Ashford Hospitality Trust Inc (AHT) 2005 Q2 法說會逐字稿

Good day, 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. Please go ahead, sir.

Good afternoon, and welcome to this Ashford Hospitality Trust conference call to review the Company's results for the second quarter of 2005. On the call today 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 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 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, they intend to identify forward-looking statements. Such statements are subject to numerous assumptions and uncertainties, many of which are outside of 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, the general volatility of the capital market 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 in the market in which we operate; interest rates or the general economy; and the degree and 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-3 and from time to time in Ashford's other filings with the Securities and Exchange Commission.

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.

In addition, certain terms used in this conference call, such as adjusted funds from operation; funds from operations; earnings before interest, taxes, depreciation and amortization; hotel EBITDA and cash available for distribution are non-GAAP financial measures within the meaning of the Securities and Exchange Commission rules. Reconciliation of such non-GAAP measures to GAAP measures is provided in the Company's earnings release in accompanying tables or schedules which has been filed on Form 8-K with the SEC on August 3rd, 2005, and may also be accessed through the Company's web site at www.AHTREIT.com.

Each listener is encouraged to review these reconciliations provided in earnings release together with all other information provided in the release. The Company's management believes that AFFO, FFO, EBITDA, hotel EBITDA, and CAD are meaningful measures of a REIT's performance, and should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company's operating performance.

Lastly, as the Company has indicated in its earnings release, the Company's management believes reporting its operating metrics for continuing operations on a pro forma, consolidated and pro forma not under renovation basis is a measure that reflects a meaningful and more focused comparison of the operating improvement in the Company's direct hotel portfolio.

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

Thank you, Tripp. Good afternoon, and thank you for your participation on today's call. The agenda on the call will be for me to provide a broad overview of the Company; to hear from David Kimichik, our CFO, on the financial results; and to have Doug Kessler, our COO, report on our acquisitions and value-add activities. I will then wrap up with some concluding remarks.

Since Ashford's initial public offering in August of 2003 and up until Tuesday night's closing price, investors in Ashford have realized a total compounded annual return of 21%, taking into account dividend yields and stock appreciation. We have raised our dividend every quarter since the fourth quarter of 2003, most recently up $0.01 to $0.17 per share as of the second quarter, a 5.6% current return based on Tuesday night's closing price.

For the second quarter of 2005, we are reporting adjusted funds from operations per share of $0.25, and cash available for distribution per share of $0.23.

At our IPO in August of 2003, we predicted a strong turnaround of the hotel industry and raised capital to take advantage of it. According to HBS Research, hotel values bottomed out in the summer of 2003, and we have grown since that time.

We also communicated to the investment community that we believed we could source and close direct hotel investments with trailing 12 month EBITDA yields of 9.5 to 10.5%. And that we would be able to source mezzanine loans with current yields in the range of 11 to 12%. True to form, the average trailing 12 month EBITDA yield of all the direct hotel investments we have acquired thus far was 10.3% at the time of acquisition, and has grown since. Our mezzanine loan portfolio yielded 12.3% at the time of acquisition, and due to the rising LIBOR index, yields 13.3% today.

Two years ago, we came to market with $128 million worth of hotels. As of the end of the second quarter, our total assets are 1.4 billion. CAD per share has grown substantially, with results of $0.08 per share in the first quarter of 2004 versus $0.17 per share in the first quarter of this year, as well as $0.14 per share in the second quarter of 2004 versus $0.23 per share for this past quarter. This represents at 51.9% increase in CAD per share for the first half of this year compared to last year.

Revenue per available room has also grown substantially. On a pro forma basis, RevPAR increased 10.4% for all hotels and 12.6% for those hotels not under renovation. For the first six months of this year, our RevPAR yield index has increased from 110.5 to 113.9 for all hotels, and from 108.5 to 113.6 for those hotels not under renovation.

Alongside this strong growth, we have endeavored to create a balanced platform for the diversification of our investments by positioning the capital structure, geography, brand (ph) and manager. Our dividend coverage based on CAD reached 135% for the second quarter and 124% year-to-date. Further, our pro forma trailing EBITDA to interest expense ratio exceeds 2.5 times.

