Ashford Hospitality Trust Inc (AHT) 2014 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Ashford Hospitality Trust and Ashford Hospitality Prime first quarter 2014 conference call on Friday, 9th of May 2014. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

I will now hand the call over to Scott Eckstein. Please go ahead, sir.

Thank you, operator. Good day, everyone and welcome to today's conference call to review results for both Ashford Hospitality Trust and Ashford Hospitality Prime for the first quarter of 2014 and to update you on recent developments. On the call today will be Monty Bennett, Chairman and Chief Executive Officer; Douglas Kessler, President; David Kimichik, Chief Financial Officer; and Jeremy Welter, Executive Vice President of Asset Management.

The results as well as notice of the accessibility of this conference call on a listen only basis over the Internet were distributed yesterday afternoon in press releases that have 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 Previsions 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 both companies� 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 companies are 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 companies� earnings releases and accompanying tables or schedules which have been found on form 8-K with the SEC on May of 2014 and may also be accessed through both companies' websites at www.ahtreit.com and www.ahpreit.com. Each listener is encouraged to review those reconciliations provided in the earnings releases together with all other information provided in the releases.

I will now turn the call over to Monty Bennett. Please go ahead, sir.

Thank you and good morning. I'd like to start out by mentioning that we recently launched the Ashford app. This is a free mobile app and is available at the Apple app store by searching Ashford and is targeted toward the hospitality REIT investor community.

We designed the app as a one-stop resource for everything associated to Ashford related to companies as well as to the entire hospitality REIT sector. I hope you find the app to be a useful investment and research tool.

During the quarter, we continued to see improvement in hotel industry fundamentals and started to see the benefits of our revenue initiatives we spoke about last quarter. Additionally we continue to focus on finding innovative ways to create near term and long term shareholder value for our two platforms. This includes capitalizing on improving trends in the lodging sector and debt market conditions.

Our outlook on the hotel sector remains positive and we are confident that these initiatives are adding value for our shareholders. The management team here with me today is the same team responsible for directing the activities of both Ashford Trust and Ashford Prime.

As a team, we have always employed a discipline of strict quantitative and qualitative analysis when making our managerial or investment decisions. At the same time, once we've conducted our analysis, we are quick and decisive in our actions. This methodology has served us well through the years.

Since Ashford Trust IPO in 2003, this management team has generated a 191% total return to our shareholders, compared with 114% return from our peers over the same time period. In fact we have outperformed our peers in every yearly cumulative total share holder return period since our IPO. We hope to continue this record of success with Ashford Prime which has only recently become an independent public company.

An integral part of this methodology is our commitment to acting as shareholders in our companies. That is really not difficult for us because we are shareholders. Our insider ownership in Ashford trust is 18% and following the spinoff and subsequent equity rates, our insider ownership is 14% in Ashford Prime.

The next closest hotel REIT peer has 4% insider ownership. Over the years, collectively, we have sold very little of our stock and have made material cash purchases of shares. In fact, this past quarter, I bought $500,000 of Ashford Prime stock in the open market personally.

The vast majority of our management team's net worth is in Ashford Trust and Ashford Prime stock. Because of this, we work diligently to be good stewards of our investors' capital since our own capital is at risk with yours. We consider this to be one of our key differentiators and key competitive advantages.

I believe we have the most highly aligned, stable and effective management team in the hotel industry. This same people that took Ashford Trust public over ten years ago are all still here. In terms of operational expertise, if you look at just the top ten most senior executives in our company, we have well over 200 years of cumulative lodging and real estate experience in a variety of roles, including acquisitions, dispositions, asset management, property management, finance, accounting, et cetera.

So it's the same management team that continues to manage both the Ashford Trust and Ashford Prime investment strategies. Ashford Prime has a focused investment strategy targeting high RevPAR hotels and resorts located predominantly in domestic and international gateway markets with conservative leverage levels. While Ashford Trust will continue to focus on all segments of the hospitality industry with RevPAR criteria outside the Ashford Prime investment focus and at all levels of the capital structure.

Now let's review some of the highlights from the first quarter. In 2014, we have seen continued recovery in the lodging sector driven by improving general conditions that should continue to drive RevPAR growth and improve profitability. This includes steady demand growth for US lodging accommodations which has been at an all-time high for the past two years with low anticipated levels of industry supply.

PKF is forecasting 2014 RevPAR will increase by 6.6% over 2013. Further PKF�s projected RevPAR growth forecast for 2015 is currently 7.0% driven by expectations for growth in both lodging demands and ADR.

Supply growth is also expected to remain well below its long term average with PKF projecting net supply growth of only 1.0% and 1.3% in 2014 and 2015 respectively. Consider that on a historical basis according to Smith Travel Research, the long run average annual change in supply has been 2%. Presently PKF does not see the national annual supply growth exceeding that level until 2017.

In the first quarter, RevPAR for all Ashford Trust hotels increased 7.5% despite difficult year over year comparisons due to our assets in the Washington DC area which had a benefit of the presidential inauguration last year. While Jeremy will provide more detail on this shortly, there are two things I would like to highlight.

First, regarding the Washington, DC area, while our assets have faced significant challenges in recent times, we believe the DC market has nearly bottomed out and we remain optimistic regarding its long-term prospects. Second, it's important to note that much of the RevPAR growth we achieved this quarter is attributable to the new initiatives we have underway at our affiliate manager Remington. I'll discuss these initiatives in more length later on.

