Ashford Hospitality Trust Inc (AHT) 2008 Q3 法說會逐字稿

Good day, everyone. 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.

Good morning, welcome to the Ashford Hospitality Trust conference call to review the company's results for the third quarter of 2008.On the call today will be Monty Bennett, President and Chief Executive Officer, Doug Kessler, Chief Operating Officer and Head of Acquisitions and Mark Nunneley, Chief Accounting Officer and Interim Chief Financial Officer. The results as well as notice of the accessibility of this conference call on a listen-only basis over the internet were released yesterday evening in a press release that has been covered by the financial media. As we start, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks which could cause actual results to differ materially from those anticipated.

These risk factors are more fully discussed in the section entitled Risk Factors in Ashford's registration statement on Form S3 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 measures, reconciliation of which are provided in the company's earnings release and accompanying tables or schedules which has been filed on Form 8K with the SEC on November 5, 2008 and may also be accessed through the company's website at www.ahtreit.com. Each listener is encouraged to review these reconciliation provided in the earnings release together with all other information provided in the release. I'll now turn the call over to Monty Bennett. Please go ahead.

Good morning, and thank you for joining us. On this call, we will provide you with more details about our liquidity, balance sheet, debt maturity and capital allocations strategies in addition to a recap of our third quarter performance. By now a number of the brands and our peers have been reported on the general state of the lodging industry. We believe we are taking the proper steps in light of existing and anticipated market conditions to enhance long term shareholder value. We believe our third quarter earnings are indicative of our multi faceted approaches and aggressive operating practices in the midst of deteriorating industry fundamentals.

For our portfolio, pro forma RevPAR for the hotels not under renovation was down 0.03% compared with the prior year with a 23 basis point improvement in operating margin. Our RevPAR yield index for the quarter was 121.0% compared with 118.3% a year ago for the hotels not under renovation and 120.1% compared with 118.3% for all hotels. Overall, ADR improved 1.8% and occupancy declined 138 basis points. The combined cash flow benefits of our select portfolio, which accounts for approximately one-third of our annual EBITDA and the mezzanine level portfolio once again contributed to a smoothing effect on our operating performance. AFFO per diluted share for the quarter was $0.26 and cap per diluted share was $0.20, both of which were up compared the prior year. Year-to-date, we had AFFO dividend coverage of 153% and CAD dividend coverage of 119%.

In the past, we have commented tha generally, we like to only pay a dividend that's covered by operating cash flow with reluctance to reduce the dividend year-over-year. Current market conditions are volatile and visibility is limited. Rather than commenting on future dividend policy in this call, we prefer to continue monitoring our operating performance and comment later in the quarter. Historically, we have announced our fourth quarter dividend and annual dividend guidance in mid December, and it is our current intention to adhere to that precedent. We have noted previously that we would allocate our capital across four areas: mez loans, capital expenditures, debt paydown or share repurchases. Taking this capital allocation philosophy a step further, we now believe that capital preservation should also be a priority. Decisions on how we allocate proceeds from capital transactions and excess operating cash flow will be greatly influenced by market conditions and management's assessment of sufficient liquidity needs. Throughout the third and fourth quarters, we adjusted our capital allocation strategies. Share repurchases became a more accretive opportunity than mezzanine investments. During this time period, we have purchased 27.1 million common shares for a total investment of $82.2 million. These buybacks were funded primarily by recent asset sales allowing us to retire approximately 23% of our outstanding flow. Going forward, we will continue the consider the repurchase of our common stock and preferred shares as well.

With a keen view on capital conservation, we have changed our capital expenditure philosophy to be even more selective in our deployment. For our 2008 CapEx plan, we expect to spend $30 million to $50 million for capital expenditures out of owner funds for the rest of 2008 and the beginning of 2009. Most ROI projects are on hold and expenditures will focus mainly on mechanical, life safety or the completion of those projects that are already underway. We will also complete projects for which we have previously received commitments from lenders or capital expenditure funding draws such as the Capital Hilton and Hilton Torrey Pines. Also, we continue to discuss with the major brands, ways to postpone or reduce the (inaudible) to conserve capital and time the market recovery with revenue enhancing expenditures. We have consistently invested significant dollars in our portfolio for the last several years with very strong returns and as a result, we believe most of our hotels are in good shape.