Our second quarter RevPAR growth of 10.4% is growing faster than the industry average RevPAR growth of 8.3%. We achieved these results through an aggressive value-add and capital recycling program. For example, we recently purchased 21 hotels for $250 million at a trailing 12 month EBITDA yield of 11.4%. We quickly identified eight sub-performing assets and have already sold six, with the other two under hard (ph) contract.

When the closing process is complete for these eight hotels, they will have been sold on trailing 12 month EBITDA yields of 1.9%, leaving the remaining 13-property full-service portfolio with a current EBITDA yield of 13.8%. Further, the properties will receive the benefit of $30 million of renovation dollars as part of a repositioning and re-branding program.

Our value-add program yields excellent margin improvements, as well. For all of our assets, pro forma hotel EBITDA improved from 30.7% to 31.8%, a 107 basis point improvement year-over-year. For hotels not under renovation, pro forma hotel EBITDA improved from 31.6% to 33.5%, a 191 basis point improvement year-over-year.

In our press release yesterday, we included a table showing a total of 16 hotels that were under renovation in the first six months of 2005 that have a combined budget of 25.4 million. During the quarter, we had approximately 57% more rooms under renovation than we did in the first quarter. 11 of these properties have subsequently completed their renovations.

During the second half of the year, an additional 16 hotels will commence renovation, for a total of 22.3 million. We expect the majority of these renovations to be completed by year-end.

Since inception, we have allocated a total of $82 million for properties where we believe there is a value-added return on equity opportunity. Including the renovations I just mentioned, we have spent a total of $30 million and have another $52 million remaining to invest. We have already seen the impact on internal growth these renovations can have.

With the additional capital we are investing, we would expect yet another layer of internal growth to be added to our portfolio. Later in this call, Doug Kessler will highlight some of our other value-add initiatives.

I will now turn the call over to David Kimichik, for more specific financial results.

Good afternoon. For the second quarter, we reported net income available to common shareholders of $4,438,000, or $0.11 per share; adjusted FFO of $13,557,000, or $0.25 per share; and EBITDA of $22,634,000.

As of June 30th the Company had total assets of 1.4 billion, including 70 million of cash. This is up from total assets of 879 million at the end of the first quarter of 2005. The increase in assets is the result of the $465 million, 30-property CNL portfolio acquisition and the origination of three mezzanine loans on the Hyatt Penn's Landing, Embassy Suites Anaheim, and Marriott Cool Springs in the aggregate amount of $20.5 million.

At the end of the quarter, we owned 79 direct hotel investments, with 12,868 rooms. Of these assets, two are held for sale and classified as discontinued operations.

As of June 30th, we had $801 million of mortgage debt, leaving net debt to total enterprise value at 50.8% at the end of the quarter. Our blended annual interest cost is approximately 5.57%. Fixed-rate debt accounts for 77% of our total mortgage debt; 105 million of our $185 million of floating debt, contains an interest rate cap; and 29 million of our floating debt is actually hedged by virtue of being secured by a portion of our floating-rate mezzanine loan portfolio.

93% of our debt is currently fixed, capped, or hedged. Considering extension options, the average weighted maturity of our debt is 7.1 years, and only 4% of the Company's debt is maturing before 2008.

As of June 30th, we had 42 million common shares outstanding, 2.3 million Series A perpetual preferred shares outstanding, 7.5 million Series B convertible preferred shares outstanding, and 11 million OP units issued. Subsequent to the end of the second quarter, we issued 2.1 million common shares to Security Capital pursuant to an agreement previously negotiated, which has completed all obligations to issue stock to Security Capital.

We have agreements for management with seven different companies. Marriott international manages 30 of our hotels. Remington Hospitality and Lodging manages 30 of our properties, including two non-core assets. Noble manages four of our properties. Sivica Hospitality manages four of our properties. Dunn Hospitality manages nine of our properties, and Buccini/Pollin and Hyatt Hotel Corp each manage one of our properties.

