Ashford Hospitality Trust Inc (AHT) 2005 Q3 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 morning and welcome to this Ashford Hospitality Trust conference call to review the Company's results for the third 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, 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 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 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 S3 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're 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 call, such as adjusted funds from operations, AFFO; funds from operations, FFO; earnings before interest, taxes, depreciation and amortization, EBITDA; hotel EBITDA or hotel operating profit; and cash available for distribution, CAD, are non-GAAP financial measures within the meaning of the Securities and Exchange Commission rules.

Reconciliation of such non-GAAP financial measures to GAAP measures is provided in the Company's earnings release and accompanying tables or schedules, which has been filed on Form 8-K with the SEC on November 2, 2005, and may also be accessed through the Company's 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.

The Company's management believes that AFFO, FFO, EBITDA, hotel EBITDA or hotel operating profit 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'll now turn the call over to Monty Bennett. Please go ahead, Monty.

Thank you, Tripp. Good morning 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, highlighting our internal growth successes; to hear from David Kimichik, our CFO, on the financial results; and have Doug Kessler, our COO, report on our acquisition and financing activities. I will then wrap up with some concluding remarks.

We have been focused on three primary areas this past quarter -- internal growth, positioning our capital structure for the future and recycling our capital advantageously. Each of these strategies contribute to our return on capital, increasing CAD per share and the safety and growth of our dividends.

Before I go into the details of these strategies, I would like to emphasize what we have been able to achieve since our IPO in August of 2003. Since inception, we have delivered an annual compounded return of over 13% through the end of the third quarter. Our asset base has grown from approximately 300 million to 1.4 billion. Dividend payments per share have grown each quarter from $0.06 per share in the first quarter of 2004 to $0.18 per share last quarter. All other indicators, such as EBITDA, CAD, FFO and RevPar have shown solid growth.

We have achieved and surpassed the targeted unleveraged yields we identified at our IPO for both our direct hotel investments, as well as our mezzanine investments. We continue to remain opportunistic in our investments, with currently our focus being on internal growth, positioning our capital structure correctly and recycling our capital advantageously.

We're very pleased with the progress of our internal growth. Our asset-by-asset strategies of revenue improvements, cost reduction capital improvements and repositionings continue to produce results.

During the third quarter, pro forma RevPar for all hotels and continuing operations gained 8.9%. The more meaningful statistic is for those hotels not under renovation. These are the hotels that have completed their renovations or do not require capital improvement in order for us to implement value-added strategies.

For these hotels, we reported a pro forma RevPar increase of 12.3% on strong ADR and occupancy gains, a 23.4% increase in hotel operating profit and an improvement in profit margin of 252 basis points over the third quarter of 2004.

In addition, our RevPar yield index year to date increased from 110.7% to 112.5% for all hotels in continuing operations and from 110.1% to 113.7% for those hotels not under renovation.

Last quarter, we introduce a table in our press release that outlines the historical and planned capital improvements in our portfolio. For the first nine months of 2005, we have invested 31.2 million in CapEx across our portfolio. During the third quarter, we had 12 properties under renovation. Nine of these properties have subsequently completed their renovations. During the fourth quarter, we expect to have an additional 13 hotels under renovation with a budget of approximately $20.7 million. We have again included this capital improvements table in our earnings release.

Each round of renovations adds another layer of growth to our portfolio as renovations are pursued only when value can be added and we receive a return on the invested capital. With a number of renovations completed so far this year and those projected to be completed around the first of the year, we expect 2006 to show continued internal growth.

We have moved to position our capital structure for a potentially inflationary and interest rate increasing environment. Doug will share the details, but we have closed or are in the process of closing several debt arrangements that fix over 90% of our debt at sub-6% for the next nine to 11 years.

Among real estate types, hotels are unique in being able to rapidly take advantage of an inflationary environment by raising rates as often as daily, if so desired. With the fixed liability side of the equation at the low rate we have achieved, the resulting increase in profitability would be dramatic. Further, are largely LIBOR-based mezzanine lending operation will be able to take advantage of rising interest rates. Our loan portfolio currently yields 13.9%.