We believe the balance sheet remains solid with only minimum maturities without extension options. In 2009, there's a $29.6 million loan due on an asset with a trailing 12-month NOI of approximately $5 million. In 2010, the only maturity without extension options is a portfolio loan on four Hilton and Embassy Suites brand and full service hotels for $75 million with a trailing 12-month NOI of approximately $13.5 million. Despite the small size of these loan maturities, we are evaluating all alternatives including negotiating an extension, refinancing asset sales or using existing cash to pay down the loans. Regarding liquidity, we have fully drawn down on our $300 million dollar credit facility. Approximately $200 million of that amount has been purposely set aside and reinvested in US treasuries. Given the global economic conditions, the lack of liquidity in the capital markets and turmoil within specific banks, we believe we implemented a sound strategy to leave no doubt as to the availability of this capital. In total, we have approximately $225 million of readily available unrestricted cash on hand.

In summary, we believe we are well positioned from a balance sheet perspective to navigate through these times. From an operating perspective, we continue to protect cash flow with a diversified platform, aggressive cost containment in the field and at corporate and a predominantly floating rate debt structure that benefits from LIBOR reductions. In fact, is worth noting that for each 10 basis point reduction in LIBOR, we save approximately $2.8 million in annual interest payment based on our current debt balance. With the effect of the $1.8 billion interest rate swap, $2.7 billion of the company's $2.8 billion debt at September 30, 2008 was floating rate debt, of which $2.5 billion is subject to interest rate caps at varying time periods. To speak in greater detail about our third quarter results, I'd now like to call the call over to Mark Nunneley, our Chief Accounting Officer, who David Kimichik's absence is also also serving as Ashford's Interim Chief Financial Officer.

Good morning. For the third quarter, we reported net income to common shareholders of $1.781 million, adjusted EBITDA of $80.716 million and AFFO of $36.225 million or $0.26 per diluted share. At quarter end, Ashford had total assets of $4.3 billion, including $292.6 million of cash, an increase in cash reserves of $129.4 million from last quarter end. We had a $2.8 billion debt balance as of September 30, 2008, consisting of 95% of floating rate debt with a total weighted average interest rate of 6.25%. The company, as of today, has total debt outstanding of $2.8 billion as well with a weighted average interest rate of 4.46% based on the current 30 day LIBOR rate of 1.96%. For the quarter, the interest rate swap saved us -- allowed us to save $3.4 million in interest costs, which results in $6.2 million of savings year-to-date. Since the length of the swap does not match the term of the swap fixed rate debt for GAAP purposes, the swap is not considered to be an effective hedge. The result of this, is that the changes in market value of these instruments must be run through the P&L each quarter as unrealized gains or losses on derivative. For the quarter, this was a positive non-cash gain of $12.5 million. These entries affect our net income, but are added back for purposes of calculating our AFFO and CAD.

In terms of our balance sheet, we believe we're in good standing with our major financial covenants. Our TTM adjusted EBITDA to fix charged ratios were 1.72 times and 1.75 times under the senior credit facility covenant and the Series B convertible preferred covenants, respectively versus required minimums of 1.25 each. Our leverage ratio is at 58.8% versus a not to exceed level of 75%. We only have $29.6 million and $75 million of hard maturity debt coming due in 2009 and 2010 respectively. Excluding the revolver, we have an additional total of $411.8 million of debt coming due in 2009 and 2010. However, it is important to note that this debt has extension options without coverage tests. The extensions are subject only to us not being in default on the loan, providing timely notice of our desire to extend and the purchase of LIBOR caps. At quarter end, our portfolio consisted of 103 hotels and continuing operations containing 22,916 rooms plus one hotel listed as held for sale. This hotel has subsequently been sold.

For the hotels sold for $148 million since July 1, we will have recorded a net gain of $42 million across the third and fourth quarters, but expect that the net gain will not trigger a special one time dividend. At quarter end, we owned a position in 11 mezzanine loans with total principle outstanding of $236 million with an average annual unleveraged yield of 17.8%. Two of the mez investments are held in a joint venture with Prudential and are recorded in unconsolidated joint venture line on our financials. The combined debt service coverage on our mezzanine loan portfolio is approximately 1.54 times using today's LIBOR rate of 1.96%.

