Ashford Hospitality Trust Inc (AHT) 2007 Q3 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. Please go ahead, sir.

Welcome to the Ashford Hospitality Trust conference call to review the Company's results for the third quarter of 2007. 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. The results, as well as notice of the accessibility of this conference call on a listen-only basis over the Internet, were released yesterday afternoon in a press release that has been covered by the financial media. As we start, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous assumptions uncertainties and known and unknown risks which could cause actual results to differ materially from those anticipated. These risk factors are more fully discussed in the section entitled "risk factor" in Ashford's registration statement on Form S-3 and other filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call and the Company is not obligated to publicly update or revise them.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the Company's earnings release and accompanying tables or schedules, which has been filed on Form 8-K with the SEC on October 31, 2007, 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. I will now turn the call over to Monty Bennett. Please go ahead.

Good morning, and thank you for joining us. Our message today is very simple. In term growth. We are committed to seeking ways to capitalize on the -- the first portfolio with the goal of enhancing dividends and share price performance. Once again, we had a very strong quarter in terms of RevPAR growth. For the hotels not under renovation we reported a pro forma RevPAR increase of 8.3% and a 120 basis points improvement in operating margin. Our RevPAR yield index for the quarter increased from 116.2% to 119.1% for the hotels not under renovation and from 115.8% to 117.8% for all hotels.

AFFO per share for the quarter was $0.25 per diluted share which equaled the results from a year ago, even though the current portfolio seasonality has changed by approximately $0.04 per share. Ad per diluted share was $0.18 which resulted in a dividend coverage ratio of 124% year to date. This strong internal growth was the result of value-added renovations we have completed over the past two years and the intense focus we have placed on maximizing the returns from each asset. We are also continuing to see the benefit from a portfolio concentrated in upper upscale and upscale segments in strong markets and brands with attractive growth opportunities. Next year we will be embarking on implementing approximately $50 million of ROI projects. These are capital expenditures above and beyond normal CapEx, PIPs, and refreshes. This are projects where the financial returns can be more specifically identified such as the addition of spas, additional meeting space, energy conservation projects and rooms additions.

We continue to be pleased with the lodging industry fundamentals. RevPAR growth continues to exceed previous market expectations. Costs remain under control, allowing for margin gain. Given most of our hotels are business trained and focus with relatively less reliance on large group and leisure, we like where we are situated in the current market. Moreover our mix of upper upscale and strong upscale brands provides a more resilient performance during the weak downturns in the economy. Overall we are extremely pleased with the yields on our assets, the diverse market locations, and the strong brand affiliations.

While the subprime situation is having an impact on the financial markets we have not yet seen any impact on our hotels. The silver lining if there is one is that we expect the reduced credit availability will further limit new supply due to lower loan proceeds and higher interest costs, thereby extending the cycle. There is still a significant amount of debt and equity in the market, with the issue seeming to be pricing in terms of capital rates and debt spreads. Over time, these always correct. To the extent there may be some pricing impact on values, we expect this to be minor and possibly short-lived.

In the meantime, we remain extremely pleased with our success in locking in below market financing for our portfolio at very attractive long term fixed rate levels well before the credit market turmoil commenced. We have 78% of our debt fixed with an average rate of 6.05%. We have very little exposure to refinancing risk, with less than 200 million maturing in the next two years. Additionally, the continued disruption in the credit markets is actually working in our favor at present as lending spreads have widened, thereby creating a more attractive and accretive lending opportunity with fewer competitors. As a result, we expect that our hotel lending program will become more active in the coming quarter.

Our focus for the balance of the year and into 2008 will remain on capital recycling through harvesting assets from the portfolio, internal growth through capital improvements, and allocating our capital to the appropriate investments to match the lodging investment cycle. We are not limiting ourselves to just a phase one and potential phase two strategies we previously outlined. We are actively reviewing the entire portfolio for all potential opportunities, to redeploy capital. It is exactly this type of market condition that we believe we excel in and have built Ashford strategy to be proactive. We look toward to reporting continued progress and increased returns from each strategy. To speak in greater detail about our third quarter results I would now like to turn the call over to David Kimichik to take you through the numbers.

