Ashford Hospitality Trust Inc (AHT) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Ashford Hospitality Trust second-quarter 2011 conference call. During today's presentation, all parties will be placed in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions)

This conference is being recorded today, Thursday, August 4, 2011. And I would now like to turn the conference over to Scott Eckstein. Please go ahead, Sir.

Good day, everyone, and welcome to Ashford Hospitality Trust conference call to review the Company's results for the second quarter of 2011. On the call with me today will be Monty Bennett, Chief Executive Officer; Douglas Kessler, President; 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.

At this time, 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 (inaudible)'s statement on form S-3 and other filings with the Securities and Exchange Commission.

The forward-looking statements included in this conference call only made as of this 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 or schedules which has been filed on form 8-K with the SEC on August 3, 2011 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 of our information provided in the release. I will now turn the call over to Monty Bennett. Please go ahead, Sir.

Thank you, and good morning. Since our IPO in August of 2003 through yesterday's close, Ashford has achieved the highest total shareholder returns of all its peers. Performance for the past 3, 2, and 1 year has also exceeded either all or the majority of our peers.

Our Management team continues to focus on long-term value creation rather than short term trends or fads. There are several central themes on our call today. First, despite the recent pullback in lodging stocks, we believe it remains a very attractive time to invest in hotel REITs. The industry fundamentals appear to be set for an extended time period of solid performance. Despite modest GDP growth in the first 2 quarters of this year, gross hotel demand is at all time highs, according to Smith Travel Research. It appears rather -- that rather than hiring, companies are traveling their people more.

Second our results clearly reflect the strength of our platform on many levels including our asset management achievements, acquisition capabilities, hedging activities, and dividend coverage. Additionally, we remain extremely bullish on the Highland transaction and are already witnessing strong results. We are focused on strategies to improve asset performance, enhance our liquidity, manage our maturities, and keep disciplined on the transaction front. And lastly, our alignment with our shareholders is almost unparalleled among our peer group given our high insider ownership and goal to achieve share price and dividend growth. We are pleased to report that the second quarter of 2011 was a record quarter in Ashford's history with AFFO per share of $0.66 compared to $0.46 per share a year ago.

For our Legacy hotel portfolio, our top line performance was strong with a 7.2% increase in pro-forma RevPAR to $100.27 for hotels not under renovation, which was derived from a 4.4% increase in ADR and a 196 basis point increase in occupancy. We also excel in achieving a very healthy operating profit margin increase of 260 basis points to 31.8%. Recently, from a stock performance perspective, the lodging sector has underperformed compared with other equity REITs. This sell-off by investors is likely fueled by the current macroeconomic sentiment and broader economic uncertainty. Investors should remember that our industry has a self-regulating factor of movements in new supply. Net new supply for the next few years is predicted to be significantly below the long-term average of 2.1%.

Market forecast by PKF Hospitality Research show an extremely low new room supply growth outlook currently at 0.4% versus the past 4 quarters rate of 1.5%. This low supply growth means that even very modest demand growth will translate into occupancy increases and leverage to increase average daily rate. We expect investors to rotate back into the sector as soon as the phenomenon is observed. As a result, RevPAR growth forecasts also continue to be strong with industry experts expecting solid gains throughout the remainder of the year.

At the recent Americas Lodging Investment Summit summer conference, Smith Travel cited a 2011 US RevPAR growth outlook of 8%. PKF's current RevPAR outlook for the next 4 quarters is 7.2%. Just last week's RevPAR data for upper-upscale and upscale hotels increased 7.5%. This is quite impressive considering the economy's slow growth and tougher year-over-year comps.

What this demonstrates is that even during these periods of choppy economic growth, overall lodging market fundamentals continue to improve. We believe lodging stocks may offer strong upside potential based on these macromarket supply-demand factors. Historically, investors who have bought lodging stocks at this early stage in a cyclical recovery have earned very attractive financial returns.