During the first quarter Ashford Trust refinanced its $165 million MIP loan, portfolio loan, with a new $200 million nonrecourse mortgage loan. Our belief is that today's interest rate and debt market environments offer substantial opportunities to those with the expertise to take advantage of them. We will continue to seek out ways to increase our liquidity resources with strategic refinancing transactions such as this one while also proactively addressing our debt maturities when such opportunities arise.

As previously announced, during the quarter, Ashford Trust Board of Directors unanimously approved a plan to spin off its asset management business into a separate publicly traded company in the form of a taxable distribution to be comprised of common stock in Ashford, Inc., a newly formed or successor company of Ashford Trust existing adviser subsidiary, Ashford Hospitality Advisors LLC which currently advises Ashford Prime. In connection with the spinoff, it is anticipated that Ashford, Inc. will enter into a 20-year advisory agreement to externally advise Ashford Trust.

In addition, Ashford, Inc. will continue to externally advise Ashford Prime. We plan to file a listing application for Ashford, Inc. with the NYSE or NYSE MKT exchanges. We expect this distribution to be declared during the third quarter of 2014. However, it remains subject to certain conditions.

We filed our form 10 for Ashford Inc with the Securities and Exchange Commission on April 7, 2014 and we will have more information to share with you about the spinoff as we get closer to the distribution date.

Following the quarter end, Ashford Trust priced a follow-on public offering of 7.5 million shares of common stock at $10.70 per share. The Company granted the underwriters a 30-day option to purchase up to an additional 1.125 million shares of common stock. The settlement of the alcidine occurred on April 14, 2014 generating total net proceeds of $77 million. Ashford Trust intends to use the net proceeds of the offering for general corporate purposes including, without limitation, hotel related investments, capital expenditures, working capital and repayment of debt or other obligations.

Turning to Ashford Prime, during the first quarter, RevPAR for all Ashford Prime hotels increased 5.5%. However, when excluding the results of hotels under renovation during the quarter in the Capital Hilton hotel in Washington, DC which experienced an increased occupancy related to the presidential inauguration last year, RevPAR increased 12.2%.

RevPAR for all Ashford Prime hotels not under renovation increased 7.4% during the quarter. Much of this performance was driven by our West Coast assets which continue to outperform. This includes RevPAR growth of 14.3% for our Courtyard San Francisco Downtown, 29.8% for our Hilton La Jolla Torrey Pines and 26.5% and 12.1% for our Courtyard Seattle Downtown and Seattle Marriott Waterfront respectively.

We are quite pleased with these results as they speak to the strength of the assets in the Ashford Prime portfolio and the rationale for the spinoff of Ashford Prime as a separate public entity. Also during the quarter, Ashford Prime completed the acquisitions of the Sofitel Chicago Water Tower and the Pier House Resort in Key West. Douglas will review the transaction's details later in today's call.

Importantly, these deals are representative of the types of transactions we will look for as we build out this portfolio. Since completing the spinoff in November, Ashford Prime has already acquired two high RevPAR hotels with attractive locations in key US gateway markets. Ashford Prime also took steps to enhance its liquidity position during the quarter by completing an equity offering for total gross proceeds of $151.8 million.

Ashford Prime is currently trading at a trailing twelve month NOI cap rate of 7.4%. Based on HPS research and where we are seeing similar assets trade in the private market, we estimate a private market trailing twelve month NOI cap rate of around 6.0% is more appropriate.

This 140 basis points cap rate premium, we estimate, equates to over $7 in per share value. We are committed to maximize the value of our shareholders in both platforms and will work to continue to execute on each company's investment strategy while exploring all options to maximize value.

As previously announced, the Board of Directors of Ashford Trust declared a dividend of $0.12 per share for the first quarter of 2014.

The board of directors for Ashford Prime declared a first-quarter 2014 quarterly cash dividend of $0.05 per share. Both Ashford Trust and Ashford Prime will continue to review their dividend policies on a quarter to quarter basis.

Lastly, I want to discuss some of the new initiatives we have implemented that our affiliate manager Remington which I am personally overseeing. As our first quarter RevPAR performance indicates, we are now starting to see some of the benefits from these actions. I'll briefly reiterate some of the steps we have taken.

First, we turned over and replaced our senior sales and marketing position which oversees direct sales such as group, contract and preferred accounts. We've also created two new senior positions in sales and marketing with respect to this person. This new leadership team has been tasked with an increasing cohesiveness between directors of sales at our hotels and the sales team to ensure everyone is completely focused on driving total revenues and market share growth at our hotels.

On the revenue management and electronic commerce side, we have created and are nearly finished filling several new positions, taking this department from 11 to over 20 both senior and junior executives. This group is focused on maximizing revenues from the lowest cost channels.

Additionally, we are comprehensively upgrading our business analytics capabilities. This big data initiative is focused on revenue optimization, making sure we are implementing the best possible pricing strategies for our available inventory given historical and projected room demand patterns. We believe these investments in systems and personnel can substantially increase our revenue enhancement capabilities.

In conclusion, we are very pleased with our RevPAR performance this quarter for both Ashford Trust and Ashford Prime. Also we are optimistic regarding the prospects for our planned spinoff of Ashford, Inc. given its limited expected capital needs, attractive advisory agreements it will already have in place with two publicly traded companies, its pipeline of opportunities for possible future growth and a currency to make acquisitions. The same management team responsible for Ashford Trust's outperformance for the past decade can now work through these multiple platforms providing additional avenues to develop new and creative strategies to grow shareholder value.

With these factors combined, we believe we are well positioned as lodging sector conditions continue to improve and we look forward to updating you on our progress in future calls. With that, I will now turn the call over to David Kimichik to review our financial performance for the quarter.

