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8-K - FORM 8-K - ASHFORD HOSPITALITY TRUST INC | d82153e8vk.htm |
Exhibit 99.1
ASHFORD HOSPITALITY TRUST
First Quarter 2011 Conference Call
May 9, 2011
10am Central
First Quarter 2011 Conference Call
May 9, 2011
10am Central
Introductory Comments Tripp Sullivan
Welcome to this Ashford Hospitality Trust conference call to review the Companys results for the
first quarter 2011. On the call today will be Monty Bennett, Chief Executive Officer, Douglas
Kessler, President, and David Kimichik, Chief Financial Officer. The results as well as notice of
the accessibility of this conference call on a listen-only basis over the Internet were released
yesterday evening in a press release that has been covered by the financial media.
As we start, let me remind you that certain statements and assumptions in this conference call
contain or are based upon forward-looking information and are being made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to numerous assumptions, uncertainties, and known or unknown risks, which
could cause actual results to differ materially from those anticipated. These risk factors are
more fully discussed in the section entitled Risk Factors in Ashfords Registration Statement on
Form S-3 and other filings with the Securities and Exchange Commission. The forward-looking
statements included in this conference call are only made as of the date of this call and the
Company is not obligated to publicly update or revise them.
In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of
which are provided in the Companys earnings release and accompanying tables or schedules, which
has been filed on Form 8-K with the SEC on May 8, 2011, and may also be accessed through the
Companys website at www.AHTREIT.com. Each listener is encouraged to review those reconciliations
provided in the earnings release together with all other information provided in the release.
I will now turn the call over to Monty Bennett. Please go ahead.
Introduction Monty Bennett
Thank you
and good morning. Continuing the trend of our out-performance throughout 2010,
Im pleased with our execution on all fronts during the first quarter of 2011. We demonstrated
once again the benefit of the diversity of our transactional and operational strategies to maximize
AFFO and share price.
We reported AFFO of 41 cents per share in the quarter and an 8.8% increase in RevPAR for hotels not
under renovation. ADR was up 4.6% and occupancy was up 271 basis points. We exceeded the prior
quarters RevPAR growth performance and have gained momentum in driving ADR growth. Some of our markets
that lagged RevPAR acceleration in earlier periods are now showing growth. This is typical in the
first phases of a recovery as markets vary in their
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response time to economic stimulus. The addition to our platform of the 28 hotels in the $1.3
billion Highland Hospitality portfolio should help us increase our overall average RevPAR and
growth due to the exposure to higher quality markets, greater concentration in upper upscale
hotels, and strong brands.
While revenue increases are expected to continue for several quarters to come, we are keenly
focused on driving operating results through cost control and flow-through. During the downturn,
we minimized operating margin erosion. Similarly, we expect the same cost
controls during the recovery to minimize increases in operating expenses. We believe that because
38% of our EBITDA is managed by our affiliate Remington, we are able to exert greater control over
the rise and fall in operating expenses. For the hotels not under renovation, EBITDA margin
increased 280 basis points from a year ago to 30.1%. While for all hotels, EBITDA margin increased
219 basis points to 29.2%.
Regarding
capital expenditures, we completed $13.9 million of projects in
the quarter. Our 2011 CapEX budget is $131 million with
approximately $40 million being
our share of the total dedicated to the Highland portfolio and the balance to selective upgrades of
hotels to improve their competitive position in their market.
Our capital structure remains a priority, and we will continue to seek the right balance for us
among equity, debt, interest expense, and leverage. We have clearly demonstrated discipline in
minimizing equity offerings, while still exceeding our peers in asset growth mainly as a result of
the Highland Hospitality transaction. Our focus on opportunistic share repurchases was invigorated
with the most recent agreement reached with our Series B-1 shareholder to buy back preferreds that
were convertible into common shares. The $81 million Series E preferred offering facilitated this
repurchase. While overall leverage ticked up during the quarter with the completion of the
Highland acquisition, we expect that percentage to come down as virtually all cash flow from that
transaction is used to amortize the debt. For 2011, we have $203 million in hard maturities, all
of which occurs in December. We have $167 million coming due in May 2012, in addition to our April
2012 maturity on the credit facility which had $45 million outstanding as of March 31.
As we noted before, our board declared a dividend of $0.10/share for the first quarter 2011, and we
provided guidance that we intend to pay at least this amount in subsequent quarters as well. Our
solid operating performance combined with the significantly reduced share count has contributed to
the dividend strategy. We are pleased to be able to reinstate the dividend to provide additional
returns to our shareholders above and beyond the appreciation in our stock.