We are capital recyclers, not property aggregators. We continue to weigh our sources of capital against potential investment opportunities in our diverse strategy among domestic and international investments and direct hotel investments, mezzanine loans, personal mortgage loans and sale leaseback transactions. Sources of capital included joint ventures, common equity raises, asset sales, loan payoffs, perpetual preferred or convertible preferred equity issuances and debt financings.

We constantly evaluate the potential sources and uses of capital to make the right decisions to maximize our objectives of CAD per share growth and dividend growth and security. We anticipate that our focus here in the fourth quarter will largely be on the same core strategies of internal growth, focusing our capital structure for the future and capital recycling activities.

I will now turn the call over to David Kimichik.

Good morning. For the third quarter, we reported net income of $3,352,000 or $0.08 per share, adjusted FFO of $15,216,000 or $0.25 per share and EBITDA of $29,845,000. As of September 30, the Company had total assets of 1.4 billion, including 78 million of cash.

At the end of the quarter, we owned 79 direct hotel investments. Of these assets, 17 are held for sale and classified as discontinued operations. These assets are currently either under contract or under negotiations to be sold by the end of the first quarter of 2006. Also, subsequent to the end of the quarter, we closed on the acquisition of the 316-room Hyatt at Dulles Airport for $72.5 million.

As of September 30, we had 800 million of mortgage debt, leaving net debt to total enterprise value at 50% at the end of the quarter. Our blended annual interest cost was approximately 5.64%. At that time, our fixed-rate debt accounted for 77% of our total mortgage debt. Subsequent to the end of the quarter, we closed or are in the process of closing on several significant financing initiatives that Doug will discuss in a moment that lowered our cost of borrowing, extended our maturities and fixed the interest rate on the majority of our debt.

As of September 30, we had 44 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.

Not including the assets held for sale at quarter's end, we owned 62 core hotels containing 10,913 rooms. We have agreements for management with seven different companies. The most significant managers are Remington Hospitality and Lodging, which manages 28 of our core properties, and Marriott International, which manages 15 of our core hotels.

As of September 30, we owned a position in 12 mezzanine and first mortgage loans with total principal outstanding of $100 million and an average annual yield of 13.9%.

For the quarter, we had excellent news from the operating results of our 62 core hotels. Pro forma RevPar for the core portfolio was up 8.9% during the quarter, as compared to the third quarter '04, and for the core hotels not under renovation, which is all but 12 hotels, the RevPar was up 12.3%. The increase was primarily attributable to an 8.6% increase in average rate.

Pro forma hotel operating profit for the entire core portfolio was up approximately $2.7 million for the quarter, or 12% when compared to third quarter '04. This was the result of both increases in revenue as well as enhanced flowthrough, as our operating margin increased by 53 basis points.

For the 15 hotels not under renovation, operating profit was up $4.4 million in the third quarter, or 23%, with an increase in profit margin of 252 basis points.

During the quarter, and again in October, we did experience some disruption from hurricane activity. At this point, essentially all rooms at the affected hotels are open. However, we did incur a onetime expense of $300,000 in the third quarter for property insurance deductibles. Also, we had an additional onetime charge in the quarter of approximately $200,000 for receivable write-offs related to the Northwest and Delta bankruptcy filings. These onetime charges impacted FFO, adjusted FFO and CAD by approximately $0.01 per share. Without these adjustments, we met consensus FFO per share.

Finally, for the third quarter, we reported CAD of $14,278,000 or $0.23 per share, and announced and paid a dividend of $0.18 per share. This represents a dividend payout ratio of 78% for the quarter.

Doug will now provide us with an update on investment and financing activities.

Good morning. I plan to discuss our investment recycling since the last conference call and the favorable impact of our refinancing accomplishments.

Coming off the second quarter, which had been one of our largest transaction quarters, our investment activity during the third quarter was not as active. We digested our recent investments and focused our energy on organic growth via refinancing, capital expenditure, rebranding opportunities, asset repositioning and sales.

While we actively bid on numerous transactions, we remain disciplined in our approach, given the trading range on assets. As a result, our quarter activity consisted of two mezzanine loan originations totaling $8.6 million at yields well within our targeted range and the announcement of the acquisition of the $72.5 million Hyatt Dulles that subsequently closed last Friday.

On this call, we are announcing our commitment to purchase an $18.2 million first mortgage participation in a AAA, five-diamond-rated luxury resort in the Caribbean at a spread of 900 basis points over LIBOR. More details will come with our announcement later this month upon funding this investment.

