Ashford Hospitality Trust Inc (AHT) 2004 Q2 法說會逐字稿

Good day, everyone, and welcome to the Ashford Hospitality Trust conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Tripp Sullivan. Mr. Sullivan, please go ahead, sir.

Good morning and welcome to this Ashford Hospitality Trust conference call to review the Company's results for the second quarter of 2004. On the call this morning will be Monty Bennett, President and Chief Executive Officer; Doug Kessler, Chief Operating Officer and Head of Acquisitions, and David Kimichik, Chief Financial Officer and Head of Asset Management. The results as well as notice 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 express 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. When we use the words will likely result, may, anticipate, estimate, should, expect, believe, intend or similar expressions, we intend to identify forward-looking statements. Such statements are subject to numerous assumptions and uncertainties, many of which are outside Ashford's control. These forward-looking statements are subject to known and unknown risks and uncertainties which could cause actual results to differ materially from those anticipated, including without limitation general volatility of the Capital Markets and the market price of our common stock, changes in our business or investment strategy, availability, terms and deployment of capital, availability of qualified personnel, changes in our industry and the market in which we operate, interest rates or the general economy, and the degree in nature of our competition. These and other risk factors are more fully discussed in the section entitled "Risk Factors" in Ashford's registration statement on Form S-11 as amended and from time to time in Ashford's 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. Investors should not place undue reliance on these forward-looking statements. We are not obligated to publicly update or revise any forward-looking statements whether as a result of new information, future events or circumstances, changes in expectations or otherwise.

I will now turn the call over to Monty Bennett. Please go ahead, Monty.

Good morning. This morning we would like to update you on our investment activity, discuss our operating performance in the quarter, provide an assessment on the current state of the lodging market, talk about how we're financing our growth and share with you the current state of our investment pipeline. No matter which source we (inaudible) a consistent theme is one of continued improvement in lodging fundamentals. Smith Travel Research announced this week that industrywide RevPAR was up 7.1 percent for the month of July with gains in both the leisure and business segments. Predictions of new supply growth for 2004 and 2005 remain at 1 to 1.5 percent. As the economy continues to grow, we expect this favorable supply and demand imbalance to continue for the foreseeable future.

I would like to call your attention to a number of points that we believe are significant. First, we are finding solid investment opportunities in the marketplace. The nine-hotel portfolio we announced yesterday on a trailing 12-month basis produced some EBITDA yields of 12.6 percent unleveraged. Assuming leverage of 55 percent with terms identical to the Merrill Lynch financing also announced yesterday, the trailing 12 leveraged returns would be over 20 percent on a current basis. The nine-hotel 900 room portfolio is a great investment play with strong industry yields, mid-scale to upscale properties with Hilton and Marriott brands at a very attractive trailing EBITDA.

We're meeting our investment pace. At our IPO, we said we would be fully invested, which would be $500 to $600 million in total assets depending upon whether we are leveraged 50 to 60 percent within 12 months. At the 11 month mark, we have closed or announced over $480 million worth of deals.

RevPAR for the Company in the second quarter was up 1 percent on a comparable basis. This is comprised of our renovated hotels which are up 6 percent, while the average is brought down by those hotels that were undergoing significant renovation. Even so our hotel operating profit for the entire portfolio was up 10 percent year-over-year on a comparable basis.

The $210 million Merrill Lynch financing at LIBOR plus 195 is in our opinion very attractive. I encourage you to take a look at yesterday's release to learn about the details of all of our financing activities.

We continue to build a collection of diverse yet attractive investments. We're diversifying investment types. That is loans and direct investments by service segment, full-service, select service and extended stay by brand, predominantly Hilton, Marriott and Starwood, and by geography with assets virtually in every part of the country.

We're able to announce our dividend earlier than we originally anticipated, announcing and paying a dividend of 6 cents per share at the end of the first quarter and 10 cents per share at the end of the second quarter.