In particular, there remains a wide gap in peak real RevPAR levels compared to where the industry is today. If real RevPAR recovers to prior levels and a portion of the extreme cost-cutting measures that were implemented during the downturn remain in place, then the stage is set for outsized EBITDA growth. Additionally, for those investors concerned about future inflation, hotels have historically been a good performer in inflationary periods relative to other real estate asset classes.

There has been much discussion about potential outsized growth in group business. While group continues to grow, the real story here is the performance of transient. Especially business transient. Companies are growing their profits by putting their people on the road and without having the large group functions. Our view is that business transient has an even larger rate growth potential based on historical performance and where demand continues to rebound particularly at upper-upscale and upscale hotels. Given that 71% of our Company's hotel room demand is transient with 77% of that coming from corporate, we are optimistic about the top line performance growth opportunities in our portfolio.

With these RevPAR and lodging sector trends, hotel REITs with high flow-throughs have the potential to experience significant EBITDA growth. As such, we remain focused on driving our operating results through cost control and EBITDA flow-throughs. As approximately 38% of our EBITDA is managed by our affiliate, Remington, we continue to believe we're able to exert greater control over operating expenses than many of our peers who rely more heavily on unaffiliated managers. In terms of hotel EBITDA flow-throughs compared to its peers, Ashford has ranked the highest or among the highest over time.

Regarding capital expenditures, we completed $14.4 million of projects in the second quarter for the Legacy portfolio and $28.3 million year-to-date. We have commenced work on the Highland portfolio capital expenditures and are utilizing the funds set aside at closing. Enhancing our balance sheet continues to be a key strategic focus for us as a result of the disciplined approach to the management of our operating cash flow and capital structure including our recent equity offering. We were able to fully repay our outstanding balance under our credit facility, leaving us with no recourse debt obligations and solid liquidity position.

It's important to note that our capital structure handily withstood the worst recession for our industry since the Great Depression, while continuing to deliver outside performance. The strength of our operating cash flow provides us with ample dividend coverage. As previously announced, our Board of Directors declared a dividend of $0.10 per share for the second quarter of 2011. This equates to a dividend coverage of 4.5 times on TTM AFFO based on $0.40 per share per annum. We are extremely pleased with the magnitude of the coverage and the future opportunities it currently affords us.

Now I'd like to provide an update on our Highland portfolio. We consider this a highly attractive transaction from cap rate and a price per key standpoint. As more transactions are announced at lower cap rates and higher per key prices, we're even more convinced that our disciplined approach to this transaction offers many shareholder benefits. We were able to obtain these 28 luxury upper-upscale and upscale hotels for $158,000 per key, a 44% discount to replacement cost. This represents a 47% discount to recent peer acquisitions at an average of over $300,000 per key.

From an operational standpoint, this portfolio continues to demonstrate improved performance for those 11 hotels of the 28 in the portfolio that are brand or third-party managed. We continue to see revenue growth generally consistent with industry RevPAR trends.

Cost control management is gradually progressing as expected with these properties. We have already identified and implemented over $2 million of annual operating cost savings for these third-party managed -- brand and third-party managed properties. Remington, our affiliated manager, has assumed management of the other 17 former Highland assets and has made notable progress instituting it's best practices. Remington has already identified and implemented $4 million in operating cost savings.

Top line sales growth has been more gradual on the Remington-managed properties as 30% of the sales positions were open upon take-over and 10% more turned over in the second quarter. These positions have been rapidly filled with only 5% of the positions open currently. With these actions, we expect the Highland assets revenue growth to gain parity with their markets by the first of the year and then grow from there. Besides the total $6 million in operating cost savings just mentioned, we hope to achieve further substantial cost savings in property taxes but these will take several quarters to achieve.

We will provide updates on this portfolio and keep you informed on how quickly we expect to drive further operational and cash flow improvement. Let me remind you that pursuant to the terms of the restructured financing, excess cash flow generated by these assets will go to reduce debt on the properties and therefore deleverage the portfolio.

Looking ahead, we remain focused on delivering industry-leading results through revenue enhancement, cost management, and balance sheet improvement. By keeping a focused, disciplined approach, we are confident that we will continue to provide strong operating and financial performance that should translate into increased shareholder return.

