Ashford Hospitality Trust Inc (AHT) 2009 Q4 法說會逐字稿

Welcome to the Ashford Hospitality fourth quarter 2009 earnings conference call. (Operator Instructions)

I would now like to turn the conference over to Tripp Sullivan. Please go ahead, Sir.

Good morning, welcome to the Ashford Hospitality conference call to review the results for the fourth quarter of 2009. On the call today will be Monty Bennett, Chief Executive Officer, Doug Kessler, President and David Kimichik, Chief Financial Officer. The results as well noted the accessibility of this conference call on a listen only basis over the internet were released yesterday afternoon. And a Press Release that has been covered by the financial media.

As we start, let me remind you that certain statements contain or are based upon forward looking information. They are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward look statements are subject to numerous assumptions and certainties 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 Factors in Ashfords Annual and quarterly reports and other filing with the Securities and Exchange Commission. The forward looking statements included in the 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 in the Company Tables and Schedules, which has been filed on form 8K with the SEC on February 24, 2010. And my also be accessed on 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. Now, I'll turn the call over to Monty Bennett. Please go ahead.

Good morning and thank you for joining us. 2009 was a challenging year on many levels. We believe however that our strategies worked to mitigate the impact of the severe economic downturn. We implemented a wide array of initiatives to maximize performance and reduce costs in three key areas. Operations, debt management, and share repurchase. The primary goals have been share holders value creation and cash flow stability. Regarding operations, our asset management team working in conjunction with our asset management companies exceeded our cost savings goal. For the year, we received 53% float through from the decline in revenue to the loss of EBITDA. Thereby minimizing the operating margin erosion year-over-year with a performance of 406 basis points down for the year and 297 basis points down for the fourth quarter. These metrics exceeded the performance of many of our peers. Our affiliate manager Remington who is responsible for 32% of our EBITDA significantly contributed to these cost savings and flow through benefits.

We continue to make very good progress with both Hilton and Marriott to incrementally right size cost structures with revenue. Our Rep yield index for the year was 120.3% compared to 119.3% a year ago reflecting a market share of 100 basis points. Our debt management initiates results have been $285 million of new financings, loan extensions or modifications during the year. Our interest rate strategy that we implemented in 2008 to swap our debt from fixed rate to floating rate contributed significantly to our bottom line.

We expect additional savings in 2010 based upon the fed's commentary to keep interest rates low for an extended period of time. During the fourth quarter, we repurchased 6.3 million shares of common stock for a total of 30.1 million shares during 2009. Since the inception of our buyback initiative through the end of the fourth quarter, we have purchased 66.4 million shares of common stock, and 3.1 million shares of preferred stock. By contrast, our peers issued more than 280 million shares since the beginning of 2009.

At some point, we expect our stock price will recover such that we would be more inclined to issue common stock rather to keep buying it back. In order to get prepared for this strategy, of what could be months or years away, we have considered various methods of accessing capital including after market offers. Any such equity offerings would require us to make a determination to end our stock repurchase strategy for the foreseeable future and allow us to tap into the market when we see proper pricing conditions and have accretive uses for the capital. We recently put in place a structure known as a stand by equity distribution agreement or SETA with an affiliate of Yorkville advisors to provide us access at our discretion after our Board makes the determination to seise the stock repurchase program of up to $65 million over a three-year period with an all in 2.5% discount to marketing pricing. This structure provides us an efficient way to access the capital markets with precision and flexibility when needed. Raymond James served as the placement agent for the structure.

Over the last few quarters we have seen REITs raise large amounts of capital to solve debt issues or prepare for new investments. However, capital raising for debt purposes is currently not a priority for us given we do not have any needs for funds to meet up coming loan maturities and we are in compliance with our credit facility covenants. (inaudible) in capital to buy hospitality assets is currently not a core objective. By repurchasing our own stock over time at attractive values, we believe we have implemented an investment strategy with better returns than what we believe may be available in the market from hotel acquisitions.

The combination of these three key areas of our focus on operations, debt management, and share repurchases generated the following results for the fourth quarter. ProForma rev par for the hotels not under renovation was down 13.4% compared for the prior year. ADR was down 10.8% and occupancy was down 181 basis points. Our hotel EBITDA to margin dropped year-over-year by 276 bids for hotels not under renovation and 297 bids for all hotels. The FFO and (inaudible) per diluted share for the quarter were $0.32 and $0.22 respectively. That brings to us $1.12 and $0.77 respectively for the year. We believes this performance places the high end of the peer group.

Turning to capital expenditures for 2009, we completed $69.2 million of projects of which $35.3 million was own funded. Our total target of spend for 2010 will be approximately $87.0 million, which equates to 9.4% of 2009 total revenues. During the downturn, we have maintained our plan to continue to upgrade hotels to improve their competitive position in the market.