In the last conference call, we indicated that we had a pipeline of $200 million. Since then we have closed or announced approximately $100 of transactions with some transactions falling out, others being added to the pipeline and some we are still working on. We remain optimistic about the opportunities still available in the marketplace.

I will now turn the call over to David Kimichik for the financial review.

Thank you. I would like to highlight some data from yesterday's release and provide a few comparisons that will hopefully help you understand our financial results. We will talk about our financial statements and then the combined operating table results for the second quarter.

First, I will talk about our balance sheet. Given the number of financing transactions completed or announced subsequent to the end of the quarter, our balance sheet statistics as of June 30th are a little out of date. Where appropriate I will provide the updated statistics.

As of June 30th, the Company had 358 million of total assets, including 28.6 million of cash. We currently have 43 million of cash available. All but 22 million of our 133 million of debt outstanding was a variable-rate debt at quarter end with a weighted average interest rate of 4.9 percent. As of today, we have 204 million outstanding with all but 22 million being variable-rate debt with an average interest rate of 5.6 percent.

As part of the recently announced 210 million Merrill Lynch financing, we intend to swap one-half of this loan to a fixed-rate. At that time, the company will have 294 million of debt with 57 percent floating and 43 percent fixed. Our bonded interest blended interest rate on all debt is expected to be 4.9 percent.

As of August 4th, we owned 23 hotels comprised of seven Embassy Suites, two Radisson hotels, two Doubletree Guest Suites, two Hampton Inns, four SpringHill Suites by Marriott, one Sheraton, one Hilton Garden Inn, a Homewood Suites, one independent, one Fairfield Inn & Suites and one Residence Inn by Marriott for a total of 3469 guest suites. 14 of these hotels are managed by Remington Lodging & Hospitality, four are managed by Noble Investment Group and one by PM Hospitality Strategies, and four recently announced are managed by Bay Hospitality Group.

Our loan portfolio is comprised of four mezzanine loans and one first mortgage participation for a total of 72 million. Our blended yield on our loan portfolio is 11.5 percent. We are progressing well on our renovation programs. As of June 30th, we had four assets under significant renovation with a committed investment plan of approximately 8.2 million. At the end of the quarter, we had spent approximately 5.7 million on these plans, and as of today, that amount has increased slightly to 7 million. We completed all renovations at the end of July, except for the Embassy Suites in Phoenix which should be completed in the next 45 days. Currently we have 31.6 million fully diluted shares and units outstanding.

Now I will talk a little bit about our income statement. During the second quarter, we reported net income of 1,694,000 or 7 cents per share, up from 2 cents per share in the first quarter. FFO was up significantly from 2.4 million or 8 cents per share in the first quarter to 4,254,000 or 14 cents per share in the second quarter. The dividend of 10 cents per share for shareholders of record on June 30th was up as well from 6 cents per share declared in the first quarter. Given the number of acquisitions we have completed so far this year and the improvements we have seen in our operating performance, we hope to continue to grow these numbers.

EBITDA showed improvements in the quarter as well, increasing to 6,284,000 from 3,209,000 in the first quarter. And as was the case in the previous three quarters, our straight up year-over-year comparisons to our predecessor company are not very meaningful. These will begin to take on some meaning beginning in the second quarter of 2005.

In the interim, there are several measures that are meaningful for tracking our progress. These statistics are noted in the release, and I will just highlight a few. First, second-quarter RevPAR. We divided this table into two groups, all hotels and then renovated hotels. The renovated hotel category includes the six original hotels plus the 12 hotels we had acquired as of June 30th, less the four hotels under renovation as of June 30th for a total of 14 hotels. We believe this is the most relevant group to track as it demonstrates the strength of the properties we have acquired, as well as our ability to generate operational improvements. RevPAR for this category was up 6 percent over second quarter '03 to $81.57 on a 5.9 percent increase in ADR and a 14 basis point increase in occupancy to 76.94 percent.