For the quarter, pro forma RevPAR for all hotels was down 0.9% as compared to third quarter '07. For the hotels not under renovation, which is all but six hotels, the pro forma RevPAR was down 0.03%, driven by a 1.8% increase in ADR and 138 basis point decrease in occupancy. Pro forma hotel operating profit for the entire portfolio was down by $1.3 million or 1.7% for the quarter. For the 97 hotels not under renovation, pro forma hotel operating profit increased 0.9%. Our pro forma hotel operating profit margin improved 23 basis points for the hotels not under renovation. During the quarter, we were active in buying back our common stock. We ended the quarter with 110 million common shares outstanding, a decrease of 9.8 million shares from the previous quarter end. When added to the 7.4 million Series B convertible preferred shares outstanding and the 14.4 million OP units issued, we ended the quarter with the diluted share count of 131.8 million. Subsequent to the end of the quarter, we have purchased to date an additional 17.2 million shares of our common stock.

During the third and fourth quarter, we repurchased a total of 27.1 million shares of our common stock resulting in a current diluted share count of 114.6 million. We have completed a total of 105 million in buybacks under the 50 million and 75 million share repurchase authorization and have 20 million of authorization remaining. We will continue to look at the repurchase of our common stock as well as our preferred shares. For the third quarter, we reported CAD of $26.871 million or $0.20 per diluted share and announced and paid a dividend of $0.21 per share. Year-to-date through the third quarter, our CAD is 119% of the dividends declared.

Lastly, I would like to comment on an error we observed in a fixed income research report issued last month by a major financial institution covering us. The reports topic was coverage ratios for 86 REITs. We believe the error incorrectly calculated our fixed charge ratio from data obtained from S&L financial. The EBITDA used in the calculation was $44 million which was materially lower than the $101 million of EBITDA stated in our second quarter filings. We assume the majority of the error may have come from not removing the $55 million non-cash change in derivative value that we took in the second quarter.

As a result, the report incorrectly showed our fixed charge coverage at 1.0 times. In reality, according to the formula used, our fixed charge coverage should have been reported at 2.2 times, ranking us 50th, not 85th out of the 86 as reported. This error has been communicated to the financial institution that issued the report. I would now like to turn over the call to Doug to discuss our capital allocations strategies.

Thanks, Mark. We believe that by hitting the market early in 2008 with our asset sales, we were able to transact a sizable volume of trades at very attractive prices before the current financial market turmoil. By getting ahead of the curve, year-to-date, we've completed $437 million of asset sales for a combined per key value of 133,000 based upon a trailing 12-month cap rate of 6.6% and EBITDA multiple of 12.0 times. Proceeds were used mainly to reduce debt, fund mezzanine loan purchases, buy back shares and set aside adequate cash reserves. We executed our capital allocation strategies successfully in the third quarter and have continued to improve our liquidity in the fourth quarter. We sold three hotels in the quarter, the Radisson Hotel in Rockland, Massachusetts, the Sheraton Milford in Milford, Massachusetts and the Radisson Hotel in MacArthur Airport in Holtsville, New York. Shortly after the third quarter ended, we also sold the Hyatt Regency Orange County in Anaheim, California. These four hotels combined represented a total of $148.2 million in proceeds, or $130,000 per key, a 7.8% trailing 12-month cap rate and a 10.6 times trailing 12-month EBITDA multiple. With these sales, we were able to pay down approximately $112 million in debt and fund significant share repurchases.

Looking ahead to the balance of the year, we believe it is less likely that additional asset sales will be completed. The transactions market is effectively frozen at present due to the lack of financing and widening bid-ask spreads between buyers and sellers. In terms of asset financing, we demonstrated an ability to access capital at competitive pricing even when liquidity was drying up with the lenders. We successfully removed the largest maturity coming due in 2009 with the refinancing of the Capital Hilton and Hilton Torrey Pines, two assets held in a 75/25 joint venture with Hilton. The loan with REL Bank amounted to $160 million at 275 basis points over LIBOR and provided a three year term with two one-year extensions. The proceeds were used to repay the existing $127.2 million dollar loan including our allocated portion of $95 billion with the excess funds to be applied to future renovation at both properties.

