 43.7% RevPAR growth, capturing rate and occupancy during the first peak quarter of the season with notable success around high profile events, such as our Basel and New Year's Week. The market and hotel are off to a strong start thus far in 2020 as the Miami Beach tract registered 22.4% year over year RevPAR growth in January, and our properties delivered outstanding occupancy and revenue results over Super Bowl Weekend.

We're anticipating significant ramp up in 2020 from the Cadillac and Parrot Key hotels, as both will benefit from a full year of operation under their belt, allowing us to optimize revenue and asset management strategies for growth. Miami is forecasted to be one of the better performing markets in the top-25 MSAs in 2020 supported by a significant increase in convention room nights, additional noteworthy events returning to the city such as the boat show and Ultra Music Festival, supply beginning to decelerate, and the growing in more diverse corporate base in Coconut Grove driving hotel demand.

Early results this quarter in Key West are also very encouraging. Our Washington DC portfolio was strong again this quarter, generating 4.9% RevPAR growth, bolstered by performance at the Annapolis Waterfront Hotel. The hotel continued to benefit from our sales and revenue management strategies, resulting in 876 basis points of occupancy growth, leading to 20.5% RevPAR growth for the quarter.

The St. Gregory continued to gain share as well following the hotel's upgrade to an upper upscale lifestyle offering in 2018, generating 10.4% RevPAR growth driven by 7% ADR growth. The St. Gregory is well positioned to continue its post renovation ramp and establish itself as one of the premier boutique lifestyle offerings in Dupont Circle.

The Washington DC market is slated to continue this momentum in 2020, supported by less new supply deliveries and our newly renovated suite of hotels that will continue their ramp, advantageously capturing market share. The coronovirus does create some risk in Washington and the market has experienced a decline in convention room blocks. But like most of our markets, China contribution represents less than 0.6% of our room revenues.

Philadelphia was a very strong market for our portfolio in the first half of 2019, as our recently renovated hotels took advantage of the city's robust convention calendar. However, the second half of the year bumped up against difficult comps with our cluster generating 10.2% and 6.2% RevPAR growth in the third and fourth quarters of 2018. Despite our 4% RevPAR loss this quarter, the Hampton Inn continued to take advantage of increased activity at the convention center, growing ADR and RevPAR by 6.6% and 1.9% respectively.

Convention Center activity will lead to further demand to the city, but results will be impacted by the wave of new supply that is hitting the market in 2020, with expected supply growth of nearly 4.6%. This follows the opening of the new Four Seasons just last fall. We are confident in the long term demand in our home market, but are cognizant that results will remain temperate while new supply gets absorbed over the next 12 months.

Out on the West Coast, we had mixed results in the face of new supply and decelerating corporate travel, which led to a 4% RevPAR loss for our portfolio in the fourth quarter. The Sanctuary Beach Resort was our best performing West Coast asset last year growing ADR by 5.1%, resulting in a 6.4% RevPAR growth. The Hotel Milo in Santa Barbara also had a strong performance during the period registering 5.7% RevPAR growth aided by a 3.6% ADR increase.

During the fourth quarter, San Diego faced a difficult comp, as our Courtyard reported 21.2% RevPAR growth in the fourth quarter of 2018 on a robust convention calendar that did not repeat this year and weighed on West Coast results. Additionally, our corporate centric hotels in Sunnyvale had softer results as the market faced increased supply and a slowdown in demand from traditional corporate accounts in the fourth quarter.

New supply was also impactful in Los Angeles and Seattle, but we remain constructive for our West Coast hotels in 2020 with significantly stronger group calendars in LA and San Diego, revenue and asset management strategy that we've implemented at our resort assets to drive growth and continued absorption of new supply in Seattle. Our hotels in Sunnyvale and Seattle attract the most Chinese travelers in our portfolio.

And although still not a leading source market, we are sensitive to further weakness in international and corporate demand. Boston was significantly hampered by a difficult year-over-year comparison in the fourth quarter with our portfolio, generating 8.2% ADR growth last year due to compression surrounding the Columbia Massachusetts gas explosion, as well as the World Series success from the Red Sox.

Despite our portfolio generating a 6.6% RevPAR loss this quarter, results were approximately 500 basis points better than the market as our hotels continue to draw loyal travelers in this softer demand environment. Boston's convention calendar was fairly weak in 2019, but it remained a standout market for us for the majority of the year and we expect this momentum to continue in 2020 with a more robust convention calendar and continued growth from our market leading assets such as the Envoy in Boston Seaport District, one of the fastest growing innovation markets in the country.

