Ashford Hospitality Trust Inc (AHT) 2014 Q4 法說會逐字稿

Good day and welcome to the Ashford Hospitality Trust and Ashford Prime fourth quarter 2014 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. 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 fourth quarter of 2014, an update you on recent developments. On the call today will be Monty Bennett, Chairman and Chief Executive Officer; Douglas Kessler, President; Deric Eubanks, 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 provisions of the Private Securities and Litigation Reform Act of 1995.

Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risk, 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 the accompanying tables or schedules, which have been filed on Form 8-K with the SEC on February 26, 2015, 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.

Good morning, everybody, and thank you for joining us. Both the fourth quarter and the full year 2014 were exciting and profitable periods for the Ashford Group of companies. From an operational perspective, both Ashford Trust and Ashford Prime demonstrate a strong operating performance, reflecting the positive trends that we continue to see in the lodging sector.

Additionally, both companies were active in the acquisitions market, as well as the capital markets, and completed several value-enhancing transactions in an effort to grow the companies, as well as to put them on even more sound financial footing. We believe the best way to measure management team is by the value it creates for its shareholders.

The Ashford management team has a long track record of creating shareholder value since Ashford Trust 's IPO in 2003. Over the years, we have worked to find new and innovative ways to maximize the value of our existing assets, while also looking for accretive opportunities to further invest in the hospitality space.

This focus has paid off for our shareholders. Since our 2003 IPO, Ashford Trust has achieved a 233% total shareholder returns, compared with a 170% return for our peers over the same period.

We are particularly dedicated to shareholder value, because as many of you know, we are substantially shareholders in all of the Ashford group of companies. Insider ownership currently stands at 14% for Ashford Trust and 13% for Ashford Prime.

The next closest hotel REIT peer has 4% insider ownership, so it's clear why we think and act like shareholders, when our own capital is at risk with yours. It's something that has always distinguished Ashford from others in the space, and we consider it one of our main competitive advantages.

In the fourth quarter of 2014 and early 2015, this commitment to building shareholder value was evidenced in the strategic transactions capital market activities, and asset management initiatives that we completed across both of these platforms. This includes the successful spin-off of our asset management business Ashford Inc. into a separate company, that is now publicly traded on NYSE MKT market under the symbol AINC.

Following the spin-off, Ashford Inc. is now an independent asset management company, focused on managing real estate, hospitality and securities platforms, both domestically and internationally. We will be holding a separate conference call to discuss Ashford Inc.'s fourth-quarter and recent highlights following this conference call.

More recently to capitalize on the favorable trends we see in the select-service segment, we announced the formation of Ashford Hospitality Select, a new private company focused on investing primarily in premium-branded select-service hotels, included Extended Stay Hotels in the US.

Ashford Trust plans to contribute to Ashford Select, a high-quality geographically diverse portfolio of 16 select-service hotels, located in 10 states, comprised of 2,560 total guest rooms and operated under upscale, or upper upscale premium brands affiliated with Marriott international. We expect to complete the launch of Ashford Select during the first half of this year.

These transactions are indicative of our proven ability to create long-term shareholder value. The same management team responsible for Ashford Trust's historical out performance will be advisor to Ashford Trust, Ashford Prime and Ashford Select. This should further our competitive advantage in the marketplace, offering the Ashford management team greater flexibility to leverage the multiple platform resources when pursuing investment opportunities.

Now let's review the fourth quarter highlights. We ended 2014 with another year of remarkable growth in the US hotel industry. For the year, the industry's occupancy rose 3.6% to 64.4%. ADR increased 4.6% to $115.32, and RevPAR was up 8.3% to $74.28.

The same positive lodging sector fundamentals we saw in the prior year continue to drive RevPAR and EBITDA growth in 2014. Demand for US lodging continued to expand in 2014, while industry supply remains well below historical averages, and should be for the foreseeable future. US hotel room rate supply growth in 2014 was only 0.9%, one of the lowest annual growth rates in history.

PKF recently projected the US lodging industry will achieve 65% occupancy in 2015, the highest national occupancy rate since STR began reporting data back in 1987, which should fuel strong RevPAR and EBITDA growth. We believe both of our platforms are well-positioned to benefit from these strong fundamentals.