Thank you, Monty. For the first quarter of 2014 Ashford Trust reported AFFO per diluted share of $0.25 compared with $0.35 a year ago. The first quarter of 2013 included $6.2 million of interest rate derivative income which impacted AFFO per share by $0.06. It also included the Ashford Prime hotels.

During the quarter Ashford Trust pro forma operating profit increased by 10.4%. Ashford Prime recorded AFFO per diluted share of $0.18 compared with $0.16 a year ago. During the quarter Ashford Prime's pro forma hotel operating profit increased by 3.6%.

For the first quarter, we reported adjusted EBITDA of $79.5 million for Ashford Trust and $14.2 million for Ashford Prime. At quarter's end, Ashford Trust had total assets of $3.5 billion including the Highland portfolio, which is not consolidated, at $1.8 billion of mortgage debt in continuing operations and $2.6 billion overall including Highland.

The total combined debt currently has a blended average interest rate of 5.6% and it's currently 54% fixed rate debt and 46% floating rate debt, all of which have interest rate caps in place. Including the market value of Ashford Trust's OP units of Ashford Prime and its pro rata share of the networking capital of the Highland portfolio, Ashford Trust ended the quarter with net working capital of $395 million.

Ashford Prime at quarter's end had total assets of $1.2 billion. It had $769 million of mortgage debt in continuing operations and a blended average interest rate of 5% which is currently 55% fixed rate debt and 45% floating rate debt, all of which have interest rate caps in place. At quarter's end, the Ashford Trust portfolio consisted of 114 hotels, with 22,667 net rooms and the Ashford Prime portfolio consisted of ten hotels with 3,469 net rooms.

Ashford Trust's share count currently stands at 110 million fully diluted shares outstanding, which is comprised of 90 million common shares and 20 million OP units while Ashford Prime share count currently stands at 34.5 million fully diluted shares outstanding, which is comprised of -- excuse me, 25.4 million common shares and 9.1 million OP units. I'd now like to turn it over to Jeremy to discuss our asset management accomplishments for the quarter.

Thank you, Kimo. RevPAR at the ten properties in the Ashford Prime portfolio increased 5.5% in the first quarter of 2014, driven primarily by rate which increased 4.4%. Similar to the fourth quarter, the strong revenue performance was again driven by the four properties located on the West Coast which experienced significant combined RevPAR growth of 19%.

Looking at Ashford Prime's hotels located in the western half of the country, the three hotels in the San Francisco and Seattle markets collectively increased RevPAR by 15.5%, benefiting from continued strong market demand. Of note, the Seattle Courtyard Downtown's RevPAR increased 26.5% fueled by increased room night production from the nearby Amazon corporate headquarters. In addition, the La Jolla Hilton Torrey Pines RevPAR increased 29.8% which is primarily aided by a year-over-year renovation comparison.

I mentioned in the previous earnings call that we were excited by the property's growth prospects in 2014 given its stunning new rooms product. In terms of market share for Torrey Pines, the first quarter of 2014 was the highest RevPAR index level achieved in the last ten years. I believe this exceptional RevPAR performance is simply the first installment of many solid performances to come.

During the quarter, two hotels were added to the Ashford Prime portfolio. In late February, Ashford Prime completed the acquisition of the 415-room Sofitel Chicago Water Tower.

This 32-floor, architecturally stunning hotel is located just off The Magnificent Mile in Chicago�s CBD. Weather and an unfavorable year-over- year citywide calendar combined to make for a challenging first quarter, but we fully expect this hotel to be a stellar edition to the Ashford Prime portfolio.

Second, in early March the Pier House Resort was acquired from Ashford Trust. As you may recall, Ashford Trust acquired the Pier House Resort in May of 2013 and immediately installed Remington as property management company.

The hotel's first quarter RevPAR of $424 represented more than a 15% increase compared to the first quarter of 2013. And its EBITDA margin expansion of 474 basis points are both testaments to the health of the Key West market and the superior operational capabilities of our affiliate manager Remington.

Turning to the remainder of Ashford Prime portfolio, there are a couple of one-time factors affecting performance that I'd like to bring to your attention. First, the Capital Hilton in Washington, DC benefited in January 2013 from the presidential inauguration. That difficult comparison coupled with several travel-paralyzing snowstorms this year negatively impacted RevPAR performance in the first quarter.

Next, the 499-room Courtyard Downtown Philadelphia was undergoing a transformational rooms renovation for most of the first quarter of 2014. The hotel now features a contemporary room product to complement the building's existing historic charm and central location just one block from the convention center. The hotel looks fantastic and now offers a value proposition that is truly unique within the Courtyard brand.

Excluding the Capital Hilton, the Courtyard Downtown Philadelphia and the Marriott Seattle Waterfront which was also under renovation in the quarter, Ashford Prime's RevPAR in the first quarter of 2014 grew by an exceptional 12.2%.

Moving to the Ashford Trust portfolio, RevPAR increased 7.5% in the first quarter of 2014 driven by roughly equal split between rate, which increased 3.4%, and occupancy, which increased 4%. Hotel EBITDA margins improved by 127 basis points and EBITDA flow through was 53%. Again, the West Coast proved to be a source of strong revenue growth in the first quarter as the Los Angeles market area grew RevPAR by 16.2% and San Francisco Oakland market area grew 13.5%. The Dallas Fort Worth market area also had an exceptional first quarter with RevPAR growth of 13.1% over last year.

The overall top line performance of the Ashford Trust portfolio was superb. But again, there were a couple of nonrecurring factors affecting RevPAR performance that I would like to point out.