Another relevant metric in the pro forma calculation of hotel operating profit we provided in the release. This calculation includes all 18 properties. We were able to increase operating profit in the second quarter by 9.9 percent over the prior year period. This is an overall improvement in operating margin of 2.6 percent. Overall we saw an improvement in rooms flow-through, as well as a 7 point increase in food and beverage flow-through.

I would now like to turn the call over to Doug Kessler to discuss our ongoing investment plan and pipeline.

Thank you, David, and good morning. The basic theme of my comments is that we are right on track with what we have been telling the market we would accomplish within the first 12 months of operations from an investment standpoint.

With the expected closing later this month of the acquisition announced yesterday of nine hotels from Dunn Hospitality Group, we are right on target of $500 million in investments during the 12 months following our IPO. Our original target for the portfolio was 60 to 80 percent of direct hotel investments with the balance in mezzanine loan investments. Currently 85 percent of the 480 million in investments completed or committed are direct hotel investments with 15 percent in mezzanine loans.

As we discussed last quarter, the number of opportunities available in direct hotel investments is consistent with where the lodging investment cycle is currently. Going forward we expect a continued high percentage allocation to the direct hotel investments with our remaining capital.

In terms of our direct hotel investments, our investment yields are also right on track. The original target for direct hotel investments was a range of 9.5 to 10.5 percent trailing 12 EBITDA yields, while mezzanine loans would have initial unleveraged yields in the 11 to 12 percent range. We have exceeded the direct hotel investments range for hotels that we have acquired since the IPO with an average trailing EBITDA yield at the time of announcement of approximately 11.3 percent. A number of our most recent acquisitions have been well above this range, including the just announced Dunn portfolio at 12.6 percent.

We continue to seek out deals at the higher end of the range. However, we will also closely review larger full-service acquisitions that while accretive have most of their upside a few years out. We believe that we have a competitive market advantage by sourcing deals such as the Dunn transaction that are not being widely brokered. We have multiple campaigns to turn up yields via a very proactive effort.

Our investment strategy remains on track with having a diversified platform. We overweight capital in those areas with the best returns and underweight in other areas for balance. Including closed and recently announced deals, we now have 32 hotels containing over 4400 rooms across 11 brands and one independent. 52 percent of our hotels are Hilton branded, 30 percent are Marriott branded and 4 percent are Starwood branded with the rest being a variety of other brands. Over 57 percent of the portfolio is in the full-service segment, 33 percent in the select service segment and 10 percent in the extended stay statement. 44 percent of our portfolio is upper upscale and 38 percent is upscale, which positions Ashford in high RevPAR growth segments.

We're also diversified by geography, market location and demand generators. To date we have 30 percent of the assets in the South Atlantic region, 24 percent in the Midwest, 13 percent in the Northeast, 13 percent in the Southeast, 13 percent in the mountain region and 7 percent in the West Central region.

We have also diversified our property management by keeping four different existing management companies in place under performance contracts and more than half of the properties we have acquired.

Now let's turn to our mezzanine strategy. Our closed mezzanine loans have initial unleveraged yields that average 11.5 percent, the midpoint of our targeted range of 11 to 12 percent. We continue to see financing opportunities consistent with our targeted range. To date our pricing is based upon a grid with the minimum spread above LIBOR of 900 basis points. We have now recognized (inaudible) in the industry and are contacted directly by brokers, borrowers and first mortgage providers. We have established relationships with leading real estate lenders who have experienced the benefits of teaming up with Ashford. The loan portfolio consists of 21 different hotels containing over 7500 rooms across seven brands and one independent. The portfolio is 100 percent full-service upper upscale hotels that are geographically dispersed. It includes purchases, originations, high-quality assets, well-known owners and a healthy blend of single asset and portfolio collateral. Our targeted allocation as a percentage of the total portfolio for mezzanine investments in the near-term will be closer to the 10 to 20 percent range.