Good morning. For the third quarter, we reported a net loss of $6.638 million, EBITDA of $86.526 million, and AFFO of $34.882 million, or $0.25 per diluted share. At quarter end, Ashford had total assets of $4.8 billion, including $194 million of cash. We had $2.9 billion of mortgage debt, leaving net debt to total enterprise value at 60%.

During the third quarter, the Company sold two of the 18 phase one for sale assets and booked a gain on sale of $531,000. As of today, 16 of the 18 phase one assets have been sold. At quarter end, our portfolio consisted of 114 hotels in continuing operations, obtaining 26,295 rooms. At quarter end we owned a position in seven mezzanine loans with total principal outstanding of $73 million with an average annual unleveraged yield of 12.4%.

For the quarter, pro forma RevPAR for all hotels was up 7.4%, as compared to the third quarter '06. For the hotels not under renovation, which is all but eight hotel, the pro forma RevPAR was up 8.3%, driven by a 5.1% increase in ADR, and a 233 basis points increase in occupancy. Pro forma hotel operating profit for the entire portfolio was up by $7.1 million, or 8.8% for the quarter. For the 106 hotels not under renovation, pro forma hotel operating profit increased 11.7%. Our pro forma hotel operating profit margin improved by 120 basis points for the hotels not under renovation, and 74 basis points for all hotels. Our pro forma margin improvement was due in large part to corporate initiatives to control certain costs. As a result of negotiating long-term energy contracts, we've seen a 20 basis point reduction in our portfolio energy costs.

Timing our insurance renewal into a soft market in advance of hurricane season has resulted in lowering these costs by 23 basis points. And through aggressive property tax appeals we have seen a reduction of these costs by 46 basis points. We ended with quarter with 122.6 million common shares outstanding, 7.4 million series B convertible preferred shares outstanding and 13.5 million OP units issued for a total share count of 143.6 million. For the third quarter, we reported CAD of $25.116 million or $0.18 per diluted share, and announced and paid a dividend of $0.21 per share. Our dividend coverage ratio was 124% of CAD for the first three quarters of the year.

Finally, I would like to emphasize that our portfolio is very seasonal quarter to quarter. Beginning this year, we started a practice of including in our earnings release a table of trailing 12-month pro forma hotel revenue and hotel EBITDA combined for all the hotels we own and continuing operations at the end of the quarter we are reporting. The addition of the CNL portfolio has changed our historical seasonality trends. I encourage anyone who keeps a model on our Company to review this table when updating their information. I would like to turn it over to Doug to discuss our capital allocation strategy.

Thanks, David. Our efforts on the capital allocation front will primarily focused on harvesting assets out of the portfolio and redeploying to ROI opportunities in the current portfolio, as well as funding a ramp-up of our mezzanine loan business. In terms of asset sales, we completed the sale of three hotels it for $35 million, two of them in the third quarter, and one subsequent. And anticipate closing three more the next few weeks for another $68 million.

By the end of November we also expect to complete the sale of the Marriott BWI airport that we have under contract for $61.5 million. Of the seven hotels, that pricing equates to an 8.3% trailing 12-month NOI cap rate and $135,000 per key. From what we previously identified as phase one of our asset sales, we only have the Sheraton Iowa City and the Fort Worth office building remaining.

As Monty mentioned earlier, we have expanded beyond the concept of a second phase of asset sales. The portfolio-wide review of each asset to determine that its growth fundamentals match up with our growth goals. We expect to achieve this harvesting through one-off and portfolio sales or potential JVs. At this point, all options remain on the table, with the goal of maximizing the return from each asset, and redeploying capital to where we can achieve the highest returns. Our capital expenditures forecast is to invest $280 million during 2007 and 2008 across the portfolio, in addition to the targeted $50 million in ROI projects.