New York City remained our toughest market from a growth perspective and was especially challenged this quarter as a result of the Jewish holiday shift into October. However, occupancy continued to be strong as our portfolio registered 95% occupancy. But stronger occupancy did not equate to rate acceleration again this quarter as our portfolio generated a 6.5% RevPAR loss, which is impacted by elevated supply deliveries, decelerating demand from the international traveler, and rate sensitive leisure travelers generating more stays than the historically price agnostic business traveler.

For the second consecutive quarter, margins were impacted by our inability to push rate in the market. We anticipate 2020 to be a peak year for supply deliveries in Manhattan with 3.7% supply growth. But this will decelerate beginning in 2021 and stabilize thereafter at more normalized levels below 2%. The city's progressive tactics on Shadow Supply enforcement have been impactful and their approach has spread as we are seeing increased legislation to combat illegal alternative accommodations in other major cities, resulting in a more level playing field for our industry.

There are many reasons to be bullish about New York's prospects in 2022 and beyond, but new supply will continue to pressure ADR for the coming year. Our New York metro hotels, two of our renovation driven growth catalyst for 2020 finished 2019 very strong with a weighted average RevPAR growth of 17.3% for the year. We anticipate continued ramp up from these assets this year with the Hyatt House White Plains increasing occupancy with its 28 additional keys, while the Mystic Marriott should see EBITDA growth following its holistic renovation.

The industry has been challenging over the last few years with decelerating RevPAR growth, exogenous events such as Hurricane Irma and Dorian, Zika and now coronovirus, elevated supply in all of our markets and expense growth impacting margins. And whether this is the end of the cycle or growth is at a momentary impasse, our management team has successfully navigated three cycles together, and we are confident that the strategies we are deploying will lead to near and long-term value creation for our shareholders.

With an expected difficult operating environment again this year, we turn to our Company specific growth catalyst for RevPAR acceleration. Our cost containment initiatives to sustain above market margins and our asset allocation strategy to reduce leverage as key drivers for 2020. Over the last few years, our portfolio has been recycled and renovated to now include young, higher growth, higher RevPAR producing assets with very low capex requirements and significant EBITDA ramp on the horizon.

And with our stock trading more than 30% below our internal NAV, and at an 8% dividend yield, with one of the lowest payout ratios in the sector, we believe this is a particularly attractive entry point for investors. With that, let me turn it over to Ash to discuss in more detail our cost containment initiatives, dispositions, balance sheet and our guidance for the year.

Ashish R. Parikh -- Chief Financial Officer

Great. Thanks, Neil, and good morning everyone. Flat to low single-digit RevPAR growth has been the norm for our industry over the last few years and coupled with expense growth has resulted in significant pressure on margins over that time. Several months ago, we anticipated these soft RevPAR trends would continue into 2020 and we aggressively put measures in place to mitigate the negative impact of these cost pressures at the property and corporate level.

We worked in conjunction with our management partners to adjust our staffing models, which led to immediate payroll savings that will be realized in 2020. Our unique alignment with our management Company allows us to adjust our staffing and operating model in real time, which results in immediate savings for the portfolio and leads to projected 2020 EBITDA margins and margin growth at the higher end of our peer set.

After a full evaluation of all departments for operational inefficiencies, we executed on a number of cost containment strategies that will result in expense savings to help drive EBITDA expansion without compromising the guest experience. On property, we implemented measures that are focused -- that are forecasted to generate $3 million in savings through consolidating line level and management positions, reducing expenses related to property launches, restructuring outsourced labor contracts and by reorganizing on property sales, marketing and e-commerce position where applicable without impeding the day-to-day operations of the hotel.

At the corporate level, we carried out $1.3 million in SG&A cost cuts after consolidating various levels of the organization to ensure that our corporate structure is right sized for the slow growth environment. Separately, in coordination with our EarthView Sustainability team, we have been executing on new strategies to reduce cost through operational and energy saving initiatives that generate immediate ROIs in the 20% to 30% range.

Some of our noteworthy initiatives include installing renewable energy alternatives, updating older lighting and building equipment with contemporary energy efficient models and additionally, green building certifications and sustainable amenities offered at our hotels have resulted in increased group business as more than 80% of our RFPs require sustainable practices delivered on property.