I would now like to spend a moment on our pipeline. During our call last quarter, we noted we had $384 million of completed and committed investments and had another $200 million in our pipeline. Since that time, we have closed on or expect to close on shortly approximately 100 million of that pipeline to bring us to 480 million in total and are actively working on closing the remaining balance, which will depend upon our total leverage which we have set in the range of 50 to 60 percent.

The next round of transactions will probably be comprised primarily of direct hotel investments, but there are a few mezzanine investments included as well within our targeted range. We're moving forward on several investments where we have reached additional agreements subject to due diligence to proceed to closing.

I will now turn the call back to Monty for brief concluding remarks.

Thank you. Our optimism is based on a few key points. First, we continue to find solid deals in the marketplace with very attractive current returns. Also, the nine-hotel portfolio announced yesterday has a solid trailing unleveraged EBITDA yield of 12.6 percent. At $480 million invested announced 11 months after IPO, we're on track to hit our investment target of $500 to $600 million within our first-year of operations.

Year-over-year hotel operating profit for the second quarter is up by 10 percent. Attractive financing opportunities are available in the marketplace. This is the $210 million financing announced yesterday. Our platform remains diversified. We paid our first dividend earlier than expected and it is growing.

That covers our prepared remarks. We will now be happy to answer any questions that you may have.

(OPERATOR INSTRUCTIONS). Will Marks (ph), Vacancy Securities (ph).

Good morning, everyone. I had just a question on the acquisitions announced yesterday, and I see the first few yields look pretty attractive. Can you just tell me about where you expect this to be down the road, or if there is an IRR that is different from that yield. Any kind of capital enhancements value-added?

The yields that we shared are the trailing 12-month yields rather than necessarily the first-year yields. We are going to be investing some capital into the assets. I believe the release stated something like $7 million or so, and those are capital enhancements in order to meet the franchisers PIP programs that are pretty standard out there. Marriott and Hilton both are pretty tough on making sure all those assets are kept up.

We hope that those will add income and earnings to those assets over time, and that is the plan. But as far as specifics, it is tough for us to roll out specifics. We are still in registrations. We want to be careful about being too specific about what the future holds.

That was all. Thank you.

Bryan Maher, Calyon Securities.

Can you get a little bit more specific -- I apologize if I missed this, but I tried to find what specific markets those nine hotels were in? And what attracted you to those markets? What were seeing in the second-quarter numbers from various companies is very spotting RevPAR results around the country.

Sure. Those markets are in the Indiana and Kentucky areas. There are secondary markets in those areas. Suburban markets of some of the larger cities in those states which are not that large to begin with. But what really attracted us to this portfolio was a couple of things. One, they are very stable markets because of their location and their product type. Two, the trailing 12 yield is very strong. Third, that yield has been growing over the past number of years, and that was very attractive to us, and they are great brands. Marriott and Hilton brands, which are stable revenue producing brands and growing. So with all those points, we found that to be very attractive, and that is why we jumped on the transaction.

And are you seeing any stabilization or leveling out in any way of hotel asset values in the marketplace? As you are shopping around, do you see prices continuing to go up, or has there been a stabilization in the last quarter?

I think that the trend has been that pricing seems to be stabilizing, but income tends to be increasing. When I say stabilization, my reference really there is to cap rate trends.

It looks like the volume of transactions by all accounts if you talk to brokers in the industry that it is just significantly above prior year's and naturally high kind of hit records this year. But the fact is that the Bidax (ph) spreads have narrowed. I think that is really a function of where we are in the cycle in the recovery and the fact that many of these hotels have recovered to a value level that is resulting in the acceleration of trading volume. Our approach has always been to pursue the widely marketed deals, as well as pursue deals which are not on the market. I think that has really been one of our key competitive advantages such as the Dunn transaction as one of our most recent examples of that. That allows us actually to access opportunities and be very competitive with the deals that we bring to our shareholders.

For modeling purposes relative to the new portfolio, can you tell me how quickly you're planning on putting them under management and how many of those hotels will be undergoing renovation?

Sure, the new portfolio that we announced?

Right.