During the third quarter, we had eight hotels under renovation, two of these were completed in the third quarter, of these is the new Sheraton hotel downtown Indianapolis, which we converted from a Raddison hotel in July. Our total capital spending in the third quarter was $32 million, bringing total spending through three quarters this year to $77 million. We have an additional 10 hotels under renovation now in the fourth quarter. These expenditures will be carefully monitored to minimize operational disruptions, and maximize future performance.

Several notable projects under way are the luxury conversion of the Sea Turtle Inn to One Ocean in Atlantic Beach, Florida, for $24 million. The $14 million guest room and meeting space refresh of the JW Marriott San Francisco, and a $5 million room refresh at the Las Vegas Embassy Suites. Major initiatives beginning in the fourth quarter are the $14 million guest room refresh at the Marriott Crystal Gateway, the $8 million guest room and public area upgrades to the Philadelphia Embassy Suites, and the $5 million upgrade each to the Embassy Suites Walnut Creek, Courtyard San Francisco and Hilton, Minneapolis.

Compared to prior quarters, our financing initiatives were relatively quiet. However we did price 8 million shares of 8.45% series D cumulative preferred stock at $25 per share. To use the net proceeds of the offering to redeem the Company's series C preferred stock. This preferred offering was able to capitalize on a much stronger preferred market issuance than the current market where spreads have widened out substantially. With this series D preferred issuance, we completed the series of longer term financing strategies related to the CNL hotels and resorts investment.

I noted last quarter that with the credit market tightening and spreads coming back our way, there might be more opportunities for our mezzanine loan business in the second half of the year. That has certainly been the case. At present, we have a strong pipeline of opportunities. Spreads have increased from roughly 350 to 450 basis points over LIBOR a few months ago, to a range of 600 to 800 basis points today, for mezzanine loans. With such a dramatic dislocation in the market, borrowers and lenders have both been waiting for the other to blink. We expect to be able to deploy capital in this market again at very attractive yields fairly soon.

You will recall, we took ourselves out of the market earlier in the year when we saw unfavorable market conditions in terms of spread and loan terms. Our discipline and market judgment has paid off with the return of more favorable market conditions. Our underwriting of potential mezzanine opportunities remains thorough with an even greater focus on takeout financing, and debt yields relative to market cap rates. Given the increased market opportunity we had discussions with potential capital partners regarding a joint venture that would enhance our returns. We hope to make continued progress on this, and report to you soon on the results. That concludes our prepared remarks. Now we will now open it up to any questions you may have.

Thank you. (OPERATOR INSTRUCTIONS) And our first question comes from the Celeste Brown, Morgan Stanley.

Hi, guys. Good morning.

Good morning.

I know you said that your current trends look good, but sounded like maybe a little worried about the economy going forward as is everybody else. Where would you be comfortable with leverage given the uncertainty in the economy today?

Sure, this is Monty. We are not concerned about the near-term future as far as the economy goes. We see all signs positive and we see everything just chugging right along. So we're not concerned about going into a recession here in the short term. But to answer your question about leverage, the guidance that we've given is that we don't want to have much more than 60% which is about where we are, so our inclination is to reduce leverage going forward. We haven't outlined a specific targeted amount, because so often that depends upon what we can sell assets for, what we can raise capital for and the like and so it is hard for us to come out and target it. But we're not in the market to raise equity capital, and our source of capital will be asset sales or JV partners, so we're going to continue to chip away on those areas for the foreseeable future unless market conditions change one way or the other. We're comfortable with that current debt level that we know a lot of our investors would rather our debt levels be lower, so in appreciation of that, we continue to move that direction.

And are you seeing hesitation? I know you've sold a few assets but are you seeing hesitation on the part of buyers who are expecting cap rates to go up over the next six months making it more difficult to sell?

Doug, why don't you tackle that one.