Lastly, after success in moving our F&B operations to a lease model at our Salt Wood Kitchen & Oysterette, we are planning to roll out the structure to a few of our other properties. Our F&B lease structure allows us to capture similar levels of EBITDA contribution as our prior operating model, but helps limit the potential drag on margins from volatile restaurant and catering operations.

As disclosed in yesterday's press release, we have entered into a binding sales agreement on one New York City Hotel, one hotel in Miami and two unconsolidated joint venture assets in Boston, which we expect to close by the end of the second quarter. The closing of these transactions will result in taxable gains approximating $31 million and following debt repayments, our 2020 debt to EBITDA ratio will be reduced by close to half a turn.

At this time, we are forecasting that these asset sales will be completed by the end of the second quarter and will result in a loss of approximately $2.4 million of EBITDA for the back half of the year. But would also result in consolidated interest expense savings of approximately $1.5 million and a reduction of $0.5 million in unconsolidated JV interest expense, leading to minimal changes in our adjusted FFO and cash available for distribution for 2020.

Our capital expenditures for 2019 totaled $35 million, a stark contrast to the $90 million we spent on capex in 2018. We currently have six renovations ongoing across our Boston, Philadelphia and Washington DC portfolios that are projected to impact our first quarter comparable portfolio RevPAR by 250 basis points to 300 basis points.

Despite these disruptive capital projects, we are still forecasting RevPAR growth for the first quarter, showcasing the strength of our portfolio and its ability to generate growth in a soft demand environment and with properties under renovation.

For 2020, inclusive of these renovations, we are forecasting total capex in the range of $35 million to $40 million allowing for further free cash flow generation to reduce our payout ratio. We believe our FFO payout ratio can remain close to, if not below 50%, inclusive of our dispositions, reduced capex spending and stabilization of our assets.

During the second half of 2019, we were active in the debt market in this more accommodative near-term interest rate environment. In the third quarter, we refinanced our $300 million senior unsecured term loan and entered into a series of new swap contracts to fix the interest rate on the remaining $400 million of senior unsecured term loans, eliminating all of our debt maturities until 2021.

Last quarter, we completed a refinancing of the Hilton Garden Inn Midtown East in New York and fixed the interest rate at 3.84% until 2022. The term loan refinancing, mortgage refinancings and new interest rate swap agreement completed in 2019 resulted in interest expense savings of $2 million in 2019, and an additional $3.5 million of savings are anticipated for 2020.

With the refinancing of these near-term maturities, we continue to improve our financial flexibility as we have ample cash -- ample capacity with cash on hand and our $250 million revolver to execute our business plan. So, I'll finish with our full year guidance for 2020 and our first quarter guidance which we presented in the earnings release published yesterday. As we've discussed, fourth quarter trends for the lodging industry came in below expectations and we do not foresee a near-term rebound in demand fundamentals that would lead to outsized growth for the top 25 MSAs in 2020.

We are constructive on our Company-specific catalyst for growth, our post renovation assets that will continue to ramp, and our south Florida cluster. The ADR growth is forecasted to remain elusive and result in low single-digit growth across most of our markets. Adding to this is the uncertainty around the full-year impact of coronavirus -- of the coronavirus outbreak on our portfolio. We have taken into account projected cancellations through February, a visibility of the full impact of the outbreak for the remainder of the quarter, let alone the full year remains impossible to predict at this time, until we get more clarity, once the virus is contained.

For the first quarter, we are forecasting comparable portfolio RevPAR growth between 0% and 2% and 50 basis points to 125 basis points of margin growth with an EBITDA range of $25.5 million to $27.5 million. As I discussed, we are undertaking six renovations in the first quarter and if were to exclude these renovations, our RevPAR guidance range would improve by approximately 250 basis points to 300 basis points with margin growth increasing by an additional 75 basis points to 100 basis points for the first quarter.

For the full year 2020, we're also forecasting comparable portfolio RevPAR growth between 0% and 2%, a negative 50 basis points to positive 50 basis points of EBITDA margin growth. Our full-year EBITDA guidance is between $165 million to $170 million. So this concludes my portion of the call. We can now proceed to the question-and-answer session where Jay, Neal and I are happy to address any questions that you may have. Operator?

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Anthony Powell from Barclays. Please go ahead.

Anthony Powell -- Barclays Capital -- Analyst

Hi. Hello. Good morning, everyone. Question on the second tranche of asset sales you talked about earlier. Would they be similar to the deals you did this year with very low EBITDA contribution or will there be maybe some slightly larger assets?