On a final note, coinciding with this year's NAREIT Annual Convention taking place here in Dallas, we plan to host a property tour on the afternoon of Monday, November 14. We will be sending out more detailed information shortly and hope that you will save this date and join us. This will be an opportunity for us to showcase some of our local assets and discuss our various strategies. I'd now like to turn the call over to David Kimichik to review our financial results.

Thanks, Monty. For the second quarter, we reported a net loss to common shareholders of $29.082 million, adjusted EBITDA of $86.454 million, and AFFO of $51.557 million or $0.66 per diluted share. At quarter's end, Ashford has total assets of $3.6 billion in continuing operations and $4.6 billion overall including the Highland portfolio which is not consolidated. We had $2.4 billion of mortgage debt in continuing operations and $3.2 billion overall including Highland.

Our total combined debt has a blended average interest rate of 3.2%, clearly one of the lowest among our peers. Including our interest rate swap, 97% of our debt is currently fixed-rate debt. The weighted average maturity is 4.3 years. Since the length of the swap does not match the term of the underlying fixed-rate debt, for GAAP purposes the swap is not considered an effective hedge. The result of this is the changes in market value of these instruments must be run through our P&L each quarter as unrealized gains or losses on derivatives. These are non-cash entries that will affect our net income, will be added back for purposes of calculating our AFFO. For the second quarter, it was a loss of $17.7 million and year-to-date it's a loss of $34.5 million.

At quarter's end our portfolio consisted of 96 hotels in continuing operations, containing 20,340 rooms. During the quarter we moved the Hampton Inn Jacksonville to discontinued operations, given the sale of the property. Additionally, we own 71.74% of the 28 Highland hotels containing 5,800 net rooms in a joint venture. All combined we currently own a total of 26,140 net rooms.

As of the quarter end, we owned a position in just one performing mezzanine loan, the Ritz-Carlton in Key Biscayne, Florida with outstanding balance of $4 million. During the quarter, we received a slightly discounted pay-off of the $25.7 million mezzanine loan secured by the Tharaldson portfolio. We -- we realize that $4.2 million -- we realized a gain of $4.2 million on the pay-off of the $22 million transaction since we have previously taken a partial write-down of $7.8 million on this loan.

Hotel operating profit for continuing operations was up by $9.5 million or 14.6% for the quarter. Our hotel -- our quarter-end adjusted EBITDA at a fixed-charge ratio for our credit facility now stands at 1.74 times versus the required minimum of 1.35 times. The preferred dividend number is higher for the quarter on our P&L as it includes non-cash dividends of $17.4 million. This is for the conversion of 1.4 million shares in May of our Series B1 Preferred Stock into common shares. Our share count currently stands at 84.3 million fully diluted shares outstanding, which are comprised of 68 million common shares and 16.3 million OP units. I'd now like to turn it over to Douglas to discuss our capital market strategy.

Thanks. During the quarter, we executed well on several capital market strategies. Early in the quarter, we announced a repurchase of approximately 5.9 million shares of the Series B-1 Convertible Preferred Stock from Security Capital Preferred Growth. The remaining 1.4 million shares of the Series B-1 were converted into common shares. We anticipate that these share repurchases will provide additional near-term and longer-term benefits in our operating reporting metrics. We funded this repurchase with proceeds from our offering of 3.35 million shares of 9% Series E Cumulative Preferred Stock at $25 per share.

More recently at the end of the June, we priced a public offering of 7 million shares of our common stock at $12.50 per share generating gross proceeds of $87.5 million. We used $50 million of these proceeds to fully repay outstanding borrowings under our senior credit facility, leaving us with no other recourse debt obligations. Continuing with our debt strategies, we've been working with various lenders on a new credit facility to replace our existing revolver that matures in April 2012. We expect to be able to disclose further developments in the very near future on our new line.