We continue to selectively participate in marketed hotel transactions and are proactively sourcing off-market opportunities. Our hotel lending program continues to gain momentum. Our relationships are solid with the leading Wall Street first mortgage providers, and we're now broadening our contacts with regional lenders as well.

We continue to pursue mezzanine lending opportunities on existing repositioned and to-be-constructed hotel assets. However, let me emphasize that our investment priorities will remain on direct hotel investment as our dominant strategy, followed by our lending strategies.

While this quarter's new investment activity was lower than previous quarters, our capital recycling effort increased substantially as we lined up buyers for several nonstrategic assets. Previously, we announced the marketing effort for 15 nonstrategic gen-one Residence Inns and TownPlace Suites that we acquired in the second quarter from CNL. We now have identified potential buyers and look forward to providing you updates on these transactions later in the fourth quarter.

Combined with the six hotels we've already sold and two under contract for sale in the fourth quarter from the FGS portfolio, we expect these sales could generate proceeds of approximately $175 million or more.

In terms of our financing activity, we've been proactive in managing our debt balance and believe that we maximize the opportunity to take advantage of the capital markets, which will provide near-term and long-term benefits to our shareholders. Our goals have been to lock in favorable, low-rated, long-term, fixed-rate debt with flexible terms. We have recently closed or have commitments in place to do just that by increasing our weighted-average maturity from 4.7 years to 8.1 years and lowering our all-in rate to 5.5%, with approximately 93% of our nonrevolving debt now fixed.

During the quarter, we modified our secured revolving credit facility. The facility increased to $100 million with a maturity date extended to August 2008 with two one-year extension options and the interest rate reduced to a range of 160 to 195 basis points over LIBOR.

Subsequent to the end of the quarter, we closed or have commitments on several significant financing initiatives. In October, we closed on the $211 million refinancing of the $130 million 6.8% debt that we assumed from the FGS portfolio transaction that had 2008 to 2010 maturities. To complete this financing, we combined it with the pre-existing financing we did with Merrill Lynch on the CNL portfolio acquisition to create two pools -- a $286 million loan at 5.26 blended fixed-rate with a July 2015 maturity with five year interest only; and a $295 million loan at 5.53% with a February 2016 maturity with five year interest only.

Also, we have a commitment to refinance a 25-property $210 million of floating-rate debt with a 16-property $212 million refinancing split into a 111 million loan at 5.74% for nine years with four years interest only and a $101 million facility at 5.69% for 10 years with five years interest only. We expect this loan commitment to close in the fourth quarter.

Additionally, we have received a commitment to replace our mezz warehouse facility, which is currently floating at LIBOR plus 625, with a new recourse facility that will be floating with a spread that is based upon a grid depending upon the advance rate on the borrowing and the loan collateral type, namely first mortgage, B note and mezzanine. The grid pricing ranges from 150 to 275 over LIBOR.

With respect to all of the aforementioned financings, we will experience onetime charges related to exit fees, unamortized loan write-off costs and defeasance in the fourth quarter of 2005 of approximately $12 million. These combined loan closings are all net present value positive and substantially reduce our borrowing costs and extend our loan maturities.

With these closings, virtually all of our debt, with the exception of our revolvers, the $45 million floater on Hyatt Dulles and the $11.5 million variable-rate loan on SpringHill VWI Airport, will be fixed with 2014 to 2016 maturities.

The composition of our portfolio is right where we want it in terms of diversification. On a pro forma trailing 12-month basis, upper upscale accounts for 37% of our EBITDA, upscale accounts for 59% and midscale without food and beverage accounts for 4%. These are the segments PWC has forecast among the highest RevPar growth through 2006. Our top brands in terms of EBITDA are Marriott with 42% and Hilton with 28%.

In summary, the combination of our continued reallocation of capital, new investment opportunities and our direct hotel and hotel lending programs, as well as a diversified and rapidly improving portfolio, should position us well for the coming quarters.

Monty, I will turn it back to you.

Thank you, Doug. Let me close with a couple of case studies. First, let's look at the FGS transaction that we closed in March of this past -- of this current year. We paid 250 million for this 21-property portfolio with plans to invest an additional $30 million in capital improvements. Eight of the assets have either been sold or contracted to be sold for almost $40 million. This reduced our basis down to 210 million.