These trends drove strong fourth-quarter results in both of our portfolios, first at Ashford Trust in the fourth quarter; RevPAR for all hotels increased 11.3%. This growth was driven largely by the new initiatives implemented at Remington, our affiliate manager.

We really began to see the benefits of these initiatives in the third quarter and they have continued to gain traction as our fourth quarter RevPAR performance shows. We are quite pleased with our results since Remington implemented these initiatives, and we expect to see further improvement over time.

Turning to acquisitions, as previously announced back in December, Ashford Trust signed a definitive agreement to acquire the remaining 28.26% interest in the Highland Hospitality portfolio from our joint venture partner, Prudential Real Estate Investors. The buyout is expected to be completed by the end of the first quarter of 2015, and simultaneous with an anticipated refinancing of the Highland portfolio.

Ashford Trust has remained busy on other acquisitions as well. This month Ashford Trust closed on the acquisitions of the 168-room Lakeway Resort and Spa, for a total consideration of $33.5 million and the 232-room Memphis Marriott East Hotel for $43.5 million.

Doug will discuss the details of both of these acquisitions later on the call, but we're excited about these additions to the portfolio, and believe that both of these transactions are indicative of Ashford Trust's strategy to acquire well-located assets in attractive markets, with unique attributes that have the potential for substantial upside by installing our affiliated manager, Remington, to improve bottom-line performance where appropriate.

In 2015, Ashford Trust will continue to be opportunistic in pursuing investment opportunities. Having ample capital resources gives us competitive advantage, as we have continued to take advantage of the favorable capital markets to strengthen our balance sheet and shore up our liquidity. Some examples of this are: in early January of this year, Ashford Trust refinanced two mortgage loans that resulted in excess net proceeds of over $100 million after closing costs and reserves.

Furthermore, in February, Ashford Trust completed a follow-on public offering resulting in net proceeds of approximately $111.1 million. For Ashford Prime, the fourth quarter RevPAR for all hotels increased 11.0%. We saw strength across many of Ashford Prime's markets, including RevPAR growth of 27.9% for the Courtyard Philadelphia Downtown; 15.2% for the Courtyard Seattle Downtown; 14.9% for the Courtyard San Francisco Downtown; and 9.9% for the Capital Hilton Washington, DC. We continue to be pleased with the operational performance of the Ashford Prime Platform and Jeremy will offer some additional details into this portfolio shortly.

As previously announced, the Board of Directors of Ashford Trust declared a dividend of $0.12 per share for the fourth quarter of 2014. The Board also approved Ashford Trust's dividend policy for 2015, during which the Company expects to pay a quarterly cash dividend of $0.12 per share, or $0.48 per share on an annualized basis.

The Board of Directors for Ashford Prime declared a fourth-quarter 2014 quarterly cash dividend of $0.05 per share. The Board also approved Ashford Prime's dividend policy for 2015, during which Ashford Prime expects to pay a quarterly cash dividend of $0.05 per share, or $0.20 per share on an annualized basis.

The adoption of a dividend policy does not commit either companies to declare future dividend. Both Ashford Trust and Ashford Prime will continue to review their dividend policies on a quarter-to-quarter basis.

In conclusion we are very pleased with our operating performance across both platforms in the fourth quarter and for all -- for the full-year of 2014. Ashford Trust and Ashford Prime are both well-positioned for growth as lodging sector fundamentals in 2015 are predicted to remain strong.

At the same time, we are very excited for the prospects of our newest venture, Ashford Inc., which is also poised to benefit from these same industry trends. As always, the interest of our shareholders is most, is our utmost concern, as the Ashford group of companies is structured to ensure the alignment of management's interest with shareholders.

The management team is and will remain significant shareholders in the Ashford companies. We thank you all for your continued support and look forward to updating you on our progress in future calls. With that, I will now turn the call over to Deric to review our financial performance for this quarter.