During the quarter, we completed negotiations with the lone servicer on the Courtyard Manchester and closed on a 3 year extension of the $5,8 million mortgage. Basic terms for the loan, which now matures in May 2014, remain essentially unchanged. Looking at upcoming debt maturities, the next key date is December 2011 when a $203 million loan comes due followed by May 2012 when a $167 million loan matures. We are continuing to negotiate with several lenders and servicers on restructuring solutions and will pursue actions we believe are most accretive to our shareholders.

Lastly, on the debt topic, with the heightened concerns in the financial market, we took steps to insure against short-term interest rate volatility by swapping $1.18 billion of our existing floating rate debt to a fixed 1 month LIBOR rate of 0.2675%. The swap is effective from June 13, 2011 and terminates on January 13, 2012. There was no upfront cost to Ashford for entering into this swap other than the customary transaction costs.

On the transaction front, subsequent to the end of the quarter, we completed the sale of the Hampton Inn Jacksonville for total gross proceeds of $10 million. The property was unencumbered with debt. Our decision to sell was based upon increased competition and estimated future CapEx. This sale, taken in conjunction with the $152 million in gross proceeds from the sales of our JW Marriott San Francisco, Hilton Rye Town, and Hampton Inn Houston Galleria assets in the first quarter of this year, equates to a 3% trailing 12 month cap rate. These sales have provided us with a stronger balance sheet and liquidity position.

We continue to remain disciplined in our underwriting of new hotel investment opportunities. While the transaction pace has picked up, we are unwilling to pay some of the prices we have seen unless the asset is accretive to our corporate model. We continue to be disciplined and demonstrate strong operational and financial execution. As we've stated in previous calls, Management and insiders own approximately 21% of the Company, thereby creating a very strong alignment with shareholder interest. In summary, we are committed to generating maximum near-term and long-term shareholder value. That concludes our prepared remarks and now we will open it up for questions.

(Operator Instructions)And our first question comes from the line of Ryan Meliker from Morgan Stanley. Please go ahead.

Good morning, guys. Just a couple of quick questions. First of all, I was hoping you could talk to us a little bit about Marriott and Sales Force One. It looks like your Marriott properties performed all right for the quarter. I'm wondering if you're seeing any negative impacts from Sales Force One. I know you had talked about it a little bit over the past few quarters and wondering if things have gotten better? I've heard they did make some changes? Thanks.

Sure. In looking at Marriott Sales Force One, I think you have to think about it in kind of three categories of hotels. They've got their huge boxes. They've got their kind of more normal full service hotels or 200, 300 rooms, kind of suburban-type hotels. And there's the select-service type hotels. By and large, we've got just one of the really big boxes with Marriott and that's the Gateway asset. Most of our assets that Marriott manages for us are the medium full-service type assets or the smaller select-serve assets. Sales Force One had performed fine for us for the medium sized, full service hotel asset. It was more of a challenge initially on the select-service type side.

A number of weeks ago had reached an agreement with Marriott to make some changes to the system to help on the -- on the select service side. And so those changes are in the process of being put in place. But I think what's going on in the industry is some struggle with the big boxes among our peers and again, we just have the one big box and not as much exposure as our peers go. So I can't really speak to that. But it's been primarily on the select-service side. And we believe that the new programs that Marriott has put in place regarding select-service hotels is going to address our concerns. And so we think it's going to be fine.

All right, very helpful. Thank you. ( audio difficulties) And then I'm wondering if, maybe this is more for Kimo, but if you guys could comment a little bit on the purpose of the equity issuance. Obviously, you bought -- I mean you paid down the revolver and maybe it helped in terms of being able to negotiate the revolver. It just seemed a little odd to be issuing equity a little -- about month after you guys had an Investor Day when you touted how strong the balance sheet was. Without what seemed to be any clear use of the proceeds. So some color on that would be helpful? Thank you.