First, there were ten hotels in the Ashford Trust Portfolio within the Washington DC market area that were impacted by several snowstorms in the first quarter. Also, the two hotels located in the Washington, DC CBD and to a lesser extent the three hotels in the Crystal City area benefited from the presidential inauguration in January of 2013.

Despite the combination of poor weather and the inauguration comparison, Ashford Trust's hotels in the Washington, DC market area still managed to increase RevPAR by 1%. We believe the slight RevPAR growth, notwithstanding the difficult circumstances, suggests that we are seeing perhaps the first grain shoots of growth in a rebound for a Washington, DC market.

In the New York/New Jersey market area, several of Ashford Trust�s hotels continue to benefit from residual Sandy related business in the first quarter of 2013. The 1,560 rooms located in this market area experienced an 11.3% increase in RevPAR in the first quarter of 2013 which provided a challenging comparison for this year resulting in a 1.6% increase in RevPAR for the first quarter of 2014. If one were to exclude the Washington, DC and New York/New Jersey market areas from the Ashford Trust portfolio's results in the first quarter of 2014, RevPAR growth would have been 1.4% higher or 8.9%.

In terms of noteworthy capital expenditures within the Ashford Trust Portfolio, there are a couple of recently completed renovations that I would like to bring to your attention. First one of the portfolio's largest assets, the 673-room Renaissance Nashville, we completed an approximately $20 million rooms renovation. The refreshed guestrooms, suites and bathrooms along with updated amenities now complement the hotel's recently acquired meeting and brief function space and will ensure that this hotel remains a prime destination for large groups coming into Nashville.

Next at the Silversmith in downtown Chicago, Ashford Trust completed a truly transformational renovation of the hotel's rooms and public spaces in addition to adding a new restaurant concept on the ground floor. The renovation has repositioned this historic Jewelers Row hotel into an independent luxury boutique destination that will offer both mid-week business and weekend leisure travelers a unique and modestly appointed option for their visits to downtown Chicago.

In past quarters, I have shared with you specific strategies and initiatives underway within the asset management team in order to continue to drive total revenue growth across both portfolios. These initiatives include adding a VP of revenue optimization to the asset management team who is intimately involved in providing a more analytical data-centric approach to sales and revenue management evaluations. The specific strategies include dynamic day of week retail pricing, increased premium rooms inventories, pattern management for future group opportunities, maximizing ancillary revenue streams and optimal business exercises to name just a few among many other tactics.

These strategies are also being bolstered by an implementation of an enterprise business intelligence system. In addition to these efforts, our affiliate management company Remington vastly expanded its own sales, revenue management and eCommerce capabilities in the middle of last year. Increased staffing includes three new senior vice presidents, two new vice presidents, reduced property to staff ratios and a 100% increase in eCommerce and revenue management coverage.

Remington is also engaged in specific top line initiatives, including the development of a rigorous group rate pricing tool, optimized meeting space utilization, improved online reputation management and centralized business lead development. These additional staffing resources and revenue strategies are also being supplemented by an overarching big data initiative that will seek to integrate data from numerous sources in order to improve strategic analysis and decision making related to all things revenue.

As a management company for 74 of Ashford Trust's 114 hotels, we believe strongly that these additional staffing resources and top line strategies will drive accretive top line growth for shareholders. In fact, if one looks at Remington's top line performance in the first quarter of 2014, you can already see the early results of these efforts as Remington- managed Ashford Trust hotels grew RevPAR by 10% compared to last year, gaining 175 basis points in market share in the first quarter. We believe at this point in the lodging cycle that continuing to optimize top line growth, which Ashford and Remington teams are laser focused on, will enable superior bottom-line results for investors.

Now I'd like to turn the call over to Douglas. Thank you.

Thank you, Jeremy. In the first quarter, Ashford Trust remained focused on improving its capital structure and enhancing its liquidity resources by leveraging attractive interest rates and other favorable market conditions. During the quarter, we successfully refinanced our $165 million MIP portfolio mortgage loan with a new $200 million non-recourse mortgage loan with a two-year initial team and three one-year extension options, subject to the satisfaction of certain conditions.

The new loan is interest only with a floating interest rate of LIBOR plus 4.75% with a 0.2% LIBOR floor. We received excess net proceeds of about $30 million on this refinancing. The new loan remains secured by the same five hotels including the Embassy Suites Philadelphia Airport, Embassy Suites Walnut Creek, Sheraton Mission Valley San Diego, Sheraton Anchorage and the Hilton Minneapolis/St. Paul Airport Mall of America.

As we've done in the past, we continue to be proactive with our upcoming debt maturities. We seek to strike a balance between liquidity and the debt capital markets and future operating performance. In addition, we are focused on both fixed and floating rate refinancings and take a very strategic approach to the composition of loan pools to give us greater options and flexibility with our asset base.

To strengthen Trust's liquidity and better position the Company for investment opportunities, in April we completed a follow-on public offering of 7.5 million shares of common stock priced at $10.70 per share, granting the underwriters a 30-day option to purchase up to an additional 1.125 million shares of common stock. The offering generated total net proceeds of $77 million. Ashford Trust intends to use the net proceeds of the offering for general corporate purposes, including without limitation hotel related investments, capital expenditures, working capital and repayment of debt or other obligations.

As a reminder, during the downturn we purchased over 75 million shares of Ashford Trust common stock in the open market at an average price of around $3 per share. So reissuing those shares at a price of $10.70 resulted in significant value creation for Ashford Trust shareholders.

Turning to Ashford Prime, as previously announced this January we closed a public offering of 9.2 million shares of common stock which were sold at a price of $16.50 per share. Total gross proceeds to Ashford Prime for the offering before deducting the underwriting discount and other estimating offering costs the $151.8 million dollars. This capital was raised to fund the acquisitions of the Sofitel Chicago and the Pier House Resort.