Sure. There is clearly in the market today some dislocation as a result of the lack of readily-available financing. Financing is still available but it is just taking time for lenders to process it through their committees and for borrowers to be able to find lenders that will actually make a loan, so yes, the market timing for transaction pace is slowing down. However, we have not yet seen, at least through recent data points any backup in terms of cap rates. There has been talk about it possibly coming into the pipeline, but with the reduction in rates recently, and the higher-than-expected forecast growth in terms of RevPAR performance, it might be the case that those conditions offset the potential impact from the most recent financial dislocation with respect to cap rates. So it appears to us that the market is just looking to settle down and have bid-ask quotes between buyers and sellers get back to a trading range. I think the net impact will be fewer transactions overall for the fourth quarter and going into the first quarter of the year.

For our own portfolio, those assets that we've been selling, we have not seen so far a reduction in the pricing that we expected on those assets. And retrading by potential buyers. It just hasn't happened for us. So we haven't seen an impact yet.

Okay. Thank you.

We will go next to will Will Marks, JMP Securities.

Thanks. Good morning, everyone. Any further insight into what we should expect in asset sales? I know you touched on it, maybe that's all you would like to, do but you had outlined those three phases in the past, and even if we just put that aside, outside of the Sheraton, and the office building, or the building in Fort Worth, what do you expect to sell? Can you quantify it at all in the next 12 to 18 months?

I don't know if we quantify it but we can give you more color. On the phase one, we're going to continue with the phase one. We're going to sell almost all in phase two, although one or two we might hold back for a couple of reasons but that will be offset by the fact that we're looking elsewhere in our portfolio for additional potential sales. And are having those kind of conversations with potential buyers, potential JV partners so it just depends upon whether we think we can get the pricing that we think we need and also the alternative use of the capital. But our bias is clearly in the direction of not buying and holding and/or selling our assets.

Okay. Great. And just one other question, on CapEx, I think you've given a figure through -- it's an '07, '08 number. Did you divide that by year? If not, could you?

We didn't divide it by year. It is $280 million. We did mention that we've got about $77 million cash that was put in place thus far in 2007 and so you can subtract it out and see how much we've got left for the fourth quarter of next year and through next year, and the fourth quarter this year and through the rest of next year. Does that help you?

I'm sorry, so we do know -- you have given us fourth quarter of this year?

No, our number is $280 million.

Right.

Put in place, $77 million so far through this year. So -- I'm sorry?

Right. Okay.

So that leaves approximately $200 million left for the fourth quarter of this year, and then through next year.

Right. Okay. Thank you. And then where does that leave you in terms of -- is the whole portfolio where you want it to be? I realize there are always new things that come up, but does that generally leave the whole approximately 114 hotels the way you want them to be?

No, we think there are some ROI opportunities on top of that $280 million, we spend $50 million next year, and then towards the end of next year, we are going to evaluate what other ROI opportunities we want to pursue. But we see quite a bit of opportunity in these assets so we think there is going to be continued opportunities in order to capitalize on those opportunities.

Great. Thank you very much.

Our next question comes from the Nap Overton, Morgan Keegan.

Good morning. Most of my questions have already been asked and answered. But could you just clarify for me the 8.3% capitalization rate on trailing 12 months NOI, is that on the seven hotels that you have contracted for, sold, is that after or before a reserve for maintenance CapEx is deducted in your calculations?

After.

After. Thank you.

We will go next to David Luke, Baird.

Hi, Doug, I wanted to follow-up on the joint venture comments that you made. I realize this is a tough question, but can you just give us some kind of handicap on the probability of completing a joint venture, how big a joint venture are you looking at, and what would the timing be?

Well, David, all of those are great questions, and the challenge in answering them is that as you know in this market, there are a lot of moving pieces, there is a lot of interest among smart money to partner up with capable groups like ours to find opportunities when there is a bit of a dislocation in the market. We've off and on as you know talked about joint ventures. I would just assume that by the mere fact that we are making a comment in this release script that we're moving forward, as best as we can, to structure something which we think would be shareholder accretive, I think it is best to just leave it at this point that we hope to report soon on some progress, and we will just have to keep you and the investment community posted there.