Sure, sure. The use of the proceeds was very clear. $50 million of ti was to pay down our credit facility. And the balance was to make sure we had enough cash to address our upcoming debt maturities of $200 million in December and another one of $164 million in the spring. We'll either pay down and extend those or refinance those. And so we wanted to have enough cash to pay down the credit facility and have no recourse debt which was very important to us, which we're very happy about, since our platform has no recourse debt, and then again to have enough cash because at that price our stock -- it made sense in order for us to raise capital in order to address those debt maturities. So we are very happy about it, we're very happy that we raised that cash and we have it. And so from a debt maturities or cash needs standpoint, we're in great shape for the foreseeable future.

Okay. That does add some clarity. Thank you. And then one last final housekeeping question. Looks like your guys had a $4.2 million gain on the Tharaldson portfolio note that you had written down in the fourth quarter. I didn't see that adjusted back out of your adjusted FFO and EBITDA. Was that adjusted out? Or was it not?

It was adjusted out. It was combined with a $6 million write-down on the Jacksonville sale.

Got you.

So we combine that and it's about a $1.4 million adjustment to our FFO.

Wonderful. I had a feeling it was and I just missed it. Thanks a lot.

Thank you. Our next question comes from the line of Patrick Scholes from FBR Capital Markets. Please go ahead.

Hello. Good morning. With the stock down quite a bit today and as I recall, you had stopped your Share Repurchase Program somewhere in the $7 to $9 range, do you think about putting -- buying some shares at these levels, getting that restarted?

We had stopped our repurchases about -- I think it's right where you said, in the $8 range or so. And frankly, that's something that we just started talking about to this morning when we saw the downdraft. No plans right now, but it's certainly starting to enter that territory.

Okay, thank you. That's it.

Thank you. Our next question comes from the line of David Loeb Robert W. Baird. Please go ahead.

Good morning, gentlemen. I apologize if I've missed some of these things. It's a little distracting with stocks down 19% and all. I guess to follow up on Ryan's question, it seems like you had a lot of other alternatives to -- for capital available. I guess I still -- the basic question is why did you do the raise? Was it really that you thought at that price it made sense to not have corporate level recourse debt? Because it seems like you had other opportunities, other ways that you could have dealt with those maturities?

Such as--?

Such as using the line of credit, such as using some of the cash on the balance sheet, such as other assets that perhaps you could have considered more leverage on.

No. That was really the way to do it. Our facility expires in the spring of this coming year. And so we weren't willing to draw down more on that credit facility. We are into discussions for a new credit facility but those discussions have not been concluded yet and so we didn't feel comfortable going into where we'd have to pay down those loans with recourse debt from a credit facility that's expiring in April. And as far as leveraging up some other properties, in many cases that's expensive because you have the fees or whatnot. So, no this was really the best source of capital for us. We're reluctant to raise equity capital and we don't like to do it. But that was the best source for what we wanted to do, is to do just that -- pay down the credit facility and then to have enough capital to meet the upcoming maturities.

Okay, and Monty, on the vacancies in the sales position at the Highland assets, was that something that you knew about at the time or was it a surprise when you started getting on the ground with those assets?

We knew about it. The trouble is that this transaction -- the Highland transaction was in process for some time. And as typical in hotel operations, since it's part operating business as well as part real estate is people will start to jump ship on the fear of a change over. And so the loan matured in August of last year, about a year ago. And we had been in discussions even six months before that about some type of transaction. And so the salespeople especially, they're usually the more flighty to jump on a new opportunity or just to get stability to go and take up another opportunity. They had started leaving. And then at some point we hoped to get a transaction done right at the beginning of the year and there were a few delays and that kind of accelerated the process.

So we went in knowing that was the case. That was why we were able to refill those positions so very rapidly and so it's hurt our revenue on those properties but what's interesting about our business is each one of those markets is still there and while we've lost some RevPAR yield in those markets, we expect that we'll stabilize that around the fourth quarter and by the first of the year we'll be on an even par and start to build on that. So whatever we've lost today is baked in upside going forward.

So that's basically that works off through between now and the end of the year.

Yes.

Is there anything you can foresee in either the Legacy or the Highland portfolio that might have a similar effect in the third quarter, anything that you've not commented on previously?