During the quarter, Ashford Prime closed on the acquisitions of both the Sofitel Chicago Water Tower and the Pier House Resort in Key West. As Monty mentioned earlier, these acquisitions are representative of the types of high RevPAR properties with attractive locations that we are targeting as we build out the Ashford Prime portfolio.

Regarding the details, Ashford Prime acquired the 415-room Sofitel Chicago Water Tower in February for $153 million in cash or $369,000 per key. This four star hotel features over 10,000 square feet of meeting space and is situated in the gold coast market of Chicago, a major US gateway market for both corporate and leisure travelers. Sofitel will continue to manage the property.

At closing, we financed this hotel with $80 million of non-recourse mortgage debt priced at LIBOR plus 2.3%, the new debt has a five year term excluding extension options. In March, Ashford Prime acquired the 142-room Pier House Resort from Ashford Trust for a total consideration of $92.7 million or $653,000 per key. The purchase price was based on Ashford Trust's actual costs.

Ashford Prime assumed a $69 million mortgage on the hotel and paid to Ashford Trust the balance of the purchase price with cash on hand. The Pier House acquisition was one of two option properties that Ashford Prime received at the time of its spinoff from Ashford Trust.

The other option property, the Marriott Gateway in Crystal City has a 12- month exercisable term that goes from May 2014 to May 2015. Given Ashford Prime's existing exposure in the DC market with the Capital Hilton and the current price of Ashford Prime stock, we do not expect Ashford Prime to exercise that option any time soon.

In conclusion, during the first quarter, we made substantial head way in building out the Ashford Prime portfolio while also strengthening the liquidity positions and capital structures for both Ashford Trust and Ashford Prime. For Ashford Trust, we will continue to be opportunistic with respect to refinancing and investment decisions. At Ashford Prime, we will continue to execute on our investment strategy and seek innovative ways to maximize value for our shareholders.

Our approach to transactions remains consistent in both Ashford Trust and Ashford Prime taking into account their different investment strategies. This approach takes into consideration many variables that could favorably result in shareholder accretion. Growth for growth�s sake is not an option.

We, like you, own too much of the Company and have shown great discipline over the years in how, when and what we buy. This along with our asset management and capital markets expertise have led to our outperformance.

On deals, we take into consideration qualitative issues, but are mainly guided by quantitative metrics when making our investment decisions. While many variables are considered, our primary focus is on the increase in stock price on an investment as affected by the current cost of capital, initial yield, absolute RevPAR, EBITDA multiple correlations and growth. Today the pipeline for transactions is healthy.

The creation of Ashford Prime and Ashford Trust gives us more flexibility to pursue transactions that fit the designated criteria of each company. We have more investment bandwidth as well as more deal ideas being presented to us and more that we are coming up with on our own to evaluate. While this does not necessarily mean that we will transact, I can assure you that our transaction team is more engaged in a potential deal flow for both Ashford Prime and Ashford Trust than since the depth of the financial crisis.

Lastly, as 18% holders of Ashford Trust and 14% holders of Ashford Prime, your management team is dedicated to enhancing shareholder value and providing superior returns. That concludes our prepared remarks and we will now open it up for your questions.

Thank you, sir.

(Operator Instructions)

Thank you. Our first question comes from Ryan Meliker from MLV & Company. Please go ahead with your question.

Hey. Good morning, guys. I just had a couple of things I was hoping you guys could address. Can you give us any color in terms of, you know, what -- or any detail, I guess more than color, in terms of what business lines that Ashford Advisors are going to enter?

I know you've given some general color on the types of opportunities. We've seen NorthStar get very acquisitive. Obviously they bought Innkeepers with Chatham and they're bidding for Griffin REIT. You know, are there any things that Ashford is farther along in and can you give us an update on how the fund raising is going for the hedge fund?

Sure. This is Monty.

As you implied, you referenced that we've given some ideas about where we could grow Ashford Advisors and where we can -- all the additional business lines that we're looking at and considering. I think you did hit on the one that's next up in the queue and that's our real estate hedged equity strategy.

That is -- that's the one that will be -- the additional business line that will be next in the queue. We are currently out in the marketplace talking to investors about it and we're looking to launch that in the fall. I'd love to give you some more color on what size we're going to launch that at, but that's hard to say.

It depends on investors and we are not to the point where we're receiving investor subscription amounts on that yet. So it's just hard to tell you how big that's going to be in the fall. We'd love to know ourselves, but we just don't know until we start receiving some of those in and that's just not timely yet.

So the first opportunity for us is our real estate to hedged equity strategy. After that we see some of these other potential opportunities that we've mentioned to you in the past. I wish I could give you more detail and more precision, but it just doesn't exist yet to give.

Okay. Do you have any commitments yet for the hedged equity strategy and what type of investors are you focused on? Are you looking at retail guys or institutional guys?

Sure. We have not sent out subscription agreements yet, so we're not in the process of even receiving any back. So that hasn't begun yet.

And as far as types of investors, we're looking for investments; a minimum of $1 million and $10 million probably being the largest likely type investors. So those are, you know, wealthier individuals and smallish-type institutions.

Okay. That's helpful. Thanks, Monty.

And then the second question I wanted to ask was, you know, in your prepared remarks and in the Ashford Prime press release, you indicated that this management team is willing to do just about anything to maximize shareholder value. How do you balance the potential, you obviously -- the stock trades on material discount to the underlying value of the assets. Are you open to selling the Company if you got a bid at market value? Would you be willing to waive the termination fee to Ashford Advisors if you got a bid at or above market value?