As of June 30th, we owned a position in 11 mezzanine and first mortgage loans, with total principal outstanding of $102 million with an average annual yield of 13.3%. Subsequent to the quarter end, we closed on an additional mezzanine loan in the amount of $5.6 million secured by the Sheraton Gunter hotel in San Antonio.

Finally, for the second quarter, we reported CAD of $12,621,000, or $0.23 per share, and announced and paid a dividend of $0.17 per share. This represents a dividend payout ratio of 74% for the quarter.

Doug will now provide us with an update on investment activity and several specific examples of how our strategy should position us to accelerate our growth going forward.

Good afternoon. I would like to highlight the consistency of our investment strategy, our progress on recycling capital and cite some examples that clearly demonstrate that Ashford is executing internal growth strategies.

During the second quarter, we acquired our largest investment -- a portfolio for $465 million with 30 Marriott-branded hotels and 4328 rooms. The attractiveness of this transaction goes well beyond the size, and has implications for the growth profile of our Company in the future.

For example, we believe this portfolio has significant value-add opportunities, including increased market penetration resulting from our investment in capital improvements. Other strategic opportunities exist as well, including the possible sale of some of the assets.

With an even greater emphasis on asset allocation going forward, we will be focusing on capital recycling. We intend to continually annualize our assets to maximize value, including consideration of select asset dispositions from time to time to redeploy capital into assets with higher total return potential. Every investment we make, whether it is an acquisition or renovation and repositioning, will continue to meet stringent underwriting criteria.

A couple of case studies might illustrate this point a little better. First, Monty mentioned our FGSB portfolio acquisition whereby we bought 4100 rooms for $250 million. And through quick sales and contracts, to sell eight of the assets lowers our basis to $213 million and increases our trailing 12 month pro forma EBITDA yield to 13.8%.

Another interesting case it is the Sea Turtle Inn in Jacksonville, Florida. Acquired for $23.1 million in February 2004, with virtually no additional CapEx investments, the hotel already had fairly solid operating results. For pre-acquisition on a trailing 12 basis, occupancy was 75.2%; ADR was $111.86; RevPAR was $84.12; and property leveled EBITDA was 2.3 million, which yielded a trailing EBITDA yield of 9.9%.

Through aggressive asset management, superior property management by Remington Hospitality, lower costs, and improved sales and marketing, hotel operating profit has increased $648,000 to a trailing 12 month property level EBITDA yield of 12.7%, a 280 basis point improvement since acquisition.

This is a great example of the internal growth we can generate. We have acquired several hotels with this strategy in mind, the most recent of which was the Santa Fe Hilton last quarter.

Another component of our investment strategy is our debt platform. We continue to generate strong interest in the program. This quarter, we originated three mezzanine loans for a total of $20.5 million, with a blended annual yield of 13.6%. Shortly after the quarter end, we originated an additional $5.6 million mezz loan at a rate of 9.5% over LIBOR, for a total of $132 million in loan originations and purchases since initiating the program. David mentioned earlier, the current portfolio stands at $102 million with an average yield of 13.3%

Monty, I will turn it back to you now.

Thank you, Doug. Predictions for the hotel industry's fundamentals remain strong. According to industry experts such as PWC, RevPAR growth should approach 7.8% for the remainder of this year, and 6% for 2006. Ashford maintains one of the highest dividends in the hotel REIT industry at 5.6%. Not only is it at the high end of our peers, but it is well covered at 124% year-to-date based upon our CAD.

Looking at our current dividend yield, our value on a per-room basis and our RevPAR growth, we believe our current stock price is very attractive. Our dividend yields -- our dividend policy for 2005 remains the same, with the desire on our part to raise our dividend up to $0.18 per share by the end of the year. We will probably set our dividend at the end of this year for the full year of 2006.

We remain cautious about raising additional common equity, aware of some of our shareholders' concerns. Currently, we are unable to access our shelf registration pending completion of required 305 audits. We are constantly cultivating alternative sources of capital such as secured debt, perpetual preferred, divertible preferred, trust preferred and joint venture equity. We will endeavor to tap into that source of capital that yields the greatest long-term return on investment to our common shareholders.