Of the financing as detailed by Doug, one of the new financings is for $211 million secured by just 10 of the remaining 13 hotels, leaving three of the hotels unencumbered. So, we have pulled out 100% of the purchase price in financings and sales, clearly have value above the debt balance and have value in the three unencumbered assets as well. Lastly, we're investing $30 million in these remaining 13 full-service assets for what we hope will be impressive returns.

Next, we are replacing an L plus 195 floating-rate $210 million facility secured by 25 assets, originated a year ago, with a new loan, 212 million fixed at 5.7% for nine to 10 years, secured by 16 of those 25 assets. We are therefore lowering our borrowing cost and fixing it while simultaneously taking advantage of the obvious value creation over the past year.

Despite these financings, we maintained our overall policy of no more than 60% indebtedness. At the end of the quarter, our net debt to TEV stood at 50%. The new additions to hotel supply remain muted, while demand continues to grow briskly for hotel room nights. Further, a touch of inflationary pressures may allow us to push average daily rates even harder next year. Consequently, the outlook for the hotel industry remains strong, according to most industry pundits.

We expect to announce our dividend amounts per share for 2006 later in the quarter. We intend to establish an annual rate instead of the quarterly increments that we delivered over the past seven quarters. We believe that our capital recycling and active investment strategy will continue to support the growth and safety of our dividend. I would note that our dividend yield is one of the most attractive in the industry currently at 7%.

Further, we have an ongoing active pipeline in the $200 million-plus range. As we sell off assets, we're cognizant of the effects this might have on earnings, and we endeavor to place the harvested capital of other investments within the next quarter or two.

At a recent Board meeting, Ashford's management and our directors concurred that we will not commence earnings guidance anytime soon for the Company. We're a capital recycler, and our portfolio is dynamic, with a redeployment of funds throughout the lodging capital structure.

We continue to provide thorough details in reporting, much more so than our peers, in the areas of yields on new investment, capital expenditures for assets under renovation, financing terms, RevPar growth by region and brand, etc. This transparent sharing of factual data points provide investors and analysts with a complete basis for analysis of Ashford's performance. By providing these details, investors will be able to clearly analyze the Company as the asset base changes over time.

We believe that this approach benefits all investors by freeing management to make the right long-term capital recycling moves at the appropriate time as markets change, rather than focusing exclusively on short-term earnings consequences.

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

(Operator Instructions). Will Marks, JMP Securities.

I had a question, actually, on discontinued operations, first of all. Do you expect the fourth-quarter figure to be similar to third quarter -- income from discontinued operations?

That will depend upon the timing of when we sell these assets. So we hope to sell them sometime in the fourth quarter or the first quarter. So it will depend upon when we sell them. So I think it would be close.

Okay. And then on the 175 million or so, can you give us a sense of the EBITDA, perhaps, that that is producing?

Yes, we've got that number here. Let us look it up for you.

Okay, and then as you are looking that up, I guess any other planned dispositions that wouldn't be in discontinued operations?

No.

Okay, so everything's there at this point?

It is, but I want to emphasize, Will, that we are constantly evaluating our portfolio and we've got this recycling strategy of looking at potential assets to sell as long as we're looking at assets to buy. I think a correct conclusions would be to look at all the assets that we've encumbered with some of this long-term debt. We are generally less inclined to sell those assets, and the assets that are either floating-rate debt or unencumbered we have the potentiality to sell. I wouldn't say that we are inclined to sell those assets, but that is a greater possibility among those assets. So, that's how we position our portfolio. I think we've got that stat for you now.

Will, the TTM EBITDA for those assets is about $15 million.

Great. Okay. And just one final question, qualitative -- you guys seem to have been pretty actively involved in portfolio transactions in the past. Maybe you could talk about that market -- are there still some portfolios available, and do you see assets on market, maybe on an individual basis also slowing down? Just any general market comments.

Sure, I will comment and Doug, I will let you comment as well. It's competitive out there; there's no question. You've noted the two big portfolio acquisitions we did in the first and second quarter. And of course, we've got this recent one-off transaction, singlizing (ph) the Hyatt Dulles, which we're very, very excited about.