No just the Highland assets. There is a -- the Remington managed Highland assets had all that sales manager turn over and so that's going to be a bit of a drag. But the brands managed on the Highland portfolio and all the other assets are steady state.

Okay. And next topic on the dividend, in the release you talked in a couple of places about things like dividend coverage being very high. And given the very high insider ownership, I'm sure Management is definitely to seek a higher payouts. What are your thoughts? What are you likely to recommend to the Board in terms of looking at a dividend increase.

We've got great coverage. We would like to increase it. I personally would like to increase it and I think that Management and the Board would like to increase it. What we do is we make that decision in December of every year and give guidance for the upcoming year. And so as -- if the economy continues to roll on and the lodging industry continues to do as well as it's been, then we will be recommending to the Board an increase, the amount, though, we haven't discussed yet. I know you'd like some more guidance on it but we're just not ready to do that. We just not sure yet.

It's a little early, too, given it's August. Okay, final housekeeping and maybe this is for Kimo. The stock comp expense -- the non-cash stock comp expense went up a bit, looks like about $1.7 million higher than previous quarters. What was that related to?

Just the stock awards. We give our stock awards in March of each year. We had a little special award for the Highland transaction this year but it's just normal.

Okay so the increase was really related to normal plus the Highland increase bonus.

Yes.

Okay. Great. That's all I have. Thank you.

Thank you. (Operator Instructions)Our next question comes from the line of Bryan Maher from Citadel Securities. Please go ahead.

Good morning, guys. Can you give us some examples of some of the operating efficiencies that Remington has been able to implement with respect to Highland. I think you mentioned something about $4 million in your prepared remarks. Can you tell us kind of what those are and what more you see?

Sure, it's about $4 million for Remington, about $2 million for the brands managed, for a total of $6 million. And these are all above the GOP line and we hope to have some other savings in property taxes especially going forward. A lot of those changes are position eliminations. We just didn't see the need for as many positions in the property. Some benefit reductions. Benefit creep had occurred a number of these properties over the years. And also productivity increases. Of the number of housekeepers in order to clean rooms. We go on a system of -- some people go on a straight number of rooms per eight hour shift, we'll go on a system of number of rooms per stay-over. Guests that stays over versus checkout. And those productivity changes can have an impact also at the front desk. A few in food and beverage.

So the changes are primarily on the labor side and kind of sprinkled in between those three productivity position eliminations and benefits. There are some other savings in some other areas such as elevator maintenance contracts sometimes we'll re-bid. They're just very expensive. Other maintenance contracts we'll re-bid or eliminate and just take the function in-house. But those are some of the best practices that we've begun to implement.

Okay. Thanks for that. And also now that you've been a little bit deeper into the properties since you have successfully taken them over, have there been any surprises positive or negative with respect to Highland that you did not foresee prior to getting control?

You know, we've been pleasantly surprised. In going into the assets, we had some limited assess in the beginning. And we did the best we could and I was a bit cautious in sharing information with you guys about the assets and what we think we could do there. And so far, everything that we thought we could do, we're in the process of doing and maybe even more so. Just from a lot of low-hanging fruit, on the sales side for example, there's great opportunities to build sales there. That the sales effort had started to drop off more than a year ago until this great opportunity to start to rebuild that whole sales effort, which we're very excited about. Some properties had CapEx issues. We had this beautiful Hyatt in Wind Watch out on Long Island with a internal water gutter system with water being channeled down in front of the front desk and down into a pail next to the people checking people in because CapEx wasn't put into the asset. Freezers that weren't working and had been broken and so it was very expensive to store goods off site. I mean, just a lot of these types of areas that had been neglected over time. Not to mention the entire work force had been de-motivated and demoralized because of the financial situation the portfolio was in.

So we are even more excited about the portfolio and about its opportunities. And we're implementing our CapEx program. We had set aside quite a substantial amount of money for it. And those plans are underway. We're excited about it. We think it's going to be a great portfolio for us. And deliver everything that we've hoped. So far, on our underwriting of the portfolio, we are ahead of performance. Maybe 20% or 30% ahead of what we internally proforma'd for it. So we couldn't be happier.