The most significant transaction that occurred in the quarter was obviously the Highland
Hospitality portfolio acquisition. Given that we held a separate call during the quarter to
provide specific details on this investment, Id like to focus here on what we have been doing with
this portfolio since the March 10, 2011 acquisition date. First of all, due to the short period of
ownership, we did not see any material benefit so far in our reported results. Most of our work to
this point has been in completing the transition and positioning our asset managers to implement
more rigorous revenue and cost management systems in these hotels. We believe there are clear
opportunities to improve cost controls and drive operating margin improvement. As the year
progresses, we will be able to provide more definitive assessments on how quickly
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we can drive improvement and which assets may
take longer to bring up to our standards. We believe there is a
substantial cash flow opportunity with this portfolio, but I remind you that pursuant to the terms
of the restructured financing excess cash flow generated by these assets will go to reduce debt on
the properties.
Looking ahead to the rest of the year,
our focus remains unchanged improving our balance sheet
and liquidity, controlling costs; budgeting revenue and generating improved operating results, while still pursuing
selective, yet opportunistic, capital markets and investment opportunities. All of these we will
execute with our management teams commitment to outpacing our peers through superior shareholder
returns.
Lastly, weve announced that we are hosting an analyst and institutional investor conference in New
York this Wednesday, May 11th. This will be an opportunity for us to provide some very
interesting insights into our investment, capital markets, and asset management strategies. If you
havent RSVPd yet, please let us know if youre coming.
Id now like to turn the call over to David Kimichik to review our financial results.
Financial Review David Kimichik
Thanks, Monty.
For the first quarter we reported net income to common shareholders of $31,278,000, Adjusted EBITDA
of $58,356,000, and AFFO of $32,476,000, or 41 cents per diluted share.
At quarters end, Ashford had total assets of $3.6 billion in continuing operations, and $4.5
billion overall including the Highland portfolio assets which is not consolidated. We had $2.4
billion of mortgage debt in continuing operations and $3.2 billion overall including Highland. Our
total combined debt has a blended average interest rate of 3.2%, clearly one of the lowest among
our peers. Including our interest rate swap, 61% of our debt is now fixed rate debt. The weighted
average maturity is 4.6 years.
Since the length of the swap does not match the term of the underlying fixed rate debt, for GAAP
purposes the swap is not considered an effective hedge. The result of this is that the changes in
market value of these instruments must be run through our P&L each quarter as unrealized gains or
losses on derivatives. These are non-cash entries that will affect our Net Income but will be
added back for purposes of calculating our AFFO. For the first quarter, the unrealized loss was $16.8
million.
At quarters end, our portfolio consisted of 97 hotels in continuing operations containing 20,458
rooms. During the quarter we sold out of discontinued operations three hotels, the J.W. Marriott
San Francisco, the Hilton Rye New York and the Hampton Inn Houston for a combined net gain of $2.8
million. Additionally we acquired 71.74% of the 28 Highland hotels containing 5,800 net rooms in a
joint venture. All combined, we currently own a total of 26,258 net rooms.
As of quarter end, we owned positions in just 2 mezzanine loans with total book value outstanding
of only $20.9 million. Subsequent to the quarters end we received a slightly
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discounted payoff of the Tharaldson mezz loan. We will realize a gain of $4.2 million, since in
the previous quarter we took a partial write down of $7.8 million on this loan as it was coming due
with no clear resolution. With the exception of one small loan of $4 million on the Ritz Carlton
Key Biscayne, we have effectively closed out our mezzanine loan portfolio.
Hotel operating profit for the entire portfolio was up by $8.3 million, or 15.3%, for the quarter.
Our quarter-end adjusted EBITDA to
fixed charge ratio now stands at 1.70 times versus a credit facility required
minimum of 1.25 times.
Our share count currently stands at 76.0 million fully diluted shares outstanding which were
comprised of 61.0 million common shares and 15.0 million OP units.
Id now like to turn it over to Douglas to discuss our capital market strategies.
Capital Market Strategies Douglas Kessler
Good morning. This has been a very active transaction period for us. In addition to the Highland
Hospitality investment, we also completed three asset sales, purchased a unique, but relatively
small hotel asset, negotiated a loan payoff, and executed on a value-add capital market strategy.