During the quarter, we obtained financing from Cap Mark on our JW Marriott San Francisco, which was unincumbered and had recently completed a renovation. This loan was for $55 million with a two-year term plus extensions and a rate of 375 basis points over LIBOR. The proceeds were used to fund our share repurchases and enhance our overall liquidity. We also obtained financing in August for the Hyatt Regency Orange County from Caleon for $65 million at LIBOR plus 250 basis points. Although we had this asset in the market for sale, we went down a parallel path with the financing given the market uncertainty. We successfully completed the sale of this asset subsequent to the third quarter and paid off the loan.

We noted on the last call we had invested $98.4 million in the third quarter to acquire a mezzanine loan that had a face value of $164 million. The loan was part of a $400 million dollar mezzanine traunch and a $7.4 billion of financing secured by the 681 hotel extended stay portfolio. Our loan is positioned in the capital stack at 75% to 80% at loan to cost. There's approximately $1.6 billion of equity and debt junior to us in this transaction. The yield to maturity we quoted was 23.9% based on the maturity of next September and the three one-year extension options. The market for hotel debt is still quite large with most of the pipeline consisting of existing loans on the balance sheets of distressed financial institutions. Our pipeline of opportunity averages around $700 million, but the market opportunity is in the billions of dollars. The offering of mez opportunities includes existing debt, new originations and buying back our own debt. The increase in the number of construction loan requests we are seeing is a clear indication of a slowing down of the lodging supply pipeline as early planning projects are unable to obtain financing. New originations are virtually at a standstill with the absence of first mortgage lenders, but once liquidity returns, this market will open up. While current returns in the mez market are as high as they've ever been, we remain very disciplined.

We are focused on our potential internal cash needs as well as more accretive opportunities of repurchasing our common stock and preferred shares. Our primary focus is to take steps to make Ashford a thriving public platform and prepare for longer term capital appreciation opportunities. We believe we have several advantages worth noting that seem to be lost in the value of our share price. Very little upcoming debt maturities and good fixed charge coverage, significant cash on hand to give us financial flexibility, a diversified portfolio that's better positioned to withstand the market, a floating rate debt structure that will benefit from further LIBOR declines, cost-cutting measures that Ashford's affiliate Remington has implemented more aggressively than any of the other managers are willing to implement across the roughly one-third of EBITDA it manages, and lastly, a committed management team with significant portions of their personal net worth tied to the company's performance and aligned with shareholders. That concludes our prepared remarks, we'll now open it up to any questions you may have.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS) One moment please for our first question. Our first question comes from David Loeb with Baird. Please go ahead.

Hi guys. First off, please pass on my best wishes to Kimo and his family, hope he makes a quick recovery and you have him back on the team soon.

Thank you, we will.

On the dividend, I know you're going to discuss this in a month or so, but I wonder if you could give us a little bit of color and what your thinking is, what you think the required distribution would likely be for this year, next year and how much the preferreds cover that.

How much of the preferreds cover that?

Yes, in other words, the distribution to the preferreds, how is that relative to your required distribution. In other words, are you covering most of your taxable income with the preferred distribution?

Let me take a stab at some of those questions, David. Generally, taxable income, we don't see as -- in anyway affecting decisions on our dividends, what we pay at the end of the quarter or the preferreds. It's -- we've got enough room there that we've got full flexibility on what we want to do. Because taxable income, as you know, many comes in below, significantly below the actual cash flow, so it's just not a factor in determining any and all of those. With regarding the dividends --

Just to clarify, Monty. Does that mean if you decided just as a scenario, that you wanted to have no common dividend, your -- and still pay all your preferreds, you'd be covering the taxable income?

I don't have that right here in front of me, David, but I can tell you that based upon information I looked at not too long ago, I think we have full flexibility. I can't say that, but if not, it wouldn't have to be much. So we're in pretty good shape. And also as you know, you can borrow some from one year to the next as far as meeting those retests and so within that framework, I'm pretty certain we have full flexibility.

Sorry about the interruption, thank you.