Relatively soon we would like to put those under renovation. I think the franchise you're are required to be done within 12 months. But at the same time, we don't see these renovations has being overly significant from the standpoint that some assets that we buy we think that the renovation is needed to really help the future earnings of the assets because the assets are in not very good physical condition. We don't see that in these assets. We think they are in relatively good physical condition.

So we don't see the need to rush out there and do it very quickly, which we may have an impact on earnings. We want to be careful about it and try to spread out it so that it does not have as much of an impact on it.

And is it safe to assume that none of these hotels you just acquired will be changing flags?

I think so, yes.

(OPERATOR INSTRUCTIONS). David Loeb, Friedman Billings Ramsey.

Not to put too fine a point on it, but what is wrong with these assets that you were able to get such a low-price, such a high-yield?

David, we just got a great crew here. Our guys have got some great contacts in the industry, and we source deals that are not widely marketed. I think from an underwriting standpoint, we were just talking to David Brooks here in our shop and he said that of all the deals that we looked at this is probably the most plain when it comes to title, for example, because of the fact that they are relatively new assets. We just have a great network, and these guys have done a great job of sourcing it.

But still the seller must be aware of what even limited service assets are going for in the market today. Are there expectations of more supply in those markets? Was there some kind of hair that made -- this is a particularly attractive return. I applaud you for that, but at the same time, I want to make sure I'm not missing something.

Sure. No, we take a look at supply. That is very important to us, and the new supply opportunities or developments in the marketplace are relatively minor. I think as I recall there is one.

One new hotel being built in all of the various markets where these hotels are located.

So really, it was just a matter of there not being competing offers, and yours was the most attractive for this seller? Clearly the 4 percent management fee might be just a touch on the high side, so perhaps that was an offset. But it still seems like a very attractive return from your perspective.

It is attractive. We are very happy about it.

Okay. Well done. Doug, this one is for you. On the mezz portfolio, what is your financing strategy? In other words, what kind of long-term value are you looking to put on individual mezz loans as investments?

We have typically been participating in the mezz structure somewhere in the 65 to 85 percent LTV on the capital that we deploy. Sometimes we go a little bit higher than that, but typically there are guarantees that go along with the higher placement in the capital stack. What we have been pleased with so far is that generally speaking we have been able to tap into the 11.5 percent yield, which again is at the midpoint of the range that we identified, but at a lower overall LTV than where we thought we would have to be to get that yield.

I guess I was asking kind of in the other direction about how you plan to finance these, and what can we assume how much debt you will put on each piece in that?

We have lined up two mezz financing warehouse facilities with CapSource and Wachovia that have been described in the recent press release --

Right. That is 125 million of debt.

Right and the --

That looks to me -- if I am assuming that you will lever your mezzanine investments at 40 percent set to cost, that looks like you've got something like 300 million of investment capacity with that debt. Is that correct?

The leverage levels will range generally from 45 percent to 75 percent, somewhere in that bandwidth depending upon the facility and depending upon the bank's underwriting of the asset.

Okay. So still 125 million implies then pretty substantial -- maybe it is 250 of capacity, but capacity well well in excess of the 70 million you have got on your books?

We have capacity in excess of what we have on our books.

But substantially? You have not really shown an inclination to pay fees on unused financing. Does this suggest that you have an appetite or a pipeline for a lot more mezz, or just that you want to really have in place the ability to build it at that business?

You are correct in saying that we are financially motivated to strike the best possible structure that we can in the market. I think what we have announced so far is clearly indicative of that proactive effort to do that. The facilities that we have arranged have given us the ability to go to that level. Whether we take it to that full level, the future will eventually tell that. But I think what we believe is that we wanted to have that capacity and tap into a favorable and flexible financial structure, which is what we have done with these two lenders.

Okay, great. I might circle back with more.

(OPERATOR INSTRUCTIONS). Peter Fuller (ph), Fuller Partners (ph).