While I do appreciate it, the fact that it was in this script, because it seemed to have been out, before it seemed like it was off the table and now it definitely appears to be on the table. I still would like to have at least some understanding of whether you would consider, for example, are we talking about $100 million, or $1 billion that you would be willing to contribute into a joint venture?

I think that our view is that when we talk about joint ventures, there could be just one, there could be more than one joint venture idea that we're working on. As you know, we try to be pretty capital savvy with what we do with our debt, our equity, our joint venture discussions, and you will know that obviously before we were public, we had a lot of joint venture capital partners, so we think we're pretty tied into the opportunities and the structuring within that market.

Sizing-wise, our view would be that in general, if we could find the right joint venture partner, it would be one that has evergreen or growth type capital. So in a way that would facilitate appreciation either in our vehicle, through returns, fees, promote, and what not, so size is really a function of the desire of our capital partner to continue to see similar opportunities that we see.

Okay. Thanks.

Our next question comes from Dennis Forst with KeyBanc.

Good morning. I wanted to get a clarification, Doug, on the number of renovation projects that are ongoing. There were eight, I think you said you completed two of them.

Sure.

So there were eight and that leaves six and then you mentioned 10. Is that 10 more or is that four more on top of the six?

That is 10 more.

So at some point in the fourth quarter, there will be 16 of the one 18s -- or one -- now I've confused myself. 16 of the 114 under some type of renovation?

That's correct. There is actually a table that we include in our--.

I saw it. The very last page?

Exactly. And that specifies the question that you're asking about. And you can see that we try to have our renovations concentrated around the fourth quarter and the first quarter since that's for most hotels the slower periods. So that's what we're trying to do.

Okay. And then for Dave, you had broken down the number of shares to get to the 142, can you give us those same numbers for the second quarter?

I don't think they change for the second quarter. I think they're exactly the same.

I think in the second quarter, it was 129 million total.

No, I think the -- we ended the quarter with the same share mix, 143.6, all combined.

You did? Okay.

During the second quarter, we did an equity offering and increased share count.

Right.

But at the end of the quarter--.

Oh, at the end of the quarter, so during -- let's see. During the quarter then, the 122 common shares were less on an average, but the B shares and the OP shares were the same?

That's correct.

Okay. Good. And then lastly, franchise fees, where are the franchise fees in the income statement?

They are in the indirect.

Indirect. And about how much are those on a quarterly basis, or what were they in the quarter?

You can actually calculate that, if you go to the -- for the quarter, approximately $8 million is our expense in the franchise fee category.

Okay. And you said it can be calculated? Low can I do that going forward?

No, I don't think it can. The change in franchise fees can be calculated but the aggregate number--.

How do I do the change?

If you look at the expense margin table, we give a breakdown, and we have been doing this for several years now of the change of the cost category pursuant to a percentage of gross revenue. So you can go back and historically look at how.

Okay. I will figure that out. Thanks a lot.

Okay.

Our next question comes from [Jim Kieren], New Salem Investment Management.

You guys consistently have a rosy outlook for the business you're in. I'm curious to what degree do you look at the weakness of the dollar as helping the hotel business in the U.S.?

Well, the help could be from international travelers. That's the help. What can happen is that we could have an increased number of international travelers but it usually takes a little while to work through the system as people feel comfortable with that change in the dollar, it is going to happen and it's going to stay rather, and then for people to plan their vacation, so we might see some impact from that I think, maybe closer to the summer. Some other impacts on the weaker dollar is that our shares themselves might be more attractive to international investors as the yield is attractive and the valuation from their standpoint is also more attractive.

Wouldn't that also encourage domestic travelers to stay home and book your hotel versus overseas.

Quite possibly.

Thanks a lot.

Sure.

We will go next to Smedes Rose, KBW.

I just wanted to be clear on something, your CapEx guidance of $280 million, that includes the $50 million of ROI projects?

No, it does not.

Okay, so it is 330 of total spendings over the next five quarters?

That's right.

Okay.

Go ahead, Komo. It is over all of 2007 and all of 2008. And so you have to back out the 77 million spent year to date through the first three quarters to get for the next five quarters.