Neil H. Shah -- President and Chief Operating Officer

Hi, Anthony. This is Neil. We -- we have identified an additional four to five assets that we could bring to market across the back half of this year, but they are much higher EBITDA-producing hotels and they would alter the EBITDA profile of the Company going forward. So, we are careful or cautious about bringing those to market just yet. I think if the environment remains as choppy as it's been, and if multiples remain as high as they are, we will likely move forward on more asset sales. But they would have more of an EBITDA hit to the Company, and so, we're a little cautious about them.

Anthony Powell -- Barclays Capital -- Analyst

All right. And what kind of geographic profiling those assets have?

Neil H. Shah -- President and Chief Operating Officer

Our portfolio is pretty concentrated in these six markets, and so they -- out of these three to five assets, there is additional New York assets, but there are some others in other markets throughout our portfolio as well.

Anthony Powell -- Barclays Capital -- Analyst

Got it. Thanks. And there was a bit of -- there has been more talk about increased loyalty costs in the industry that's not really generating incremental revenues. I don't know if you've seen that in any of your markets. And if so, how do you combat that issue?

Neil H. Shah -- President and Chief Operating Officer

You know, Anthony, the loyalty costs and just the costs of the brands are a constant challenge for us and for the industry. There is nothing in particular or across last 30 days to 60 days that we think is noteworthy or notable. But it remains a challenge and something that all owners are spending a lot of time trying to kind of combat some of the brand mandated initiatives that are coming out that do increase our cost as owners, but nothing notable to share just yet.

Anthony Powell -- Barclays Capital -- Analyst

Okay. All right. Great, thank you.

Operator

The next question comes from David Katz from Jefferies. Please go ahead.

David Katz -- Jefferies LLC -- Analyst

Hi, good morning, gentlemen. How are you?

Neil H. Shah -- President and Chief Operating Officer

Doing well.

Ashish R. Parikh -- Chief Financial Officer

Good.

Neil H. Shah -- President and Chief Operating Officer

Good morning.

David Katz -- Jefferies LLC -- Analyst

So, what I had hoped is that you could help us, I know that the environment is uncertain. But you have a series of renos that you're starting. How much EBITDA could those add assuming a flattish environment on their completion? And I suppose what I'm trying to get to is how does the sort of EBITDA line trajectory grow and start to reduce the leverage either inherently or actually literally by -- by paying some of it down and, you know, how could we sort of get to a three-year or so horizon?

Neil H. Shah -- President and Chief Operating Officer

You know, it is -- [Speech Overlap].

David Katz -- Jefferies LLC -- Analyst

Not looking for guidance, obviously.

Neil H. Shah -- President and Chief Operating Officer

Yeah. We do have -- we have a handful of renovations occurring right now and a handful, kind of, our full -- we're expecting about $35 million in capex spending in 2020 which is very similar to last year 2019 and that's kind of going to be our run rate moving forward in that range, $25 million to $35 million. We're spending all of that this year in the first quarter, our weakest quarter for those markets that we are renovating assets in.

So in Boston we have a couple of hotels, in Philadelphia, the Westin is getting a meeting space and lobby renovation currently, which we think will be impactful to their rates moving forward. And we have a handful of others that will be complete by, let's say, April at the latest. They will provide a tailwind for performance on those assets, and they are -- and they are part of our guidance for that matter. But we are -- we do, we do believe that there could be some notable upside from some of those renovations.

But I think big picture it's -- after two, three, four years of repositionings and redevelopments, the portfolio truly is non-disrupted and is now at the point where we can have very significant ramp up in Miami and Parrot Key not be offset by other renovation activity in the portfolio or other disruptions throughout the portfolio.

So we feel like this will be a solid year where we can demonstrate an increase in free cash flow and that will by 2021 allow us to start paying down cash -- paying down debt from cash flow. These asset sales of these first quarter [Phonetic] bring us down about a half a turn. If we were to execute on our next three to five, it could be a half a turn to a little bit more than that, also.

So we do think of it as a two-year to three-year process to get to below five times debt to EBITDA. We can accelerate that process by accelerating asset sales. It's just we're in an environment where it is just we're in an environment where it is just so uncertain and so choppy that we're hesitant to provide a more bullish same-store commentary just yet.

David Katz -- Jefferies LLC -- Analyst

Very helpful.

Ashish R. Parikh -- Chief Financial Officer

Let me -- let me go ahead and add one thing to that. So, when we -- when we really look out say, past this year into 2021 and beyond, we would also anticipate that growth and if we're getting back to more normalized growth, but say in the 2% to 3% growth ranges, it's really going to be ADR driven because if you look at our portfolio in the industry over the last few years, last year, we actually gained occupancy throughout the portfolio over 100 basis points, but everything we lost was in ADR.