Lots of good numbers there. I wanted to just go back, it seems like a six-month or nine-month dilemma we have, and that is with you being in registration. Can you comment or give us any guidance on what your plans are or when we might be able to frankly be able to see Mr. Loeb put anything in print? Obviously he cannot until this gets resolved one way or the other. And while I certainly like everything we are seeing, I was just hoping we could get some guidance there?

This is Monty. Peter, we talked about that very point to you not too long ago, and I have been advised that we really cannot comment on what we are going to do with that registration because our lawyers will not let us. unfortunately I cannot give you guidance on what we will be doing in order to allow that to happen.

But I do want to tell you that we are sensitive to that point, and we know that yourself and a lot of our investors are good FBR clients and want to hear David's research. So suffice it to say that we're not insensitive to that, and we think that is an important point and that goes into our discussions very strongly about what our next step will be.

All right. I've got pitbull, the dog, if you would like me to send them over to the lawyers, I would be happy to do so. If I can, I am just going to ask another question that gets to something that frankly I naively have been unable to get my hands around, and that is trying to model -- obviously it's a very dynamic situation -- but trying to model your FFO and your CAD numbers. I was looking for bigger numbers, and I think if it just has to do with the speed at which you're putting on the hotels -- I was wondering if you could give us some guidance or some comments on the percentage of these assets that are under renovation that do inhibit the rents of the businesses? I'm trying to just get some insight as to whether there is anything I can do to get a better model developed here?

Added to that, can you think out loud for us on what if any seasonality you think is worth being aware of on the class of assets that we have so far?

Sure. Let me comment a little bit, and I am going to, Peter, see if I can't answer some of your questions. On some of the assets that we bought last November, a number of those assets needed significant renovations. Four of them did it -- needed renovation. And most of that renovation was done in the second quarter. By this point in the third quarter, most of them are done, and there is still one that is outstanding. We find as we complete those renovations, it takes time to get our bearings and to grow the platform when they come out of it, and historically assets that we would take through that program have done well.

As far as those that we have recently announced, I would say that there are two that have renovations that are of any note. There is the Sheraton Bucks County, which is Northern Philadelphia, and then there is the transaction that we announced yesterday. The deal that we announced in Northern Philadelphia has a good-sized renovation. It's about $5.5 million. That asset is worn down. It does not meet Sheraton specs as is, and therefore, the renovation we said it is going to be more substantial, probably more like those (inaudible) assets that we bought late last year. The assets that we announced yesterday with the Dunn Hospitality Group, the renovation on those nine hotels is about $7 million, but it is again spread over more hotels. Those hotels were all in good standing with the brands at the time that we bought them. So these are the brands PIP requirements where they try to get the property upgraded whenever something trades hands. Therefore, the renovations really to those assets are not -- while the dollar amount is not small, they are not as urgent I should say.

So from a management standpoint, we are going to try to be more careful about the timing of those renovations since we do not see at least here internally from a management standpoint an urgency in getting those done. So the other transaction, the day transaction, is in need of only modest upgrades. The Lake Buena Vista transaction only needs modest upgrades, and the Sea Turtle Inn modest upgrades. So hopefully that gives you some color, Peter.

All right. So other than asking you to create a model for me, is it reasonable then to just -- back of an envelope analysis -- say okay, six to nine months at most, and we would be expecting the hotels that experience renovations and disruptions to be at or surpassing the yield that you had purchased on that simply because we were all watching RevPAR numbers increase. Isn't that -- can't I take that for granted?

No. I would say that if it is a substantial renovation, I would say that that time period is longer. It is probably closer to a year, maybe five quarters on the substantial renovated assets.

Rod Petrik, Legg Mason.

Given the fact that you are on track to be fully invested, was it committed or invested by end of August?

It was invested by the end of August.

All right. How quickly does it take you to stabilize your dividends?

We have not decided yet on that. We've had some internal discussions about the dividend policy, about whether we will continue to grow it or stabilize it. We just don't quite know yet. But I would not think it would be too long after we get fully invested. I know you won't something a little more specific than that, but we just have not quite decided yet.