Due to the rapid growth of our platform and a recent closing of our largest acquisition to date, we remain hesitant to provide earnings guidance as we are operating in a fast-moving, constantly changing environment.

That covers our prepared remarks. We will now answer any questions you may have.

(OPERATOR INSTRUCTIONS) Gustavo Sarago, Friedman, Billings, Ramsey.

Just touching on the comment regarding restrictions of raising capital and alternatives that you might be looking at. To date you have funded a lot of your mezzanine platform with cash and not necessarily leveraged that business as much as you might have or indicated in the past. Are you guys in the process of restructuring a more favorable facility to kind of grow that business, or maybe extract some proceeds there?

Well, my first comment -- I am going to turn it over to Doug -- is that I think you are right in looking at it. That facility is fairly expensive. So that is one reason why I haven't drawn down much on it. Doug, why don't you comment on that?

I think to Monty's point, that facility was put in place at a time where pricing may have been appropriate then, but we have clearly seen compression in the potential for pricing of a revised facility. And we have been proactive in the past with our debt structuring. And we are certainly looking at opportunities to improve upon the capital structure of how we finance our mezzanine platform. It is a little too early to report on the outcome of that work, but we hope to do so shortly.

Would you guys try to get something of a similar size or maybe bigger, given that your platform is bigger today? And when you say pricing is better, how much of the difference do you see? Is it 100 to 200 basis points? Right now, your spread is over 600 basis points on that warehouse.

On the pricing side, we are probably a little bit reluctant to talk about what that might look like yet. But we are working on it. We believe it is high and above market right now. So we want to bring it down.

As far as the size of the facility, our platform is bigger. I think we would like a bigger facility. And what we are weighing, of course, is those unused fees on a bigger facility and what that is going to cost us. And that is always the trade-off of getting a bigger facility. So it's certainly top of mind, and something we are evaluating.

Will Marks, JMP Securities.

I just -- to follow-up, your final comments, Monty, and that last question -- I still am a little bit confused on what your availability is right now to borrow. Do you have capital available, then?

We do have capital available to borrow. When you say borrow, you mean in order to continue our acquisition phase?

Yes.

Yes. We do have the ability to continue to grow in our existing platform. It is not enormous. It is probably in the $150 to $200 million range. So we have got that capacity at this point in time.

It is just a matter of getting the capacity at the right cost.

That's right.

And then remind me again what you said in your comments about equity. You cannot tap the equity markets now, is that correct?

That is correct. I will let David Kimichik explained why that is the case.

There is a requirement in terms of utilizing the shelf registration statement that all financial filings be current. And once we announce the CNL transaction, because of the size of that acquisition as compared to the size of the company, we were required to provide what is called a 305 audit on those assets and make available for our shareholders. So we have to provide three years worth of audited financial statements on those hotels, which we're in the process of completing. And until those audits are filed with the SEC, we are not able to utilize our shelf. We currently anticipate that will be complete by the end of August.

Okay, great. And just last question on -- you mentioned $0.18 as a dividend figure. Can you clarify that again? You said by the year-end, you would expect to raise it to $0.18?

That is what we hope to do. $0.18 per quarter is what we would like to get to. We started this year -- I think at the end of last year it was $0.15, and in the first quarter it was 16, in the second quarter, it was 17. And we have stated all year that we would like to get it up to $0.18 by the end of the year.

And then you also said -- set something for next year, meaning that you do not want to raise it every quarter next year instead of for the full year?

I think so. I think instead of -- you know, we were still kind of ramping up the first part of this year and still growing rapidly. And so we had -- we decided to -- instead of setting it at the end of last year for this full year, we thought we would kind of wait and see. But now, I think we feel a little more comfortable with setting it at the end of this year for 2006 and not raise it during the year.

(OPERATOR INSTRUCTIONS). Jeff Randall, A.G. Edwards.