Not a problem. As far as the other -- just dividends in general, I think I mentioned it in my script about our policy has been in the past that we don't like to pay out more than we're making on a seasonally adjusted basis, and the challenge we've got is a we roll around here to December, as we think about what we want to pay off in the fourth quarter, the guidance we give to the next year is what the future looks like. You've heard, I'm sure, our peers and some of the real estate operating companies that guidance, it's all over the place about what RevPAR is. And another variable for us is what LIBOR's going to be. (inaudible) benefit, but it's obviously a variable.

At this point, it's just tough to get a handle on what that's going to be, of -- I say that there probably is just a little more thinking on our side along the lines of -- well, even though we're reluctant to cut the dividends, and even if recovering cash flow might there be a scenario where we cut the dividends even if we think we're going to have cash flow to cover it just to be extra cautious and/or buy back some shares or do something like that? That's a possibility. But we just haven't developed that any more than that.

Okay. It sounds like you're thinking about all the right issues. And you're certainly in good company these days in considering those issues. In terms of the coverage ratios, how bad does it have to be before you start bumping into those two coverage ratio tests?

It's just a matter of -- the calculations on those two were a little bit different. That's why one is 1.72 and one is 1.75. We calculated each of those according to the terms of those agreements, one being the Series B convertible preferred and the other one being the secured credit facility. The credit facility steps up over time. It's 1.259, that steps up to 1.35 and then 1.45. The 1.35 next year and 1.45 the following year. Is that all right? 1.5. But the other one, the preferred does not. Stays at 1.25. So it's just a test of taking that EBITDA and stressing it to see where it gets that ratio down to 1.25 or 1.35 or 1.45 -- 1.5. And so it's as straightforward as that.

Our analysis, my understanding is that it the step up to 1.35 is effective at the end of the first quarter of 2009. And our analysis said something like a 7.5% decrease in RevPAR puts you right at that. Is that consistent with what your analysis is suggesting?

What did you do for LIBOR?

(laughter) I'll have to check and get back to you. What's your thought on where LIBOR will be for the next quarter?

That's why we haven't given any more guidance, David, because it just depends. LIBOR is moving in our direction fantastically over the past few days since the fed has gotten so aggressive at pushing down LIBOR. 30-day LIBOR is what we're indexed off of, almost all of our debt, I think all of our debt, and it's been falling like a rock. So, that's great. In order to answer that question, we've got to make assumptions on RevPAR, on margins and flow through and on LIBOR. And those are a few different variables. All that being said, we still feel pretty good. We like where we sit. But we -- there's so many permutations and we've looked at a lot of them. But I wouldn't be doing your question any justice by trying to answer it off the top of my head since I can't remember that particular scenario right now anyway.

For your reference, we use 3.75 for LIBOR really at your cap level, because we wanted that to be worst case and then adjust the RevPAR and the margins from there. But that's a little old at this point, it's not looking that way today.

One thing we're thinking about is that now that LIBOR is dropping, if you look at the yield curve, it's pretty flat, around 2% for the next year. We're asking ourselves, well, do we want to go into the market and try to lock that down, and that way it's at a good rate? And that way that takes that variable out of the equation and actually, we're getting that price right now. So we'll see if that's something we want to pursue or wait for LIBOR to drop more or not. But clearly, we have got some option there.

Okay, a couple more if you don't mind. In that coverage ratio, repurchasing your preferred at a steep discount is clearly very favorable.

Yes.

How might you accomplish a larger repurchase of your preferred other than just open market, given how liquid they are.

Call the holders and ask them if they want to unload.

That's a pretty good system. So it wouldn't be more complicated? You wouldn't be looking at a tender, for example, or something like that?

We thought about all those possibilities, tenders or dutch auction types, and the rules are kind of similar for common, but not exactly the same. That's probably the easiest way to go out and do something.Either buy in the open market or just call some investors.

And finally, this might be more for Doug, how do you view your security position in the ESA mortgage today versus when you bought that.

I'll comment on it. We're definitely in a tougher economic climate than we were back then. At the same time, LIBOR just dropped. As far as coverage goes, I think we commented on here that coverage is not too different than what it was when we bought it, because of the two moving variables of LIBOR and cash flows. The real question on that is what happens at maturity. And we just can't sit here and say that because of two months of what's going on in the marketplace, that the value of that principal three and a half years from now is going to change. We've taken no impairment on our balance sheet because of that, because we don't think there's enough data that points -- that's going to believe any different than what we thought when we purchased it. If we think differently at the end of the fourth quarter, then we'll take the impairment charge. But at this point, we think we're in good shape.