Sure. Well, if you look at our history, Ryan, you can see that we have been very creative over the years to make sure that our share price has been maximized in returns to investors. And in the first part of my reading here, we mentioned that over our ten years of existence, our returns have been almost double our peer average. So we're very committed to it and we're large shareholders.

So we see the dislocation between what we see as private market value of these assets, and that's pretty straightforward, I think any investor can look at the private market value of these assets compared to where it's trading publicly and see that there's a big gap. At the same time, we know it's not uncommon for new platforms to trade down at first. We saw that with some of our peers as they IPO�d of the past number, three years or so.

So we're doing our best to be patient on it, but it's difficult for us because we, like our investors, want to maximize our share price performance. We are open to any type of opportunity and if that means someone making an offer for the Company, then so be it. As far as waiving any types of fees, that hasn't been something that's discussed at all for us, but I think that keeping that in place is good for everybody because the way that our fees are structured is that that makes Ashford, Inc. whole in any type of sale process. And so it doesn't provide any conflicts of interest that would otherwise exist and makes it much less friction in trying to sell a platform.

And those aren't material enough to affect that valuation gap. But we are open to alternatives and we're trying to develop ways in order to maximize our share price.

All right. I appreciate your candor in answering that. Just one quick one and I'll jump back in queue.

Any thoughts to bumping the prime dividend to try to get more retail investors? Obviously you guys have the cash flow within the Prime portfolio. I know you want to grow the portfolio, but it's hard to grow the portfolio when the stock is trading at the level it�s trading.

Wondering if maybe bumping the dividend materially would drive the stock up higher and give you guys the opportunity to grow the platform at a more attractive stock price. Any thought into that? How is the Board thinking about the prime dividend these days?

We're going to be having a Board meeting next week and I'm sure that will come up and for us to kick around. You know, we traditionally like to talk about that in December for the upcoming year, but we do revisit it every quarter. What we're struggling with is that relationship.

Is -- does increase in dividends increase stock price because of an increase in attraction to retail customers and we just don't see that relationship in history with our stock price or our peers very much. It's really hard to define -- I'm sorry, divine that that relationship exists. That being the case, we're still planning on taking a look at it because when we say that we want to look at all avenues, that includes all avenues.

All right. Thanks a lot. I appreciate all the answers, Monty.

Thank you.

Thank you. Our next question comes from Robin Farley from UBS Financial. Please go ahead with your question.

Hi. This is actually Apurva for Robin. Could you give any color on the transaction market and particularly on sort of what leading indicators you look at as you look at whether you'll be a net buyer or a seller for this year? At the same time, if you have any color on whether you're looking at portfolio deals? Thank you.

Sure. This is Doug Kessler. We view the transaction market to be healthy.

The deal flow typically at this point of the cycle continues to show an upward trajectory in terms of the number of opportunities that are coming to the market. If you just look back, for example, at some data, the Jones Lang LaSalle puts out, you can see what happened as the cycle approached its peak the last go around heading into 2007, bottomed out in 2009, 2010 time frame and now we're on an upward trajectory as buyers' expectations and sellers' expectations are more in line.

I think we are bullish, as are most of the industry experts in terms of the future RevPAR growth and the low new supply coming in, so that seems to indicate that there's still more room to run in the cycle, which would indicate to us still an attractive opportunity to buy hotels. So having kind of shared with you the macro perspective, I'd say on a micro footprint standpoint, what are we seeing for both Prime and Trust? It's a fluid situation where we see active deal opportunities for both platforms. Obviously with the recent acquisition of the Sofitel property and the transaction on the Pier House, we've demonstrated growth in the Prime platform.

Our overall mandate is to be just how we've been the past 11 years in operating a public company, very disciplined and first and foremost looking at the potential accretion that could happen for the benefit of shareholders. Portfolio opportunities actually make perhaps even more sense for us than had we been just a single entity company comprised of just Ashford Trust. The reason generally is that portfolios have a mixture of assets, some that fit better into one portfolio, some that may fit better into another portfolio.

We have the flexibility to take down assets in both portfolios, arrange for rights of first offers to the extent that some assets fit better in one portfolio, but they're cross-collateralized with debt that might be assumed in another portfolio. So I think that our footprint of having both a Prime and a Trust platform in the market actually provides a competitive advantage.

Also, what's worth pointing out is that with the different costs of capital, we think we are better calibrated to position those assets which meet the criteria into each respective platform relative to their returns. Obviously we've commented on the price disconnect with where Ashford Prime more specifically is trading and it makes it a little bit more challenging given the way we look at our quantitative accretion model at the current share price. But the market is healthy, we're seeing more opportunities and obviously even more so as we head into the annual NYU conference, generally another opportunity for sellers to bring product to market through their brokers. And we are, by the way, seeing both on market and off market opportunities given our deep network of contacts. So as you can tell, we're spending a lot of time underwriting transactions.

Very helpful. Thank you.

Thank you. Our next question comes from Chris Woronka from Deutsche Bank. Please go ahead with your question.

Hey, good morning, guys. On the Ashford Prime side, I guess kind of given the stock price and you would ideally like to grow the portfolio, obviously, accretively if you can. Are you willing to look at deals or I guess are you looking at deals where maybe the seller is open to taking some, you know, OP units or some other kind of alternative form?

Sure. This is Monty. Just to be clear, part of your question you talked about growing the platform and accretively if possible. I just want to be clear that accretively is the only way we'll grow the platform.