It's competitive out there, Will, and it remains competitive. We're hopeful that as interest rates start to move up that it might make it a little less competitive. But there's no question it's out there. We do see some opportunities. We're actively looking at other opportunities that are out there, and each deal has got a story about whether and why it makes or it doesn't make. Doug, maybe you can give a little more specific color.

Sure. I think there has been kind of a bit of an overflow lately of some large portfolio transactions. I think that to make some of those large portfolios work, there has to be a higher degree of leverage applied to them, which makes them potentially less attractive for the public market, potentially more attractive for private market buyers.

We're seeing very large portfolios, as well as smaller clusters of portfolios, coming into the market, and I wouldn't say really by any means that the single asset pace of transaction volume has slowed down. I think that what's happening is quite frankly that there is a more of a balancing now of the deals coming to the market with the capital that's chasing after the opportunities.

So we're looking at all types of transactions -- the portfolios as well as single assets -- and as you well know, we've really made our mark by pursuing the off-market transactions as well, and we continue to pursue that very aggressively, and we'll stay disciplined in terms of how we invest our capital to optimize our yields on these investments.

(Operator Instructions). Gustavo Sarago, Friedman, Billings, Ramsey.

I just wanted to follow up with regards to the asset sales that you have planned -- the 175 million. Does that include the proceeds from the original six, or is it just the 17 left to sell?

It's just the 17 left to sell. No, I'm sorry, hang on a second here.

It includes the roughly $30 million of assets that have been already sold.

So, really, it's about 145 million or so on the 17?

Yes, that's right. Or more.

Or more. Whatever is good. Let me ask you with regards to the asset sales, do you think that will impact somewhat your decision on how you set the run rate dividend for '06? You know, when you set that policy, are you taking into consideration maybe some of the impact from asset sales and the timing of recycling that capital?

Yes, we clearly look at earnings, but when we do our asset recycling, we do it with an eye of potentially replacing that capital. So if we sell some assets, and obviously, for the very short term, it could affect earnings, but the next quarter or two, as we continue to seek out investments -- and our strategy, as you know, Gus, is pretty broad within the hospitality sector, so we're always able to source other transactions that are accretive and attractive. So we plan to then turn around and place it within the next quarter or two. So the idea that our strategy as being one that could therefore affect our dividends negatively, we just don't see that.

Okay. Can you give some more color on maybe the potential buyers that you have identified, and not who they are specifically, but kind of the representation of the buyer? It sounded like from the portfolio transactions that it's more -- for these large portfolios, it's the private side, but are you looking to sell these office clusters or one-offs? Can you give some color on that?

We can give a little color. They are private buyers, and we're selling some individually and some as clusters. So, it just depends upon how it comes out. And as the bids come in, we've looked at the bids potentially as individually or as clustered, and as you would imagine, mixed and matched to the buyers that would optimize our proceeds. So, it's some of each, but largely on the private side.

And do you think one of the advantages you've done is placing this favorable financing and securing it for the next 10 years? Is that what's making this portfolio maybe attractive or these assets attractive for the buyers?

I think so. I think the financing's better on those assets -- some of these assets, not the two from the FGS portfolio, but the financings that are on the gen-one Residence Inns and the TownPlace Suites is very attractive. Doug negotiated that earlier this year. And the current pay on that is I believe something like 5.25% or so.

I think one of the key benefits of that financing is that what the REIT could obtain is something that some of these private investors could not obtain. So they have to look at that as essentially an asset of transaction. And obviously, going into the financing, as we do with every financing, we're thinking ahead of the curve a bit and we structured it so that we would have a great deal of flexibility with the assumption of the debt.

Not to consume the floor, but one last question with regards to that portfolio. Given that they are all Marriott branded or operated, was there any opportunity to make them franchise or make them unencumbered by management and more attractive to a buyer, or was it just too costly?

No, those -- well, of the 17 assets, 15 are Marriott managed -- or the Howard Johnsons. Of those 15, those are Marriott encumbered -- there's not an opportunity to convert them into franchises, except, as I recall, there's a provision out in '08 or '10 that allows it to be converted to a franchise under certain conditions. So, a few years out, that option is there.

Adam France, Keane Capital (ph).