But it is 330 for the two-year period.

That's correct.

Okay. You mentioned, you looked like you're maybe getting more into the mezzanine financing business again. I was just curious, do you have any kind of sense of where you can see that going or what kind of size that portfolio could go to or is there kind of a guideline you can give us of where you might expect that to go?

Sure. We do see opportunities in the mezzanine lending market today. We are looking at a number of opportunities. We don't see that, though, growing to be more than 3%, 6, 7% of our platform at the highest end, because we just don't see it growing that big. So it will still be a modest portion of our platform.

Okay. And then I was just curious, two of the loans that you bought back in January of '07 was a Hilton that was going to be converted to a Meridian and a Wyndham that was going to be converted to a Sheraton. I was wondering were those hotels ultimately converted or are they still under the same flags?

They have not been converted yet?

So they are still operating as a Hilton and a Wyndham?

No. One of them, the Meridian, is -- the one that was being converted to a Meridian is not a Hilton. It is an independent.

Okay. Are they still planning to be converted or?

Yes.

Then the final thing I wanted to ask is do you have any color just on the recent trends in San Diego with the fires? I'm not sure how much exposure you have in that market, but I think it is some. I mean did you see evacuees replacing any business that was lost or kind of, kind of just short-term what is going on with the trends there in that market?

Sure. We've surveyed our properties in that part of the country, and some have got a net negative, some have got a net positive, because of dislocated people. Our Torrey Pines asset is the one that will be most affected. At this point, we see it is about $0.5 million worth of group that has canceled because of it. Some of that is made up by refugees and they're staying there for a little while, but at this point in time, we don't see it to be material one way or the other.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) We will take our next question from Geoff Dancey with Cutler Capital Management.

Hi, I have a question about the $50 million of targeted ROI projects. I'm just wondering how many properties that would be spent on and what kind of projects they're going to be? And then looking out into 2009 how many more properties you see opportunities on, if you look at it like that?

Sure. On the $50 million, it is going to affect probably about, something like a half dozen to a dozen type properties. With the exception that these moneys are going to be spent on energy projects, number one, and those are going to be across all properties, just about, where we can replace through the wall units with more efficient units, we can replace light bulbs, we can do everything we can to save on energy. That will be across the portfolio, but very little disruption because of that. And the other properties, it is going to be the addition of a spa or two or three. That won't have much impact on the hotel because it is a place that is unutilized or underutilized right now, and we're also looking at rooms additions and meeting space additions, converting existing space within the building envelope to meeting space and/or to guest rooms, or adding on to those existing envelopes.

As far as 2009 going forward, we see a lot of opportunity, but we are being careful about how much capital we put into the assets, so have decided to reserve until the spring or the fall of next year to decide how much we're going to get in '09 and going forward. We do see quite a bit of opportunity, but we've got to employ a balance of investing money in these opportunities and getting those great returns, but at the same time, not disrupting our current earnings very much along the way.

Okay. So the 50 million in 2008, it sounds like it is still a lot of moving parts just in terms of where you're doing, which projects, and how many you're doing?

We've got a decent amount of it nailed down, maybe about half and half and the other half we're still evaluating. We've got way more projects than we want to spend, but we just want to be disciplined and again, for this $280 million that we're already spending in CapEx in '07 and '08, we just want to be cautious about how much more additional we spend because of the disruption.

Okay. And also, on the potential JV, or JVs, do you imagine putting -- it would be more putting the current properties that you own in, or buying additional hotels to put into the JVs? And if they are your current properties, are you picturing putting in the stabilized properties where you don't see these ROI projects or large CapEx projects or would they be things with some redevelopment opportunity?

Fortunately because of the diversity of our platform we have a lot of options with our asset base, including you can break down our portfolio easily into three segments, our mezzanine portfolio, our select service portfolio, and our upper upscale portfolio. All of them we think are very high quality and components of some or any of those would be desirable for joint venture capital today. So I think rather than commenting on which of those we are having discussions with, I think it is just important to recognize that we have some fantastic assets that capital is desirous of today, and we are going to pursue opportunities that we think are going to be accretive.