Just wanted to ask you guys a little bit more about the acquisition pace. Monty, I think you said $150 to $200 million range at this point in time. What is the -- irrespective of the capacity, what are sort of the thoughts going forward in terms of appetite for acquisitions, what you have seen out there in the environment, and where you think you guys will be once -- pending the filing of these audits? Is that going to -- are you guys going to continue to ramp up like we have seen in the past?

I will address that generally, and then I will let Doug answer it -- a couple of specific points of it. When I made the $150 to $200 million comment, that is our capacity. And Doug will talk about a little bit about the pipeline here in a moment.

You know, I think all along our view argue has been if we find transactions and we think they are attractive and they are accretive to our shareholders, then we want to move on them and we want to grow our platform. If we don't, then we will not.

We still see some opportunities out there in the marketplace. It is more competitive, so opportunities are a little tougher to come by. But also because of our size, we are able to do a few transactions that a year ago we couldn't have done, because it might have been just too big for us at the time. So there is a bit of a trade-off now in that the universe is a little bit bigger for us.

But we do not have a set desire here internally about getting to a certain size or growing to a certain size. We just want to find good quality transactions. And if we find them, then we would like to move on them. But then as far as sourcing that capital, I read a statement about making sure that we find the right source of capital.

We know that our shareholders don't like us to come to the marketplace too often, and we are sensitive to that. And so we are constantly looking at all the potential sources of capital. That is not saying that we will raise capital or we won't raise capital. We are just saying that it is high on our list, and we want to be careful and sensitive to our common shareholders.

It's Doug. I think that the very nature of our platform obviously enables us to see virtually most deals, whether they are on the debt or the equity side in the market. And we have been disciplined in the past in terms of how we have deployed that capital, and that is evidenced by the high trailing 12 EBITDA yields that we have shared with everyone that we bought assets for. And we will continue to keep that same discipline in the future.

We generally have a fairly consistent pipeline of just north of a couple hundred million dollars. There is obviously a lot of transactions in the marketplace today. But as I said, we will be disciplined. You know, I think we have to keep in perspective the comment that Monty made with respect to the equity capital markets. But also on the debt side, we want to make sure that we have appropriately put together the right capital structure when we see opportunities. That includes how, when and where we raise equity, and how we finance those investments.

It is also worth pointing out that we have embarked, as you well know, on our capital recycling program. So we have shared with you and the market in the past that we have bought assets. We have sold assets. We have listed other assets for sale. And I think it is -- the use of that capital to redeploy into better yielding or overall better capital appreciation opportunity assets is where we will also continue to access capital in a meaningful way to find accretive opportunities as we see them.

On the capital recycling, you had talked previously about selling up to 15 of sort of the non-core CNL hotels. Has any progress been made on that? And what would you estimate to be sort of the proceeds from the divestiture of all 15 of those?

This is Kimo. As we have mentioned in the past, I think have said that of the 30 hotels in that portfolio, 15 we really like as long-term holds. They are newer build, Courtyards and Residence Inns and Springhills, and 15 of the older Residence Inns, or 15 assets with some of the older Residence Inns and the Townplaces are not really long-term holds for us.

So we are actually in the market trying to determine what the market value of those 15 hotels or some portion of those 15 hotels would be, and exploring that opportunity. We haven't made a decision yet, and I don't think we are ready to share what we think those proceeds would be. But we are exploring that opportunity.

Of the core 15, what is the seasonality in those assets?

We don't know what the seasonality is on that core 15 versus the other. We don't have that information right here on hand. We will make a note and see if we can't get that out to you.

Have you guys talked about seasonality for the full 30?

We have got the seasonality information, I believe, on all of our assets. Would that be helpful to you?

Well, I wouldn't mind knowing just what it is on the remaining 15, or even the full 30. But I can get that later.

Okay. We will get that you.

Just a couple more questions. You all have talked in the past about maybe doing some re-branding with regard to the Radisson hotels. Has that strategy progressed at all? Or is it still in the incubation stage?