Okay. Good day, everyone. Welcome to the Ashford Hospitality Trust conference call. I appreciate your candor in all of this.

Thank you, David.

Our next question comes from Jeff Donnelly with Wachovia Securities, please go ahead.

Good morning guys, and I echo concerns for Kimo. Doug, I guess, can you give us some more specifics on how lenders are underwriting hotel assets? I assume it's trailing EBITDA, but how is that being adjusted for 2009 and 2010 in general? And what specifically are the LTDs and coverage ratios that people are looking for. I know it's different by hotel, but maybe some rough ranges for folks?

Well, it's a great question, Jeff. Obviously, there's not a lot of lending taking place. We were fortunate enough to be ahead of the curve and took advantage of the opportunity before the lending market really became completely (inaudible). I wouldn't necessarily say that the loans that we were able to complete were necessarily representative of what you'd be able to accomplish today. The underwriting today is taking clearly a more conservative look. I'd say that LTV's are in the 50% to 55% range, is kind of the strike zone. Spreads are definitely wider. I think that financing quotes generally have a four handle on the pricing today if you're getting the normal array of lenders to participate, can you certainly get some other lenders out there that are trying to capitalize on distressed situations and seeking spreads wider than that. Underwriting of afford numbers and trailing numbers is really the wild card.

I think people are looking at trailing numbers, but they're also taking a sharp eye to what the future holds. And given the lack of visibility in the market, you have fairly wide variance in terms of how people are looking at future RevPAR, and it's obviously asset specific and market specific. If somebody's looking to finance something in New York where they're new supply coming in, they're going to look at that market differently than San Francisco. So, it's as much all over the board as I have ever seen it, but it's still -- there's a significant lack of liquidity in the market that I think there are clear signs, though, that it's beginning to loosen up and I think as LIBOR comes down and banks are more comfortable lending to each other, and we would expect that beginning the first part of the year, that we'll see more hotel financing take place.

Are there pockets out there in the market where there's better than average interest. Either by market type, New York versus Wichita, or I guess maybe price point or dollar size of deal, some of that might be dictated by luxury full service versus suburban limited service given the size of the assets. But any sense there where there might be some more willingness to lend?

Sure. The dollar size has definitely come down, it's very challenging today to get large loans done, and most participants will only want to look at deals that are $30 million to $40 million. But there are life companies that will consider larger positions in assets, so one answer would be smaller deals are getting done. In terms of markets, I think there is -- there's always a flight to quality when there's a lack of liquidity, so you're seeing better branded assets, major markets, urban and high quality suburban locations are where financing is still available. But again, across the board, financing is still very scarce.

And I'm curious, I know there hasn't been a lot of buying activity going on either, but I know you have contacts in that world. Do you have a sense from people what sort of equity returns, fevered or levered, people will eventually seek to get them off the sidelines to get more interested in that space?

I think the bid-ask spread between buyers and sellers is one where you can't really calibrate exactly where normal trading will occur. The sales that have occurred are mainly distressed owners, and -- that have a debt maturity. You have some properties that are beginning to come to the market, but in meeting with some brokers recently, you're seeing higher quality assets come to the market under the premise that there's a belief that there will still be an attractive cap rate paid for those types of assets.

The challenge right now is that you have a lot of hotel capital that is actually sitting on the sidelines. And while the REITs are not likely to be active buyers, you have you funds, broker dealer networks, opportunity funds, pension capital that has been raised and yet -- not yet deployed and some offshore capital. But they're waiting to see where the performance numbers stabilize before anyone wants to step in just yet and transact. Now, if they could transact at some of the requested pricing, which I still think they're still looking for elevated yields which will probably exceed high teens to 20%, but I don't think anyone's willing to trade at that level, and the lack of financing doesn't allow them to get there.

One last question, I'm not sure if you guys have any updated information, financials from Extended Day America or if you're prepared to talk about it, but I think in the last call, you were talking about the confidence you had in your position, your capital structure. Just given how the rapid deterioration in credit markets as well as operating fundamentals, I'm wondering, has there been any change in that view?