We're not going to grow it if it's not accretive. As far as looking at it, you know, anything's possible, but if we did something like that, we see that as tantamount to us issuing shares at this price and buying an asset with cash, which is not attractive to us.

So, I don't see how it would be attractive to us. I don't see how that economically works. I don't see how that's accretive. Again, anything is possible, but I just don't see that as a likely scenario.

Obviously in the past we've issued OP units on transactions. Some sellers find it tax efficient and some sellers are interested in broadening their asset base by diversifying their equity into a strong platform with a greater base of hotels. So, history would indicate that we have done it, but to Monty's point, it has to be done at a price point that we feel is -- and only feel is accretive for the shareholders.

If a seller would do it at a price point that's above where we're trading now, then, yes, we'd look at it. That seems to be what would have to happen.

Okay. Fair enough. And then I guess maybe I'll ask the flip side of it, which is you've talked about the targeted leverage at Prime and maybe that's more of a fluid, moving target, right, because again, to the extent there's something that is accretive out there, would you take the leverage up temporarily and that kind of might get things -- everything kind of rolling, right?

Well, when we look at accretive transactions, we always look at it on a leverage-neutral basis because -- and when we talk about accretion, we talk about total shareholder return accretion five years from now on a leverage-neutral basis. So I just want to make that clear to everyone on the phone. When we say accretion, that's what we mean because some people talk about accretion just for next year or accretion just to FF&O or one thing or another.

By leveraging something up, it's much easier to get something accretive. In fact, you can get anything accretive with enough leverage. I know that's not what you're suggesting, but we're pretty well set on getting that debt to EBITDA down to our target level within the time frame we mentioned, which was at five or below over -- by two years after we spun out. And while there might be in our path downwards a little blip up here or there, we're pretty reluctant to do anything else because we told our shareholders what we're going to do and that's what we want to do.

If we did something else, then all those that relied on that information would feel short-shrifted, and we don't want to do that. But we think we can grow this platform and keep, you know, all these other objectives in line. Again, it's not unusual for a stock to back up a little bit after an IPO or spinout, so we're doing our best just to remain patient as more and more investors come to learn about the platform and do their homework and see the difference in private market value versus where the stock is trading right now.

Okay. Understood. And then just finally for me, as we look out to next year, just trying to get a sense as to how much renovation activity you guys think there might be at this point and, you know, basically thinking maybe there is a little bit more lift and less displacement next year relative to this year and it seems like this year there's less displacement relative to last year.

Yes. I think -- this is Jeremy. I think that we're going to have a little bit less renovation activity in the Trust portfolio. We've done a good job of working our way through Highland and have completed most of the Highland portfolio through the summer of this year.

So that will be in really good shape going forward and we will be able to drive additional RevPAR growth in that portfolio. We do have a quarter of Boston that we're going to have to finish up in the fourth quarter, but once we're done with that, Highland is in really good shape.

As it relates to Prime, there is not a lot of renovation activity that we have. I think we have disclosed a few renovations in the fourth quarter, both of which should not be that impactful to the guest and to revenues, so hopefully we'll be able to minimize displacement in the Prime portfolio as well.

Okay. Very good. Thank you, guys.

Thank you. Our next question comes from Thomas Allen from Morgan Stanley. Please go ahead.

Hey, guys, good morning. I think it was interesting that you said earlier that you feel the DC market is stabilizing. You guys had pretty strong results there in the first quarter, everything considered with lapping the inauguration and potential weather impacts, but the Marriott Marquis opening, I think it may have opened even last week. So what gives you confidence the market is stabilizing? Thanks.

Sure. I'll comment on it and then Jeremy you might jump in on it as well if you'd like. I think a lot of it has to do with the government and where the government has been and where it's going.

We just hear and see a lot less chatter and talk about cutting government spending and when that spending occurred -- I'm sorry, those spending cuts occurred, a large chunk of that came from travel, a disproportionate amount and it really affected the DC market. I think at one point we saw government business down 30% year-over-year in that market. It was a big drop.

We're just not hearing that kind of talk, we're not seeing that kind of activity, so we're seeing government business stabilizing and maybe even starting to increase. So despite the Marriott coming online, the impact of government business has a big offsetting effect.

That's right. And when you look at it from a comparative basis, the impact of sequestration, we really felt it beginning in May in 2013 and so in a year-over-year comparison in May of 2014, there should be less impact from sequestration, but we are seeing a resume of government travel and spend in our DC assets, as well as we actually are starting to see some good group business as well.

In the first quarter for Trust, we were able to grow our group revenues in the quarter by close to 4%. So we're very happy with the way that we're responding within the tough market conditions within DC. In the first quarter, eight of our ten Trust DC hotels gained market share in the first quarter.

Great, thanks. And then on Ashford Prime, the Sofitel Chicago generated negative EBITDA in the first quarter. You mentioned weather and citywides had a negative impact.

Can you just help us think about the seasonality and maybe the run rate earnings of that property? Thanks.

Sure. We don't give any guidance as far as earnings in the future. But, you know, the property on the books just had lower group the first quarter, which was something that was anticipated with us, but because of the weather as well, that's -- was a surprise to, excuse me, us and everybody about the impact on the Chicago market.

And so that hurt the performance on the top line and on the bottom line. So we see that as an anomaly and we're still bullish on the assets in the market.

But, I mean, I guess in the first quarter would a property in Chicago in general -- typically generate positive EBITDA or is it typically that is a seasonally tough quarter there and so typically properties would generate negative EBITDA and then you would make it up in the rest of the year?

What I can tell you is in the first quarter, the market conditions in Chicago were so -- were difficult and we did have year-over-year negative EBITDA, but when you look at the performance of our asset, it actually gained market share in the first quarter against this competitive set so that tells you how the rest of the set did.