We are still working on that, and not necessarily just Radisson or any of the brands. We are looking at brand changes across our portfolio. And I would say it is beyond the incubation phase. We are moving forward in a few areas, just not ready to announce something. But that is something we -- that is part of our repositioning plans.

Okay. And in terms of guidance, have you all given any more thought to providing guidance for the balance of the year, or maybe at the end of the third quarter?

We have given thought to it, but we are still not prepared to do so because of our platform here recently has been -- that is growing so rapidly. So we are still going to step back from that at this point in time.

And then lastly, Kimo, would you go over the share count and the management company distribution one more time, if you don't mind?

Sure.

You had said -- I think you said 42 million common; 2.3 Series A; 7.5 Series B; 11 million OP unit. And then where does the 2.1 million Security Capital shares fit in? Are they in that 42 million, or is that over and above? (multiple speakers)

No. The share count I gave you was as of June 30th at the end of the quarter. On July 1st, we issued 2.1 -- the exact number is actually 2,070,000 shares to Security Capital.

And that was on July 1.

That's correct.

Okay. And just a brief recap of the management company distribution?

Sure. Seven companies, Marriott manages 30; Remington manages 30; Noble and Sivica each manage four; Dunn manages nine; and Buccini/Pollin and Hyatt each manage one.

Max Greenberg, Kayne Anderson Capital Advisors.

A question on the cost per occupied room. It seems like it has gone up quite a bit. Could you comment on what happened in the quarter, especially on the management fee side?

Of the cost per occupied room? Of what department? The rooms department?

I guess across the board, except for other direct. Seems (ph) like it has all gone up quite a bit versus last year. I am looking at the pro forma operating profit statement.

Let's take a look here, and make sure that we are comparing the right numbers. Which numbers are you looking at?

Just the percentage increase -- the variances in the pro forma hotel operating profit statement on the page 13?

13? (multiple speakers) you know, we -- since we have 77 hotels consolidated here, I am not sure we can give you specifics on the actual direct departmental expenses. We have seven different managers. We have a lot of different types of assets. And for a lot of these periods, we didn't own these. But we wanted to show what we looked like with all 77 hotels combined pro forma.

I think the key take away for us is the overall increase in revenue, which we highlight, and then the increase in hotel operating profit and increase in the margin. And the revenues are going up and the margins are going up. As you look at the non-renovated hotels, I think the margin was up 191 basis points for the quarter. So not only is the revenue going up, the flowthrough is improving, and that is really what we are focused on.

So going forward, would you think your cost per occupied room increase would be Q3, Q4?

We are holding off on the guidance at this time.

Another question. After the Security Capital deal comes through and you sell the rest of the non-core hotels, what would the level of debt be on the balance sheet?

Well, the Security Capital transaction is complete. Is that would you mean?

I am looking at the June 30th balance sheet, and there is about 800 million of debt. And what would it be after you are done with that and you get the proceeds from the rest of the hotels that you're selling?

Well, there is $800 million worth of debt. There is two assets that are part of these discontinued operations had about $10 million worth of debt. And then the assets that we are looking to sell, or are considering selling, are the CNL portfolio have an allocated debt to them of $126 million. That doesn't mean, though, that we will sell them with the debt in place. We might take that debt and keep it for some other assets or some other acquisitions, and then sell it. But if we do sell those with the debt in place, then there will be an additional $126 million reduction.

(OPERATOR INSTRUCTIONS). Dori Prowda, Wachovia.

Can you remind us what Q3 and Q4 2004 RevPAR and EBITDA margins would have been for your current portfolio?

Sure.

This is pro forma. Obviously, this is for all 77 hotels. Q3 '04 RevPAR was $70.65, and EBITDA margin was 29%. For the fourth quarter '04, RevPAR was $66.16, and the EBITDA margin was 29%.

Will Marks, JMP Securities.

Just one question, definitely one you will probably like to get. On your G&A, 2.3 million during the quarter on the other corporate and administrative versus 2.5 last year. Can we assume that this number stays pretty flat?