No, as we commented earlier, the past two months has just not provided enough of a change in order for us to revise the view. So we haven't taken any impairment charge on the principle amount. The coverage is still hanging in there because of -- in a live -- has been dropping because of what's going on in the industry for all properties, the debt service amount has been dropping as well. So coverage has not moved materially. We're just not in a position to say that anything has changed much as far as our view on that over the past couple months.

Great, thanks, guys.

Thanks.

(OPERATOR INSTRUCTIONS) Our next question comes from Mike Salinsky with RBC Capital Markets. Please go ahead.

Good morning. (inaudible) Going back to the P&L (inaudible) transaction in (inaudible) 2007. Could you highlight what were the loan to values that were put in place when the transaction was closed?

Let me comment on that. We look at our capital structure in an overall basis, so whenever we do a transaction, sometimes we'll put 80% debt on one asset and zero debt on another. Overall, our net debt to book value of assets is around 60%, 63%, right in that range, and that's about -- that's the high end of where we want to go. So it just wouldn't be constructive to talk about what was just typically on those P&L assets, because again, we may have overleveraged to get something to a certain level, underleveraged. I think it's better to look at it on a broad company basis.

Okay. And you talked a little bit about mezzanine notes, can you identify any other notes that you may be concerned about? And how far away are we from the point where you will actually need to reassess the values from some of these mezzanine investments.

The mezzanine borrowers out there are in a tough climate and so we are in discussions with them. We had one property, our Four Seasons was hit by a hurricane was shut down, so that's given them problems. But we have got business interruption insurance on that property, and we're working through all that right now. But we have been in touch with some borrowers and some borrowers are having difficulty paying, so we're working through each one with them as the case may be. But this is our platform, this is our strategy, we're not loan to own in our mez winning strategy. But because of our real estate background and because of our lending background, we're very comfortable when we underwrote these assets with the understanding that some of them may not work from a lending standpoint, we'll be very, very happy to own them.

So if we end up owning them, that's just great. As far as the mez loans and what they're -- what they're worth, we evaluate that every quarter. So every quarter we'll tell you about whether we're going to leave them on a balance sheet where they are or we'll take an impairment charge. For third quarter, we left them where they were. Fourth quarter, we'll see.

And do you know what RevPAR scenario will trigger -- start triggering some impairment charges?

No, it's just too hard today. We have a number of them that are redevelopment type of loans, so right now, their coverage is almost nonexistent. But that was part of the plan, that's part of the underwriting. So they have to go through redevelopments and open up with a new brand. Some of them have great coverage, some of them are a little thinner, everyone's got its own story. So I just -- it just wouldn't be healthy for me to try to generalize.

Perfect, that's fair. And then you talked a little bit about pricing. Can you talk a little more about disposition plans and maybe any potential markets that are of concern right now from a supply perspective?

I can't comment really so much on the supply perspective, but the markets that are softest are southern California, at least for us, Chicago, Florida's pretty weak. Those are the biggest markets, all the many kinds of asset specific and not market specific. So those are some of the troubles, and what was your other question?

The disposition plans. Your updated disposition plan.

Yes, we started the year marketing about $1 billion to $2 billion worth of assets with the hopes of selling between $600 million to $1 billion. We closed $437 million so far this year. It's going to be very tough to close any more than that between now and the end of the year because of financing markets, what's going on, so we're probably done for this year, but we're still marketing properties and we'd still like to sell more. $600 million to $1 billion, and we kind of modulate that based upon the alternative uses of capital, such as right now,those alternative uses are hoarding the cash or using it to buy back common or preferred. So, I really can't give you more visibility than that.

Okay. And then last, can you talk about your debt to gross asset values after debt repurchases, and do you have any specific targets in mind?

Debt to gross assets didn't change because buying back common doesn't affect your gross asset value. So it's still in the 60% to 63% range. I think -- I'm sorry, at the end of the quarter, is just below 60%. Since then, drawing -- well, drawing down the draw didn't affect it, because it's net cash that we put on the balance sheet. But we're going to be probably end of the year, just in the low 60s, I would imagine, maybe below 60, but that's the range that we're going to be in.