Visibility remains limit in the industry. However, currently there appears to be more optimistic perspectives on hotel and economic data. On the call last quarter, I noted that we thought we were nearing the bottom of the cycle. We do think that continues to be the case as rev par declines are moderating and there are incremental positives to report. Hotel performance is a lagging cater to many macroeconomic data points that we track. The early signs of broader economic recovery are still not reflected in a lodging recovery. We agree with most forecast that 2010 will be the trough year and that pricing (inaudible) will resume by market as occupancy slowly begins to increase. We believe that the diversity of our assets in major markets and the strength of our brands and the amount of capital we spend to maintain the competitiveness of our hotels will position our portfolio to benefit from the market recovery.

Our top priorities for 2010 will be similar to what you have heard from us during the past year. First stride to allocate to capital to generate the best returns for our shareholders which still appears to be in common stock buy backs. Second, deploy our debt to market strategies to protect against deteriorating hotel EBITDA, and eliminate maturities ahead of the curve in 2011 and 2012.

Lastly, to maximize operating performance with an emphasis on GOP margin and cost reductions. I would now like to turn the call over to Dave Kimichik to review our financial results.

Thanks Monty. Good morning. For the fourth quarter, we reported a net loss to common shareholders of $76.874 million. Adjusted EBITDA of $47.905 million and AFO of $25.990 million or $0.32 per diluted share. We reported CAD of $17.825 million, or $0.22 per diluted share.

At quarters end Ashford had total assets of $3.9 billion, including $165.2 million of unrestricted cash. We had $2.8 billion of mortgage debt with a blended average interest rate of 2.95% including the $1.8 billion interest rate swap, 98% of our debt is now floating, and the average weighted mature is 5.2 years. 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 an effective hedge.

The result of this is that the changes in market value of these instruments must be run through our P&L each quarter as unrealized gainers losses on derivatives. These are non cash entries that will affect our net income, but will be added back for purposes of calculating our AFO and CAD. And for the fourth quarter it was a loss of $17.616 million and for the full year it was a loss of $31.782 million. At quarters end our portfolio consisted of 102 hotels and continued operations containing 22,141 rooms. Additionally, as of December 31st, we were in a position in four performing mezzanine loans with total book value of (inaudible) principle outstanding of $75.9 million, with an average annual unleveraged yield of 5.1%.

Hotel operating profit for the entire portfolio was down by $19.1 million, or 25.5% for the quarter. Our hotel operating profit margin decreased by 297 basis points for all hotels and our flow through for the loss revenue to hotel operating profit for the total portfolio was 58%. Our quarter end adjusted EBITDA to fixed charge ratio now stands at 1.69 times versus a required minimum of 1.25 times. Ashford's net debt to gross assets is at 59% versus a not to exceed level of 65% per our credit facility covenants.

At year end our share count was 79.3 million, fully diluted shares outstanding, which is comprised of 57.6 million common shares, 14.3 million op units, and 7.4 million shares of series D convertible preferreds. Regarding asset impairments, I would like to give you an update on the Hyatt Regency Dearborn and the Western O'Hare. As of December 1st, the Hyatt Regency went into receivership and therefore it's operations are no longer included in our consolidated financial results.

On the Westin O'Hare, we have been working with the special servicer on the loan to arrange a concentual (inaudible) foreclosure based on the status we were required to write down on book value in the fourth quarter to estimated fair market value which resulted an impairment of $59.3 million. If the deed in lieu of foreclosure is finished, we will then record a gain of $53 million to the level of the non recourse debt on the property or net impairment of $6.3 million. I would now like to turn it over to Douglas to discuss our capital market strategies.

Thanks and good afternoon. Our capital market strategies have been a deciding factor in our continualability to weather in the very challenging operating climate. We recognized that several of these strategies set us apart from our peers. We're the only REIT in our peer group significantly capitalized on the downward pressure on asset and stock evaluations through our disciplined share repurchases. Since inception through year end, we have acquired 66.4 million shares at an average price of $2.96. This represents a significant 46% reduction from our peak of 144.6 million shares and an average price that is 78% below our peak price of $13.48 per share. These repurchases represent nearly $200 million of value creation based on yesterday's closing share price.

The current state of the capital markets continues to amaze us. A large amount of equity at depressed share prices has been raised over the past year. The diluted impact of that idle capital cannot be ignored. We believe we have created more value for our fellow shareholders through our repurchase strategies. I say fellow shareholders because management and insiders continue to be the largest owners of the Company at 16.9%. There's no doubt that we are very much aligned with our shareholders.