Okay. Thanks.

David Loeb, FBR.

First of all, I am not going anywhere near Peter's comments. That is probably best for all of us.

Second, just on the pipeline, Doug and Monty, I am trying to reconcile things that you both said. Monty, you said some things out of the 200 in addition you closed 100. Some things fell out. Some things have gone in. Doug, you said you were working on the remaining balance. What is the remaining balance then? What would you consider as a similar number to that 200 that was under negotiation or LOI before?

You know, David, our pipeline is active. It has historically been active, and we continue to pursue transactions both on the debt to equity side. I think we're a recognized player now, and people bring deals to us and we are sourcing opportunities pretty broadly.

When it comes to what the rest of the portfolio will look like and the timing and what not, it really goes back to what level of leverage we run the Company at. We have set a range between 50 and 60 percent, and we will be somewhere in that range. So you can do the math and back into approximately what remaining volume of assets we would have to close on to essentially be fully invested with some flexibility still.

The market opportunities as we have said we are sort of closer to 80 percent direct hotel investments, maybe a little bit north of there, and about 15 to 20 percent or so in the mezz. That is where we are today, and given with our remaining capital to invest, you can see that the needle is not going to move too much from that just given the mathematics.

David, I think what is important is that we still can continue to find deals that meet our investment criteria that we laid out at the IPO. And what the exact number that is, as you know, this is constantly changing process. So it is hard for us to jump out there and take a number.

But we don't see any significant changes in our activity in the marketplace, in the pipeline. It is just assets come and they go. So it is always hard to know what you will ultimately close in on. But I could say that I don't think we have seen a material change in the availability of deals out there or the deals that we're chasing or the deals we put under contract or anything like that. We're generally kind of cooking along more or less pretty close, but again with no indication of what we will actually close on because we do have to take those through underwriting.

But we are planning deals consistent with our IPO at the 9.5 to 10.5 percent unlevered EBITDA deals for direct hotels and 11 to 12 percent for mezz deals.

So that was a very detailed and actually very helpful answer. But I just want to understand in terms of the subset of what you are evaluating that is kind of under LOI or further along in the process, is that about the same size as it was a quarter ago?

The volume of transactions in the market if you talk to the brokerage community is significantly higher. So when I look at that, just because of the diversity of all of our platform, we can look at it as it is higher not only from the opportunity to buy assets, but it is also higher from the opportunity to potentially finance assets that we do not decide to buy on behalf of acquirers who are looking to have mezz financing on their transactions.

So there are so many different ways given our platform that we can look at opportunities in the market. So I think it is just an important point to keep in mind with how we look at, is our volume higher or lower? Overall industry volume is up, so if we are looking at our fair share of it plus our ability to source things that are not on the market, I think we're comfortable with our pipeline.

As far as the due diligence process, things do fall out, and yet things do come in, and that I think is the point that we are trying to make.

David, we're not trying to indicate that the pipeline is bigger or smaller. You know, we're trying to get give subtle guidance to you one way or the other. It is just always tough for us when we come up with this discussion because of the various stages of each asset, whether it is under contract or letters of intent or we are looking at it, and it is so hard to kind of get a gauge of what is actually going to make. We don't want to mislead anybody about what is going to happen going forward one way or the other.

But I would say generally the pipeline is 50 million plus or minus with what we have indicated in the past. Again what that means we will close on or will actually make it through an underwriting process, it is hard to say.

Okay. Thanks.

Ladies and gentlemen, we have no further questions on our roster at this time. Therefore, Mr. Bennett, I will turn the conference back over to you for any closing remarks.

Thank you and thanks all of you for your participation today and your interest in Ashford Hospitality Trust. We look forward to speaking with you again on our third-quarter conference call. Thank you.

Ladies and gentlemen, this does conclude today's Ashford Hospitality Trust conference call. We do appreciate your participation, and you may disconnect at this time.