Thanks a lot.

Our next question comes from Nat Overton with Morgan Stanley. Please go ahead with your question.

Yes, speaking of hoarding cash, what would you think you could temporarily reduce your maintenance capital spending to for a year at a kind of a minimal level on a temporary basis?

Nat, we've been working through that, and the biggest challenge that we've got is PIPs that we have got from brands, and we have not completed those discussions with the brands about what we can defer. We've got a number of CapEx reserves that are required either by the manager of the properties, the brands or by the lenders, so those amounts, generally, we continue to spend and that's about 4%, 4.5%. So that's going to get spent. Also, there are sources of capital where we draw down on a loan to do the CapEx. And that's true for the Hilton Torrey Pines, the Capital Hilton and what we call the MIP portfolio. So all of that we're going to keep spending. The question is, how much cash -- I'm sorry, one other category. Hurricane damage such as the hurricane damage to the Nassau Bay Clear Lake Hilton down near Houston, which we're spending, and we get reimbursed by insurance there.

What we're focusing on is those CapEx dollars above and beyond those pockets which are there for effect is $225 million cash hoard that we have got built up. Right now, we have got about, I think something like $30 million to $50 million worth that's kind of in the pipeline that's right now, we're -- we continue to move forward with. We continue to review that, and I'd like to cut it. In fact, I think our number was 45 and my guys came in and said they thought they had cut it down to 33, but I haven't reviewed that with them. So I don't know that I can say that we're going to cut it down that low. That's for our '08 capital plan, and then we have got our 2009 capital plans, which we haven't even -- while we've reviewed internally, we haven't gone through this analysis on, and that's going to be some more pit requirements. So it's a tough number to get a handle on, and we want to have that number for this call because we thought you guys would be interested. But we just don't have that number. So suffice to say that we continue to work it down, down, down.

As far as what we feel like, we have to as far as the condition of the properties, with the exception of just a very few, we think our properties are in great shape. So 4% reserves for the portfolio for a year, we think it's perfectly fine.

Okay. And I imagine you'll decline on this, but several companies have talked about October results and clearly, there's been a drop off in lodging demand in October. Would you care to comment at all about your October results?

We just don't comment on -- give guidance or do that until the quarter ends, so your first thought was right,. We'll probably just decline on that one.

Good enough. Thanks a lot.

Thanks, Nat.

Our next question comes from [Wong Kim] with JMP Securities. Please go ahead with the question. Pardon me, Wong Kim? Please go ahead with your question.

Sorry about that, good morning, guys. In terms of the proceeds from the sales you guys did, I think I may have missed this, but did you guys pay down debt or what did you do with those proceeds and does your current cash balance reflect (inaudible)?

I'm sorry, what was the last question?

Does your current cash balance, is it higher than what the quarter end balance was?

Yes, our current cash balance was higher than the quarter end, because we drew down our revolver last week or so to make sure that the cash was available. So we use this number of $225 million, that's cash that's set aside that doesn't have any calls on it from an operating perspective, On top of that, we have another $150 million maybe of cash that's tied up in properties and reserves and working capital and all that. So the $225 million is kind of the free spend. With the sales that we did in the third quarter and right at the end of the third quarter, we will pay down about $112 million worth of debt and then use the balance to fund the share repurchases.

Okay. And then in terms of your debt maturity, I think you said that you don't have any real upcoming ones, but in terms of the ones that have extensions on them, I just want to confirm that you guys -- are there any kind of operating thresholds that you need to meet, or are those completely at your own discretion?

That's on the earnings release, so if you go through it, we've put a table in there, about two-thirds of the way through it and highlighted exactly that. Which ones are subject to not being in default and then those which have some type of earnings test. So you can see exactly what that is.

Great. Thank you, very much.

You bet.

Mr. Bennett, there are no further questions at this time. Please continue.

All right. Well, thank you for your participation on today's call and we look forward to speaking with you again on our next call.

Ladies and gentlemen, this concludes the Ashford Hospitality Trust conference call. If you would like to listen to a replay of today's conference, please dial 1-800-405-2236 or 303-590-3000 and enter a pass code of 11111808. Again, that is five 1s, 808. Thank you for your participation. You may now disconnect.