So, as you look into 2021 and beyond, you would anticipate ADR growth being a driver of most of the RevPAR growth which would lead to flow through kind of in the 1.6 times, 1.7 times range. So, anticipating better days 2021 and beyond, we do think that even minimal 2% to 3% type of growth can lead to pretty significant EBITDA growth.

David Katz -- Jefferies LLC -- Analyst

Right. Okay, perfect. Thank you so much.

Operator

The next question comes from Michael Bellisario from Baird. Please go ahead.

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

Good morning, everyone.

Neil H. Shah -- President and Chief Operating Officer

Good morning, Michael.

Ashish R. Parikh -- Chief Financial Officer

Good morning, Michael.

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

You just mentioned some strength in South Florida in December and then in 1Q so far, but is that pickup that you mentioned, really just isolated to South Florida or are you guys seeing any other pockets of strength compared to the slower trends that you saw during 3Q?

Neil H. Shah -- President and Chief Operating Officer

I think there was -- there was, I don't think our experience was as clear as some of the other research notes I read on some of the other companies in terms of fourth quarter stabilization. We did see some stabilization by November, December in a lot of our corporate markets and we think that as a function of the China trade disputes coming to an end and reaching some agreement.

So we were feeling like November and December, there was some stability emerging in a lot of markets around the country. But I would say that kind of -- and then December, Miami clearly was very strong, but some of our other markets were less bad or the trend of deceleration slowed down and it kind of had stabilized a bit.

As we look this year in January even beyond the Super Bowl, January was very strong in South Florida and so far in February, both in Miami and Key West, it has been very strong and kind of reaching prior peak performance kind of like 2015 level performance. So we do believe that Miami is back, Miami and South Florida. The convention center is working, the events are coming back being post Dorian, Irma, Zika, is all starting to deliver results.

And so our focus really -- I guess our comments are primarily about Miami and South Florida being where we're seeing a clear recovery right now.

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

Got it. That's helpful and then just on the Blue Moon sale, can you maybe just talk more about why performance was down so much at that hotel at least on a TTM basis and then what do you think would have been the capex needs at that property 12 months or 24 months out, I think you mentioned there was an upcoming renovation there.

Neil H. Shah -- President and Chief Operating Officer

Yeah, Michael that bring up a good point that, you know, on both of these asset sales both Duane Street and Blue Moon, they were great multiples on trailing EBITDA, but we were expecting to do major renovations at both hotels later this year and early next year. At Blue Moon, we think that it would have been $15,000 to $20,000 a room kind of renovation, so add $3 million to $4 million -- $2 million to $4 million depending on how far we went with the program. With Dwayne Street also in that same neighborhood around the $2 million to $3 million, not huge dollar amounts, but as a percentage of those asset values, they were meaningful.

Blue Moon for us was a -- we own three hotels on Miami Beach, the Cadillac, the Winter Haven and the Blue Moon. All three are Autograph collection hotels with Marriott. The Blue Moon was the only asset that we owned in Miami Beach that wasn't ocean front. So that kind of was something that led our performance across the last few years in an environment of slow demand and kind of choppy demand in Miami.

It was those hotels south of 15th Street and off of the ocean that bore the brunt of weakness in the market, there is Blue Moon, it's a very fine hotel of high quality building and high quality box, but it is surrounded by a lot of other art deco hotels that were -- that had been pushing rates down in the marketplace. We also see the level of new supply in Miami is definitely decelerating very noticeably peak supply there really was '17 and '18, '16 through '18, but there is some new hotels, there are some new hotels opening in that South Beach area, closer to Blue Moon, that was also something that was concerning for us as we look forward.

We believe in Miami, not only for this next year or two, but for the long term, we do think of it as one of the highest growth markets in the country, in the world for the long term. But being off the beach and requiring renovations made it one that we felt like we could sacrifice.

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

That's helpful color. Thank you.

Operator

The next question comes from Bryan Maher from B. Riley FBR, Inc. Please go ahead.

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

Good morning, guys. Not to beat a dead horse on South Florida, but can you tell us how Cadillac and Parrot Key given the strength in the market are doing relative to your expectations of maybe 6 months or 12 months ago?