The transaction environment remains extremely competitive. While more properties are coming to the
market for sale, a significantly greater amount of capital continues to seek hotel investments.
The depth of the buyer market is increasing and includes REITs, investment funds, insurance
companies, pension plans, private equity, and offshore buyers. We continue to underwrite
potential new investments, but we have not seen opportunities as favorable as the returns we are
expecting from the Highland portfolio transaction. We are not pressured to deploy capital, and are
disciplined in seeking accretive transactions for our shareholders from an EBITDA and FFO per share
standpoint.
Subsequent to the end of the quarter, we completed a transaction that resulted in a 5.9 million
share reduction in our fully diluted share count to a level of 76 million shares. We accomplished
this in two steps. First, we negotiated a stock repurchase agreement with the Series B-1 holder of
convertible preferred shares. We then completed our Series E preferred stock offering, which with
the green shoe resulted in the issuance of 3.35 million shares at $25 per share with a 9% yield.
We then used $73 million from the $81 million Series E net offering proceeds to complete the
repurchase transaction per the recently negotiated agreement. As a result, only 1.4 million shares
of the outstanding 7.2 million Series B-1 shares were converted to common from this transaction and
the remainder was repurchased. Since the inception of our buyback program, we have reduced our
peak share count by almost 50% and removed the Series B-1 convertible preferred. We confidently
expect that these share repurchases will provide additional near term and longer-term benefits in
our reporting metrics and total shareholder returns.
Regarding asset level transactions, in March we acquired 96 units at the 238 unit World Quest
Resort located about a mile from Disneys Magic Kingdom in Orlando for $12 million cash. This is a
small, but unique opportunity that also includes developable land that would allow us to
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build additional units. Remington Lodging, who had been previously managing the asset, provided us
insight on the Mediterranean styled resort containing 2 and 3 bedroom suites, and enabled us to
acquire it essentially off-market. We expect to derive benefits from the hotel operations,
ownership of common areas, as well as the future sale of units.
During the quarter, we completed the sale of the Hilton Rye Town, JW Marriot San Francisco, and the
Hampton Inn Houston Galleria. The Hilton Rye Town traded for $35.5 million, and all the proceeds
were used to reduce borrowings under the credit facility. The Hampton Inn Houston Galleria
generated proceeds of $20.3 million that were used to pay off a $2.7 million mortgage secured by
the property, as well as another $2.7 million to our JV partner with the balance used to pay down
our credit facility. Combined with the JW Marriott San Francisco sale we discussed on last
quarters call, we produced $152 million in gross proceeds from dispositions during the first
quarter. On a combined basis, these three asset sales traded for a very low trailing twelve month
cap rate of 2.5% and also kept us from having to spend future capex dollars. We will continue to
think strategically about asset sales given the market demand for high quality hotels in our
portfolio. For those assets we may identify for sale, our decisions will be based mainly upon a
share price accretion analysis, pricing, capex needs, alternative uses of sales proceeds, and
impact on leverage.
Subsequent to quarter end, we negotiated a $22 million payoff on our $25.7 million mezz loan
secured by interests in the Tharaldson portfolio, resulting in an 86% of par payoff. We were
very pleased with the outcome of this payoff for several reasons. First, the debt yield was 6.9%
on our last dollar of investment in the capital stack, which can be equated to the cap rate.
Second, this loan was secured by mainly midscale hotels, some of which were on leases, in secondary
and tertiary markets. Lastly, the decline in operating performance due to the economic downturn
put in question the recovery in value. As David previously mentioned, the favorable execution
relative to our prior write-down will result in a reported gain next quarter.
Just recently, we completed the restructuring of debt secured by the Manchester Courtyard, a $5.8
million loan that had matured in January 2011. We were able to secure a new three year term on this
loan. As we look to our upcoming debt maturities, the next of which is in December of this year,
we are working on restructuring solutions.
In conclusion, all of our acquisition, disposition, financing, capital market, and balance sheet
decisions have a unilateral focus namely near term and long term dividend and shareholder stock
price appreciation. We are very much aware of the qualitative and quantitative aspects of our
decision making. Given that insider ownership is approximately 20%, we can assure you that we are closely
aligned with our shareholders and focused on continued success in Ashfords overall
performance.
That concludes our prepared remarks and we will now open it up for questions.
Q&A
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Ending Monty Bennett
Thank you for your participation on todays call.
We look forward to seeing you the
morning of May 11th in New York for our institutional investor and analyst day.
We look forward to speaking with you again on our next call.
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