That's helpful. Thank you.

Thank you. Our next question comes from Jordan Sadler from KeyBanc Capital Markets. Please go ahead.

Hey, guys, it's Austin Wurschmidt here with Jordan. I appreciate the comments you gave relative to the enhancements on the revenue management side. Since those implementations have been in place, just curious how performance has been relative to internal expectations and then when do you expect to have all of the new capabilities in place?

Sure. We are happy with the performance thus far. Most of that performance thus far has been on the group side, which, as you know, takes a while to put in place. So this was based upon increased group booking activities last summer and fall as we started getting this ramped up.

A lot of our transients or I should say almost none of our transient initiatives have hit yet. We just finished fully staffing this electronic commerce and revenue management department.

Our big data -- and we should start seeing some of those improvements just barely in the second quarter, but more so in the third and the fourth and our big data initiative where we're going to be automating many of our processes, that won't even be completed until the fall sometime and then we'll have to ramp up on being able to use that. So I think that hopefully we're just beginning to see some of the impacts of these new initiatives.

So then, just, Monty, taking your comments about sort of improving overall economics and then, you know, with the benefit of these enhancements, is it fair to say that we could see some acceleration in RevPAR growth from the current level?

It's just hard to say. You know, we're always reluctant to give guidance because of the reasons we've discussed in the past. You know, it is our goal, it is our desire to increase our market share.

We were able to do that in the first quarter by almost 200 BIPs. That's a big amount. Whether that can be sustained or not, it's hard to say, but that's a big win for us in this first quarter.

And then just one last one maybe for Jeremy. Just in your comments you mentioned New York/New Jersey was negatively impacted from the tough comps. Do you think the new supply within the metro also was an impact and could be an impact going forward?

Not for our hotels. Our hotels are outside the metro area, so they're less susceptible to the new supply that you're seeing in New York City.

But to follow that up, as that new supply increases, I think there is a possibility that it could affect us out there in the outlying areas as tour groups and these other kinds of groups that typically can't get into New York City try to relocate. So we're keeping a careful eye on it.

Great. Thanks for the detail.

Thanks.

Thank you. Our next question comes from Bryan Maher from Craig-Hallum Capital Group. Please go ahead.

Good morning, guys. A quick question on the whole Ashford splitting situation. So we have Ashford Trust, we have Ashford Prime, we're going to have Ashford, Inc.

I distinctly got the impression on the last call that you might be headed toward an Ashford Select and spinning off your select service hotels. Can you give us any more color on that? If you're thinking about it? When it might happen? How big of a REIT that could become?

Sure. This is Monty. We think that it makes logical sense to do something like that, but we've got to do it in a way that makes it accretive to all of our shareholders and that's what we're looking at.

But also of particular note is that that would cut down the size of Ashford Trust even more. And here we've cut it down a little bit with Prime and we'll cut it down just a tiny bit more with Ashford Advisors spinning out, so that to cut it up again and reduce its size, I'm just reluctant to do that because I don't want that platform, Trust, to get too small for all the reasons I think we know about. So if we do something, at least right now our current thinking is to do something in a way so that it does not reduce the size of Ashford Trust. So we're still looking at some different possibilities, but fair enough to say nothing is anywhere close to imminent.

Thanks.

Thank you. Our next question comes from Matthew Stolzar from Pyrrho Capital Management. Please go ahead.

Hi, guys. Thank you for taking my question. Following up on the earlier questions about your share price discount to NAV at Ashford Prime and a lot of my questions have been answered, but can you just talk about your thoughts around share buyback?

Yes. We've done share buybacks in the past, I think as you know. In fact, I think we've done more share buybacks than any other management team in the industry. So we look at it quite often.

And at this point, we just don't think that that's appropriate because while there is that big discount, we also know that this is not unusual for a company at this point in its life cycle and so we don't want to jump out there and do something, I don't know if the right word is rashly. So we're just being cautious about that.

We also like our liquidity position and so we're not anxious to reduce that liquidity position. And so while we see that big gap there, at this point in time we're reluctant to try and close it. I think we did, you know, let the market know how ridiculously low we thought that price was getting by me jumping out in the marketplace and placing an order myself because there is that gap. But to jump in and do buybacks right now is just something that is not on the table.

Okay. And in terms of your assets, have there been any recent property sales at competitors or nearby assets that sort of highlight the value that you think you have in your portfolio?

I think that there are numerous data points that -- either through the brokerage community that you could look at that indicate what the value of gateway upper upscale hotels trade for. You know, we have a great portfolio, a great footprint, great brands, relatively refreshed assets. I think those types of products are in high demand today and, you know, the ranges clearly indicate a gap relative to the equivalent cap rate that our current share price equates to.

Okay. Thank you.

Thank you, sir. We appear to have no further questions at this time. Please continue with any further points you wish to raise.

Thank you all for your participation today. We will be hosting our Ashford Investor & Analyst Day this year on May 15 at the Palace Hotel in New York City. If there are any analysts or institutional investors that have not registered for this event and have an interest in attending, please contact our Investor Relations team and we will be happy to assist you.

That is May 15, which is next Thursday in New York City. We look forward to seeing many of you at our Investor Day and speaking with you again on our next call. Thank you very much.

Thank you. Ladies and gentlemen, this conference will be available for replay after 1:00 EST. You may access the teleconference replay system at any time by dialing 1-800-406-7325 and entering the access code 4678388 followed by the pound key.

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That does conclude our conference for today. Thanks for your participation. You may now disconnect.