Ashish R. Parikh -- Chief Financial Officer

Hey, Bryan, this is Ashish. Yeah, we are at this point based on our forecast for 2020, we are at or slightly above where we thought we would be for the first quarter, and for 2020 in and of itself, right now we are looking at an EBITDA range somewhere in the $15 million to $16 million range and probably getting a little bit better even for those assets, for the full year compared to roughly $12 million last year.

Peak EBITDA for these assets were $17 million back in 2015, so we still think that there is ample ramp-up opportunity before we truly get to stabilization at these assets.

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

Great. And then you mentioned in your prepared comments something about your cost savings initiatives and updating older lighting, I'm guessing that's to LED lighting, can you talk about how much more opportunity there is there throughout the system and what other more impactful cost saving initiatives you might be implementing this year?

Ashish R. Parikh -- Chief Financial Officer

Sure. Most of the lighting is -- has been converted to LED lighting at this point. We are looking at doing some more solar installation projects this year. We continue to look at our overall water usage across the portfolio, but still it is energy management systems, temperature controlled HVAC systems that where we see the greatest opportunity.

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

Great. And then last from me on labor costs, can you talk about what the trend has been over the last quarter or two and what your thoughts are for 2020?

Ashish R. Parikh -- Chief Financial Officer

Trends really haven't changed that much, Bryan, I mean, we're still looking at a total labor increase including benefit of 4% to 5% for this year, that's been pretty consistent over the last few years. We aren't seeing it going up. One of the things that we're now looking at is really most of our major markets are coming up to sort of this $13 to $15 minimum wage, and that's been going up by $1 or $2 in most of these markets every year. So we're sort of peaking out at this point in most of our markets.

And we think that the rate of that minimum wage increase in overall rate growth should start to stabilize, it's probably more in the 3% range going forward.

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

Okay, thank you.

Operator

The next question comes from Ari Klein from BMO Capital Markets. Please go ahead.

Ari Klein -- BMO Capital Markets -- Analyst

Thanks. Maybe just following up on the last question on the cost side of things. How much left do you think is there to cut when you -- maybe when you look out ahead into 2021 or so, if the environment continues to remain weak and how much more can you -- savings can you find?

Neil H. Shah -- President and Chief Operating Officer

You know, Ari, it's really dependent on certainly on market conditions. We haven't touched anything that's truly guest-facing at this point, because we're not seeing any material drop off in occupancies. When we look at the last downturn in '08 or in '09, we were able to cut a significant amount of costs from our portfolio and we had to hit things that were guest-facing. So if the markets remained very challenging or were more challenging, we would have to implement those type of cuts. We've looked at everything in our portfolio from consolidating positions to looking at different ways to do housekeeping, having managers run shifts at front desk, mobile check-in. And so we will continue to look at ways to cut costs and we still believe that there are opportunities, but it is dependent on what we see from the standpoint of the operating environment.

Ari Klein -- BMO Capital Markets -- Analyst

Got it. All right, thank you.

Operator

The next question comes from Bill Crow from Raymond James. Please go ahead.

Bill Crow -- Raymond James Financial -- Analyst

Thanks, good morning. On Miami, in your discussion about supply having peaked, just curious how the Marriott Marquis of 1,700 rooms is going to impact the market, I know it's not on the beach, it's on a different sub-market, but it's an awfully big hotel to open all at once.

Neil H. Shah -- President and Chief Operating Officer

Yeah. No, it is. And that hotel like -- recently, I've been noticing it like popping up on some of the supply reports again. Remember this deal was discussed a lot in 2010 and 2011 as part of the downtown redevelopment and originally it was talked about when there was hope for gambling to come to Miami or more broad gambling than just native American like gambling. That never happened, but the rest of this kind of downtown world center has continued to develop.

So there has been some new office and residential that's gone up and again there is talk about this 1,700-room Marriott Marquis. I would tell you that it's nowhere close to getting started just yet, but when that comes, that would have some impact 1,700 rooms in a market like Miami would be very significant.

But I believe that that is at least three to four years away, and so I think of it almost as a -- the next cycle supply and I'm not considering that in the next several years hitting the numbers where we did see a lot of new supply on Miami Beach, in Brickell, or in areas west and north of Miami that was significant in the last several years, but at least on the beach there is -- there is a clear deceleration of new supply.

Bill Crow -- Raymond James Financial -- Analyst

Yeah. That's helpful. On capex, I know we talked about it quite a bit on this call, but where do you think your baseline FF&E spend is, it's not on the renovations, but just the maintenance. Are you $4,000 a key, $5,000 a key, what -- where do you think you are?