Thanks, Monty. For the fourth quarter of 2014, Ashford Trust reported AFFO per diluted share of $0.17, compared with $0.14 a year ago. Ashford Prime reported AFFO per diluted share of $0.21, compared with $0.09 a year ago.

For the fourth quarter, we reported adjusted EBITDA of $71.7 million for Ashford Trust, and $17.5 million for Ashford Prime. This adjusted EBITDA result for Ashford Prime reflected a 64% increase over the prior year.

At quarter's end Ashford Trust had total assets of $2.8 billion in continuing operations, and $3.6 billion, including the Highland portfolio, which is not consolidated. It had $2 billion of mortgage debt in continuing operations, and $2.8 billion overall, including Highland.

The total combined debt for Ashford Trust currently has a blended average interest rate of 5.3%, and is currently 46.7% fixed rate and 53.3% floating rate, all of which have interest rate caps in place. Including the market value of Ashford Trust, equity investment in Ashford Prime and Ashford Inc., and its pro rata share of the net working capital of the Highland portfolio, Ashford Trust ended the quarter with net working capital of $542 million.

Ashford Prime at quarter's end had total assets of $1.2 billion in continuing operations. It had $765 million of mortgage debt in continuing operations, of which $49.4 million related to our joint venture partner's share of the debt on the Capital Hilton and Hilton La Jolla Torrey Pines.

Ashford Prime's total combined debt had a blended average interest rate of 4.99%, and is currently 54.7% fixed rate and 45.3% floating rate, all of which have interest rate caps in place. As of December 31, 2014, the Ashford Trust portfolio consisted of 115 hotels with 23,004 net rooms, and the Ashford Prime portfolio consisted of 10 hotels with 3,472 net rooms.

Ashford Trust's share count currently stands at 118.3 million fully diluted shares outstanding, which is comprised of 100.1 million shares of common stock and 18.2 million OP units. Ashford Trust has 19.7 million OP units, but as a result of the current conversion factor being less than 1 for 1, these units are convertible into approximately 18.2 million shares of common stock. Ashford Prime share count currently stands at 32.8 million fully diluted shares outstanding, which is comprised of 24.1 million shares of common stock and 8.7 million OP units.

Taking a look at our capital markets activity, in the beginning of January, Ashford Trust successfully refinanced two mortgage loans with an existing outstanding balance of approximately $354 million. The two previous mortgage loans that were refinanced include: a $211 million Goldman Sachs floater loan, with a final maturity date in November 2017, and a $143 million Merrill Lynch loan, with a final maturity date in July 2015. The new loans total $478 million, and resulted in excess net proceeds of over $100 million after closing costs and reserves.

During early 2015, Ashford Trust was also able to opportunistically raise equity capital to fund our growth initiatives. In February, the Company completed a follow-on public offering of 10,529,450 shares of common stock at $10.65 per share, resulting in net proceeds of $111.1 million. As mentioned earlier, Ashford Prime will continue to be conservative in its use and structure of leverage, consistent with our leverage target of 5 times net debt plus preferred equity to EBITDA.

In 2014, Ashford Prime capitalized on the favorable capital markets conditions we are seeing, to opportunistically refinance some of its debt. Our goal with this refinancing was to reduce our interest expense, and increase cash flow, while pushing out the debt maturity.

To this end, in November Ashford Prime refinanced its mortgage loan on the Capital Hilton and the Hilton La Jolla Torrey Pines, reducing the interest rate by 0.85%, and resulting in savings of approximately $1.6 million and interest cost per year. In the future, we will continue to look for these types of opportunities, to improve the cost of capital and maximize cash flow.

I'd now like to turn it over to Jeremy to discuss our asset management accomplishments for the quarter.

Thank you, Deric. I'm excited to share today a second consecutive quarter with double-digit RevPAR growth across both portfolios. The robust transient demand seen across the industry in the third quarter, persisted through the end of the year, driving strong topline results.

We are particularly pleased with the strength in the Washington, DC market, where our assets across both portfolios grew RevPAR by 13.2%. The corporate transient demand was the most significant driver. We've also seen substantial improvement in the government segment, which is essential to long-term health of the DC market.