Thanks for that color.

Thank you. Our next question comes from the line of Paul Berghaus from Cornerstone Asset Management. Please go ahead.

Yes, hello, Monte. I had a follow-up question on the -- your dividend policy. And I understand that you and the Board won't be commenting further on that till December. But I'm wondering if you could explain kind of how the REIT tax laws and rules and regulations work and in terms of as it relates to your own situation with a AFFO of $1.80 per share. Whether you'd be able to shield that and not have a kind of a requirement to pay it out for X period of time going into 2012 or where you would be coming up or when you might be coming up to a requirement in order to keep your status you'd have to pay out 90% of AFFO or something like that.

This is David Kimichik speaking. And generally, REITs have to pay out 90% of their net income on a tax basis and not on a GAAP basis. And we are fine from that standpoint. I don't think -- see a requirement in the near future for us to pay out dividends. So whatever dividends we pay out will be discretionary.

Okay but if you were you say for now, does that mean well into 2012? Or just through the end of the year? Or can you comment on that?

Sure. I think it's goes into 2012 as well.

Okay. I mean, through 2012? Or, I mean, in other words are you saying that you don't really have that requirement or if you assume this is going forward the way you've indicated that it might, that come the end of 2012 you'd be bumping up against that requirement?

This is Monty. Through 2012, we don't see the tax requirement forcing our hand on dividends. Into 2013, I think it's harder to say. I don't know if we've modeled or talked about it much. But if there is a requirement in 2013 that forces out hand, it won't -- we don't think it will be significant.

Okay, great. Thanks very much.

Thank you. Our next question comes from the line of Darnell Bentz from Keybanc. Please go ahead.

Thank you. Good morning. Just had a quick question on margins. It looks like you had a really strong room margin and a very strong food and beverage margin. Just wanted to see what you were able to do to get the food and beverage margins the highest I've seen in some time? Just wanted to get some color on that.

Sure. Our asset management group has been just phenomenal in what they've been able to achieve. And when you -- we work with our affiliate Remington. A lot of those margin benefits are something that Remington's able to achieve in season and out of season. But when working with the brands, that's a ship that's a little harder to turn. It's a little -- takes a little longer to turn. And what our team has been doing over the past year is having what we call deep dives with our brand managers and focusing on profitability. And especially in food and beverage do we find that the brands don't maximize food and beverage as much as they could. So a lot of that has been focused on labor cutbacks within food and beverage. Also we're starting to see a mix change going on in food and beverage. The business that we receive from room service and restaurants is low margin. But the business that we received on the catering or banqueting side is much higher margins. As so as that business starts to return, which it is returning, that just naturally provides a higher type margin business that affects the overall F&B margin number.

Okay. Great. Thank you.

Thank you. And our follow-up question comes from the line of Patrick Scholes from FBR Capital Markets. Please go ahead.

Hello. Just a quick follow-up question on my share repurchase question from earlier. Hypothetically if you decided this afternoon you wanted to buy some shares, are you blacked out in any way from doing so? And then how much do you have left -- I assume you have an open authorization still?

We've got I think it's 24, 48 hours after earnings release is our blackout period. And then we're able to -- 48 hours -- and then we're able to do it. And we do have monies left on our authorization. That exact amount we don't have on hand right now.

Okay. Thank you.

Thank you. And at this time I'm showing no further questions in my queue. I would like to turn the conference back over to Management for closing comments.

Thank you for your participation on today's conference call. And remember to save the afternoon of Monday, November 14 for Ashford's Dallas NAREIT property tour. Thank you. We look forward to speaking with you again on our next call.

Ladies and gentlemen, this does conclude our conference for today. If you would like to listen to a replay of today's conference, you may do so by dialing 1 (800) 406-7325 or (303) 590-3030 and entering the access code of 4456769 pound. We thank you for your participation and at this time you may now disconnect.