Just a question, or perhaps you could give us some more details on the upside of your Virginia assets you most recently purchased. That appeared to be one of the more expensive buys we've had recently, so I just wanted to get from you what is exciting about that asset.

Sure. I presume you're talking about the Hyatt Dulles that we recently closed?

Yes.

We own, and actually in our previous life, developed the Embassy Suites there at Dulles Airport, just an intersection down. So we're very familiar with the market, both from an operational standpoint of market, a revenue standpoint, cost standpoint and then from a development and construction standpoint. So we had great familiarity with it.

Our asset has been performing very well there, the Embassy Suites. And we have competed with that Hyatt, and historically, that Hyatt had been unrenovated and the rooms not in very good shape. And therefore, we did pretty well versus that Hyatt.

However, the Hyatt started to go through a renovation, which it largely completed in the summer of this year. And from our experience in the industry, and as you may suspect, we believed that once those renovated rooms came online, it would become a much, much stronger competitor.

In fact, last year about this time, we bought the Hyatt Anaheim under the same conditions. It was finishing up the renovations right when we purchased the asset, and the growth in that asset has been spectacular. We're been very, very, very pleased with it.

So here we had another Hyatt completing something along the same lines that we already experienced a year prior, and it's in a market that we're very familiar with. The D.C. market is just growing like gangbusters. It's one of the strongest markets in the country.

We also had the ability to add to that facility, to add potentially another 200 rooms and another 15,000 or so square feet of meeting space. So that has some additional expansion opportunities there. It's one of the closest assets to the airport. The Dulles airport is going through a massive expansion. I believe the number is something like $3.5 billion. And with the security concerns about Reagan National, the new traffic going into Reagan will be limited, which means almost all the growth in air traffic in and out of D.C. will be through Dulles, which will help our airport base. The only two hotels closer are a Marriott and a Hilton that are on site there at the airport, and we're the first airport as you come out of the interstate -- out of the airport complex. And the expansion of the annex of the Air and Space Museum, which is up there by our hotel, which has been a big tourist draw.

So there's just a lot of things happening in that marketplace on the demand side. No new supply on the horizon that we're able to find, at least no shovel in the dirt actually getting a new construction going. So, with the expansion of capabilities, we just thought it was a great all-around asset. Very excited about it.

Gustavo Sarago.

Just a couple of housekeeping questions. Maybe to start with you, Doug. I think you mentioned the mezz portfolio had about a yield of 13.9% at the end of the quarter. You had a net paydown of about 8 million in mezz loans. Which loan or loans did this relate to, and is that 13.9 after considering the paydowns?

Yes, the loan paydowns were associated with the Wyndham transaction.

And the yield is on the portfolio that was in place at the end of the quarter.

So just off the top, I mean, what does that look like maybe after -- I guess I can run the numbers myself, but -- so the 13.9 was before the paydown?

Well, the yield doesn't really -- yes, the 13.9 would have been -- no, it would have been inclusive, because the paydown occurred after or sometime during that quarter, actually -- I'm just trying to think.

No, the 13.9 is the portfolio that was in place at September 30. That's after the payoffs.

I noticed your cash reserves continue to build, and I just wanted to refresh my memory. Is there any -- in the restricted cash reserve, I mean -- is any of that cash allocated or set aside for the renovation process, so we could see you dipping there instead of using cash from these refinancings to fund the renovations?

Part of those restricted cash reserves is our FF&E reserve, and for the various properties, there's different amounts for those. We do supplement some renovations with those dollars. So I think the answer is yes.

But not a meaningful amount will be --

No, I think it's meaningful, but it's not clearly the full amount.

And then just to kind of go back to -- you mentioned in your press release that the 17 assets held for sale represented about 14% of the third-quarter EBITDA. Is that percentage high given the fact that you had some renovating properties during the quarter? And could there be any seasonality playing into that third-quarter percentage?

I think it's representative. We gave you the annual number of 15 million. I think if you -- the best way to analyze that is to take a look at our hotel operating profit table and annualize that nine-month number, and you can get a pretty good feel for how that's going to shake out on an annual basis.

Gentlemen, it appears we have no further questions at this time.

All right, well, thank you for your participation today and your interest in the Ashford Hospitality Trust. We look forward to speaking with you again on our next conference call.

This does conclude today's conference. We thank you for your participation and have a good day.