Neil H. Shah -- President and Chief Operating Officer

Just on maintenance, Bill?

Bill Crow -- Raymond James Financial -- Analyst

Yeah.

Neil H. Shah -- President and Chief Operating Officer

You know, I don't think it's even that high, across the portfolio. I mean, most of our assets are very young. We don't have sprawling F&B space that most of these -- I would say on a maintenance basis, it's probably maybe $2,500 to $3,500 of that.

Ashish R. Parikh -- Chief Financial Officer

Yeah, so it feels like that would be at the high end, even -- because, again, you know, not only are our assets a little bit more focused in rooms oriented, but they're all relatively newly built assets and so we just don't have the same level of roof repairs to be focused on or other systems kind of renovations that might hit the numbers.

Bill Crow -- Raymond James Financial -- Analyst

Yeah. Okay, that's helpful too. One final one from me. We talked about the -- you talked about this three-year goal to get the leverage down. The last couple of years, you've been talking about $200 million in the EBITDA from this portfolio. And clearly not going to hit that number or and I also think the Street ever believed that you're going to quite get there, but what were the two or three things that just threw you off the rails in your progress toward that numbers, so when you think about the adjustments we have to make?

Neil H. Shah -- President and Chief Operating Officer

I mean one of the biggest drivers of it was Hurricane Irma, and so it just kind of delayed our projects and the whole ramp-up of the system. That was probably the biggest single driver. I think number two was the ongoing weakness in New York and kind of a turn for the -- for the worse last year. Those were the two probably biggest specific drivers, but overall, it's been a much weaker corporate demand environment than we had expected three years ago. We did not expect to have -- we knew it would be challenging and choppy with new supply, but we were expecting -- we were not expecting government shutdown, we were not expecting the level of trade disputes that we had and the impact that that had on GDP.

Bill Crow -- Raymond James Financial -- Analyst

Okay. That's helpful. I appreciate it guys. Thanks.

Operator

[Operator Instructions]. The next question comes from Barry Oxford from D.A. Davidson. Please go ahead.

Barry Oxford -- D.A. Davidson -- Analyst

Great, thanks guys. Switching gears just a little bit to the coronavirus. I know it's hard to kind of handicap what that's going to be, but if you guys look back at SARS, and I know this is different than SARS, but what type of cancellations did you see coming out of SARS, just to kind of help us kind of frame what might be coming?

Ashish R. Parikh -- Chief Financial Officer

You know, Barry -- this is Ashish. In 2003 when the SARS virus hit, our portfolio was just very different from where we are today. So it's difficult to draw a correlation.

Barry Oxford -- D.A. Davidson -- Analyst

Right, right, I'm talking about more from an industry level, what was going on and what -- and what were you guys seeing at that particular time?

Ashish R. Parikh -- Chief Financial Officer

I mean with SARS, there were a few months in time that there was a meaningful RevPAR impact in major gateway cities. So I think it was New York at high-single digits decline in RevPAR for a couple of months. And so that I think is the worst case fear in our mind that it could -- could it be that rough. We don't expect it to be at that level. I think the world has matured a lot since 2003, and it's gotten used to some things, but I think it's important to know that even when that happened in 2003, the bounce back was very quick. And actually out like within six months, I believe it was well above pre-SARS performance.

So it's a pretty quick bounce back when it's done, but for a month or two in SARS, in the case of SARS, there was some impact in cities like New York.

Barry Oxford -- D.A. Davidson -- Analyst

Right. Would you maybe expect domestic travel that might have gone to international to stay here to offset some of the international that may not come here, or not necessarily [Speech Overlap]

Ashish R. Parikh -- Chief Financial Officer

Absolutely, absolutely. There is -- [Speech Overlap]

Barry Oxford -- D.A. Davidson -- Analyst

I'm talking [Phonetic] about like Miami, like instead of going abroad, maybe people deciding to go to Miami?

Ashish R. Parikh -- Chief Financial Officer

Yeah. No, I think that's absolutely something we'll see.

Barry Oxford -- D.A. Davidson -- Analyst

Perfect, thanks for the color, guys.

Operator

The next question comes from Chris Woronka from Deutsche Bank. Please go ahead.

Chris Woronka -- Deutsche Bank -- Analyst

Hey, good morning guys. On the Blue Moon, do you know if that's going to remain Autograph Collection kind of post the sale and then the second question with that is, as we look at South Beach, still a lot of independently branded properties out there, are you guys aware, are the brand still trying to kind of encroach and poach some of those over to soft brands and how might that impact your portfolio in South Beach?