The ROI and value-add projects, just to comment on that are ones that really are not that disruptive, so we don't really distinguish them from the rest of the group in terms of market appetite one way or the other.

Okay. Okay. That's all. Thanks.

Thanks.

Our next question comes from the Jeff Donnelly with Wachovia.

Good morning, guys. Two question, actually. First, can you tell us what you're projecting for rooms out of service in each of the next four or five quarters? Do you have that handy?

We don't project the specific number of rooms out of service because that is such a changing number. But I think that a good gauge on that would be to look at that page, the last page of our earnings, and to look at how many hotels are under major renovation. And that should be a better guide as far as how much impact it might have on our earnings.

Or do you have a rough sense about how many, how much of those renovations pertains to I will call it rooms or common area events as opposed to maybe back of house changes or things that might not be as impactful to guests?

Let me take a look here. They look to be mostly rooms. I would say about 75% are rooms related.

Okay. That's helpful. And then I guess a question for Komo, how much of your overall debt can be paid down without penalty or maybe perhaps a better way to put it is how much more of your costly debt can be paid down without penalty over the next year?

Well, the floating rate debt by and large can be paid down, there is a small prepayment penalty on one of the loans but it is fairly insignificant. And then some of the fixed rate debt is anniversarying to being paid down, but there are defeasance issues and things like that, but I think to answer your question, I would look at the floating rate debt, as being the barometer of that debt available for that.

Okay. Thank you, guys.

And just another point on that, Jeff, is to the extent that we do do a JV, or something like that, then the JV would be assuming debt, a fixed rate debt, as our fixed rate debt is fairly attractive right now we wouldn't want to refinance. So that might affect effective debt paydown.

Okay. Great.

Our next question comes from David Richter, EBP Investments.

Hey, guy, thanks. I just had a couple of follow-up questions on the lending business. The first one, you mentioned that spreads have widened from 350 to now it is 600 to 800 today. Is that what you had said earlier?

That's about right. Okay. It is hard to get a firm handle on it, because the market is just not as fluid and is not as liquid.

Okay.

But that's our take on it, yes. And 350 to 450 to 600 to 800.

So it kind of stopped at 450 on its way to 600 to 800. Have you seen changes in the required equity on deals? And you mentioned also that you might get more active in it. Do you see the opportunity in the mez space where I think most of your portfolio is or do you see it higher in the capital stack? Where do you plan on playing it going forward?

The requirement for equity is certainly increased. I think that the loan to values in the capital stack were previously you could 85% quotes from many lenders today, I think you see a lot of lenders topping out at 75%. So that is where we sort of view the ceiling right now. And then your second question, I'm sorry, David?

I think the portfolio today is mostly mezzanine debt. Is that where you see the opportunity or do you see it higher in the capital stack?

Well, we certainly view the mezzanine debt as really the last dollar of the capital stack. So we clearly think that there is the opportunity to provide financing where several of our competitors that were bidding in this market have now stepped on the sideline, or been forced on the sidelines because of troubles within their own portfolio due to many of them were also involved in subprime, or backed by CDO structures, which have now been essentially erased from the market. So we think we've got a compelling advantage to provide capital up to where the capital stack is going so it could be 75 to 80%, and we clearly have an enhanced advantage of going north of there, and as a result of that, that's the reason why pricing has widened out, just because of the removal of liquidity in the market, and so we've capitalized on this situation before, and we intend to buy in the market aggressively for similar type opportunities, and underwrite them in a way that we were comfortable where our last dollar of debt is.

Okay. Great. Thanks, guys.

Thank you. We have no further questions at this time. I would like to turn the conference back over to Mr. Monty Bennett for any additional or closing remarks.

That is all of our prepared remarks for the day. Thank you for your participation on the call. And we look forward to speaking with you again on our next conference call.

This does conclude today's teleconference. We appreciate your participation. You may now disconnect.