Additionally, we're one of the only REITs in our peer group to actively seek to offset the economic downturns impact on NOI flow through with our interest rate strategy. Then benefit of our capital market strategies is clear. Through the combination of our swap and floor doors, we were able to save $52.3 million in interest expense in 2009. We believe the global recession is expected to keep LIBOR low for some time. However, it's worth noting that given the structure of our interest rate hedges, it would take greater than a 50 basis point movement up ward in rates before we would see any reduction and benefits from our swab and floor doors. Moreover, we continue to drive additional economic benefit from the swab from now until March 2013, so long as LIBOR remains below 3.2%, a 14-fold increase from it's current 0.23% level.

We have stayed out ahead of the curve on our financings as well. For the year, we completed $285 million in new financings, modifications, or extension on six separate loans. In the quarter, we secured $145 million in nonrecourse loans that refinanced maturing debt in 2010 and 2011. Provided excess capital for improvements in unencumbered two hotels.

We also refinanced the Hilton El Conquistador maturing in 2011 with attractive financing. Given the continued lack of mortgage capital in the sector, we believe these financings are a significant achievement. The net result of the refinancing initiative is that there are no remaining 2010 debt maturities, and only $209 million maturing in 2011.

Subsequent to the end of the quarter, we reached a preliminary agreement to modify the Capitol Hilton and Hilton Tory Pines $156.6 million loan. Pursuant to the term sheet in exchange for a $5 million paydown and a modification fee, we would be able to obtain the full extension of the loan to August 2013 without any extension tests and also reduce covenant tests to minimize the likelihood of cash being trapped.

We continue to pursue extension on other loans that mature in 2012 and 2013. We are also thinking ahead with respect to plans for our credit facility even though that does not mature until 2012.

In terms of transactions and investments, we do not see many opportunities. However, in select circumstances, I have monetized assets in our loan portfolio. During the quarter, we completed the $13.6 million sale of the previously defees Western Westminster loan. We were also able to sell the note in excess of the par amount due to the high pay coupon compared to current market rates. Subsequent to the quarters end, we completed the previously announced discounted payoff on the $33.6 million Ritz-Carlton Key Biscayne loan for $20 million in cash along with a $4 million note.

The anticipated overflow of deals from distressed owners or lenders just isn't there. Hotel owners that are able to hold on are waiting for the cycles to improve. Banks and servicers have been unwilling to jettison assets, since they to believe the recovery is not too far away.

Meanwhile, there's an abundance of capital both domestic and off-shore competing for few deals. We do not expect much deal flow until the bid asks spread tightens. We believe most of the tightening will be to the benefit of the seller, and as a result, values should increase. That concludes our prepared remarks and will now open it up to any questions you may have.

Thank you.

(Operator Instructions) And our first question comes from the line of Will Marks with JMP Securities. Please proceed. Thank you, and good morning, everyone. Could you talk about maybe year-to-date what you've been seeing in your markets, and I also want to hear a little bit about supply growth.

Sure. This is Monty. Without providing too much guidance for the quarter, which we try not to do, our portfolio typically tracks the national averages for each month, maybe a few points above or a few points below. So what you're seeing nationally usually is not too different from what we track. And I think the figures that came back last week nationally were pretty positive.

I think last week it was down 3% or so in rev par, so we're pretty encouraged by that. And pretty encouraged that the whole industry seems to be recovering at a pretty good clip. I think most predictions were flat to down 5% for the year and it looks like it will be toward this higher end of the range or at least if this pace keeps up. And what was the second part of your question?

Should we be looking, do you think, at the total US? Last week, for example, the luxury side, I know you're not in luxury side, let's say the upper scale side was flat, up scale was down 3%. But I mean how do you think we should focus on the segment side?

Well, we've got one luxury asset, and the balanced half is upscale and the other half is up rough scale. And again, we'll typically track a couple of points above one of those segments or a couple of points below those segments, depending upon the month, but pretty close to it. On the supply side, Doug is going to make a comment here.

Great.

Hey, Will. I think there was a study that one of your banking peers produced that looked at all of the public companies, and did a fairly granular microanalysis of specific markets and the exposure to new supply. And it confirmed what we already knew, which is that our portfolio is one of the lowest exposures to new supply coming in and directly competitive submarkets. So we feel pretty good about the diversity of the portfolio, and the lack of exposure to any impact. We're really focused on the recovery of the market.

Okay. Great. Thanks. And just one final question. Did you talk about or tell this number year-to-date share repurchase?

No, we haven't disclosed what the year-to-date number is. Although we have been in the market since January 1st, and we still look, are interested in share repurchases.

Great. Thank you.

Thank you. (Operator Instructions) One moment, please. And Mr. Bennett, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thank you for your participation in today's call. We look forward to talking again at next quarters call.

And, ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.