No, I don't think you can. We have had a lot of acquisitions at the end of the third quarter -- I am sorry, at the end of the second quarter, end of the first quarter. And that has decreased our size substantially. So that G&A will be going up. We need to add more accountants and more asset managers.

Okay. Can we expect it to go up -- above 4 million a quarter? Or is this 3 million -- can you give us any idea what that figure will look like?

I think it is obviously going to go up above normal inflationary levels. I would hate to give you an exact number. But maybe a way to look at it is just how we were staffed proportionately and adding on more product. We are just a little hesitant to give you a number going forward. But --

Just what is (multiple speakers) the headcount?

One reason why we're hesitant is that if you take a look at some of these assets that we might sell, such as these 15 CNL assets. And if we sell those outright, that means we do not need the accounting people for it, we do not need the asset managers for it. However, if we turn around and replace those assets with 15 more assets, then we would need them. Or, if we replaced that investment with just one big, chunky investment, obviously you need fewer people to handle one large property rather than 15 ones spread out.

So it is tough for us to estimate at this point in time. It is going to be driven, though, by whether we move on that transaction.

I wish we can give a little better help there. We are -- it is just driven by a few factors here that we are still working on.

Jeff Randall, A.G. Edwards.

The 13 FGSB assets, Doug, that you talked about -- the 13.8 current EBITDA yield -- when you say current, is that '05? And then what is the cost basis net of the 8 on which that gets calculated? And does that include or exclude the -- I think Monty or you, Doug, mentioned another 30 million in renovations there?

Jeff, the net basis that it is calculated off of is the $213 million. So those assets are basically a $37 million type transaction. (multiple speakers) And then the yield was also -- I think your other question was that is a trailing 12 EBITDA yield through the second quarter.

Okay. So that does not include the 30 million that you're going to tap on top of that?

That is correct. We would also expect to get returns off of the 30 million that we are spending.

Just to be clear on that $30 million, the properties are going to receive what we call the benefit of it, because the seller of those assets was in the process of putting in a good amount of that money. I think the number is about half. Is that right, Kimo?

About a third.

About a third of that money. the amount of additional money that we are spending on it is closer to 20 million. Do you see what I am saying? (multiple speakers) The seller was already in the middle of the renovation and putting $10 million in it when we bought it, inclusive of that. But the assets just haven't performed with the benefit of that yet, because that was going on at the end of last year and the first part of this year before the sale took place.

Okay. And then another question. On the Series B dividend, I thought that was supposed to track the prevailing rate on the common, which was I think $0.17 in the quarter. But if you back into the number based on -- I think it is a 7.5 million or 7.4 for 7 million shares outstanding, it translates to about $0.19 a share. Why is that higher than the common rate?

You are looking at the dividend we are adding back in our FFO payable --

The 1.397 or something like that?

Yes. The way the Series B works, it is that the dividend is actually test it does track the common. And it is also prorated in the quarter that it is -- that stock is issued. So that dividend on the Series B is only actually about $360, $370,000 for the quarter.

The number that you are looking at is comprised of that actual dividend plus about $1 million in non-cash dividend that is a GAAP requirement which is sort of a marked-to-market. We are required to record a non-cash expense for the difference in the stock price -- the common price between when we executed the agreement with Security Capital, which was last December, and when the stock was actually issued. So it is not a cash number. It is marked-to-market. It flows through the P&L, and therefore we are adding it back for FFO. Did you follow that?

Yes. You are adding the full number back.

Right.

(OPERATOR INSTRUCTIONS). Gustavo Sarago, Friedman, Billings, Ramsey.

Touching back on the dividend discussion, is there any change in what your payout ratio might be when you set that policy? Or are you still on that 80% to 85% payout of CAD?

You know, we haven't discussed it with our Board yet, so I really couldn't comment on it because I would be speaking out of turn. But we are going to be picking that up at the end of the year and talking about all of that. No decision has been made.

And Mr. Bennett, I am showing we have no further questions. I will turn it back over to you.

Thank you very much. Thank 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.

And that does conclude today's conference. Thank you for joining and have a great day.