Neil H. Shah -- President and Chief Operating Officer

Just in the case of the Blue Moon, we are going to deliver the asset, the hotel unencumbered of brand and management to the buyer, and so we're expecting it will be an independent hotel like many others in Miami. I think in terms of other soft brands, I mean, all the brands are looking for -- looking to grow their brands for sure. What makes it a little bit challenging in Miami, and particularly in South Beach with these art deco hotels is that very few of them have more than 50 to 75 rooms. And so on those smaller boxes to run brand fees through them can be pretty challenging and most of these are deco hotels aren't -- they were built for a different age and a different time. So their bathrooms are small, the guest room footprint is not current or traditional. And so they're not perfect fits for a lot of the brands because of some of those requirements.

The Blue Moon was one that had gone through a major renovation right before we had purchased it. So it had the current life safety specs and all of that, that made it possible to be a branded execution, but I see just as many acquisitions happening in Miami right now that are taking something and going independent with it, or creating a new brand out of it like the Raleigh in Miami Beach, they're going to try to create something out of that of what was an independent hotel and aren't willing to take on any kind of soft brands or anything for it. So is that, is that where you were, does that answer your question?

Chris Woronka -- Deutsche Bank -- Analyst

Yeah. No, I think that's great. And just a follow-up is, as you guys think about the impact of the election coming up in the fall, how have you kind of underwritten the DC portfolio into guidance for say September-October?

Neil H. Shah -- President and Chief Operating Officer

Chris, one of the things this year in October is actually DC has a fairly good convention calendar right now. So to offset what we usually see post Labor Day in election year is very [Indecipherable] -- the congressman and the senator and everybody kind of goes back to their home district especially when its forecast to be a very contentious election. This year it is, it is good to see that the convention calendar is laid out in a way that should offer sort of any downdraft.

So our Q3 sort of end of Q3 and early Q4 numbers are actually better than they were last year from a forecast standpoint.

Chris Woronka -- Deutsche Bank -- Analyst

Okay, very helpful. Thanks guys.

Operator

We have a follow-up question from Anthony Powell from Barclays. Please go ahead.

Anthony Powell -- Barclays Capital -- Analyst

Hi, just one more from me. I think we've talked about weaker corporate travel for a number of years now, and not just you but a lot of the other companies, given that, would you have changed any of your investment decisions over the past few years and looking to the next say five to ten years, would you change any of your allocation to be more resort-driven or any different clusters that you'd like to get into, given this kind of weaker corporate demand environment that we've seen?

Neil H. Shah -- President and Chief Operating Officer

We don't break out kind of our resort portfolio within our numbers, but we have in fact across the last three to five years, it was nearly half of our investment activity was in the resort space or maybe a little more than half of the activity. On the West Coast, we think of The Sanctuary Beach resort, the Hotel Milo and the San Ambrose as resort executions we think of on the -- in Florida our assets in Miami Beach, as well as in Key West and even the Annapolis Waterfront resort in -- on The Chesapeake Bay as one of our resort executions.

And they clearly have had great performance across the cycle and across the last three years when the corporate market has been tepid. You know, yeah, I guess if we had perfect information in hindsight, we could have lightened the load on New York even more. If we felt like the corporate market was going to be as tough as it is. But again like, it's not a very, it's not a regret necessarily, it's a fact that we had a little bit of the market was that way. Generally markets rebound and recover. And so we feel like we are highly leveraged to a corporate recovery.

But in the meantime, we are continuing to be able to show better than average growth, because of our leisure-oriented properties. For being a concentrated portfolio, it's relatively well balanced and diversified among the major segments.

Anthony Powell -- Barclays Capital -- Analyst

All right. Great, thanks for that.

Operator

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Ashish R. Parikh -- Chief Financial Officer

Thank you.

Neil H. Shah -- President and Chief Operating Officer

Thank you. We know you have a busy morning with some other calls, but Jay, Ash and I and Greg are here in the office for any follow-ups. Talk to you soon.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Greg Costa -- Manager of Investor Relations and Finance

Neil H. Shah -- President and Chief Operating Officer

Ashish R. Parikh -- Chief Financial Officer

Anthony Powell -- Barclays Capital -- Analyst

David Katz -- Jefferies LLC -- Analyst

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

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

Ari Klein -- BMO Capital Markets -- Analyst

Bill Crow -- Raymond James Financial -- Analyst

Barry Oxford -- D.A. Davidson -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

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