Initially, Ashford's revenue optimization strategies continue to yield positive results in the fourth quarter. Leading our properties in both portfolios to outgrow their competitive sets, with Ashford Trust and Ashford Prime posting combined RevPAR index growth of over 200 basis points.

Focusing on the Ashford Prime portfolio, RevPAR growth in the quarter was 11%. EBITDA flow-through was 52% in the quarter. Continued strength on the West Coast, combined with resurgent transient demand in Washington, DC and Philadelphia, drove the second consecutive double-digit RevPAR growth for Ashford Prime.

November marked the one-year anniversary of the Ashford Prime spin-off from Ashford Trust. And I'd like to take some time to discuss the highlights of the portfolio's first year as a standalone company. In the first quarter, Ashford Prime added two additional hotels: the Sofitel Chicago Water Tower and the Pier House Resort in Key West.

Major projects completed during the year included complete guestroom renovation at the Courtyard Philadelphia Downtown, lobby renovations at the Marriott Seattle and the Renaissance Tampa, and a strategic project to create additional rooms at the Capital Hilton. Most important, though, are the outstanding operating results these properties continue to generate.

Moving to the Ashford Trust side, during the fourth quarter, the Ashford Trust portfolio grew RevPAR by 11.3%. 56 of the 115 hotels grew RevPAR by double digits in the quarter. The West Coast markets remains strong, with San Francisco and San Diego, growing at 16.7% and 11.5%, respectively. We also saw continued resurgence of transient business on the East Coast, where Boston, Washington, DC and Atlanta assets grew RevPAR at 15.3%, 14.4%, and 14.2%, respectively.

I'd like to share the results of two of our major capital projects that we completed in the fourth quarter. The first of these is rooms renovation at SpringHill Suites in Lake Buena Vista, Florida. This property is part of a three-property complex with the combined 1,100 guestrooms, which is 4.8% total trust portfolio.

Lake Buena Vista, adjacent to Disney World, Universal Studios, and SeaWorld is an international vacation destination. The new design seamlessly blends both contemporary styling with practical design for families traveling on vacation. With peak season approaching, this refreshed asset is positioned near the top of its competitive set and deliver stellar results.

As part of Ashford's core asset management strategy, we constantly pursue a wide variety of opportunities to improve the profitability and value of our assets. During the year, we proactively negotiated more than 16 extensions of our management and franchise agreements scheduled to expire prior to 2020.

Our risk management department achieved over $1.2 million in annual cost savings during our property insurance renewal. In addition to these larger items, we have routinely evaluated all active retail leases, antenna installations, and parking agreements, and perform numerous RFP processes to maximize these ancillary revenue streams.

As mentioned on the previous calls, in August of 2013, Ashford Trust announced a conversion of the Beverly Hills Crowne Plaza to a Marriott. We identified a gap in the supply of Marriott rooms in that market, with no full-service Marriott within 6.5 miles of this property. In preparation for the conversion, at the end of the second quarter of last year, we began a full renovation of the entire property.

I'd like to share with you the completion of the new HVAC systems, and a stunning model room that truly embodies our concept for the new positioning. As of the end of the year, we had renovated a significant portion of the guest rooms and corridors, and began work on a striking new lobby that will provide guests with a truly spectacular sense of arrival. We're very excited about the upcoming opening of the Marriott Beverly Hills.

Throughout 2014, I discussed the many revenue optimization strategies we have pursued as an owner, as well as those deployed by our affiliate management company, Remington. These have involved substantial investment in both personnel and technology to drive property topline performance. I now have the pleasure of quoting some statistics to show the unquestionable impact these initiatives have had on our operating results.

Combining both portfolios, our assets achieved RevPAR growth of 9.4 -- 9.5% in 2014. When comparing to our properties' competitive sets, that represents a combined outperformance of 171 basis points, 110 basis points for Ashford Prime and 186 basis points for Ashford Trust. This 170 basis point outperformance equates to over $16 million of incremental rooms revenue in just one year.

I will now hand the call over to Douglas.

Thank you, Jeremy. As Deric mentioned earlier, in the fourth quarter, Ashford Trust continued to identify unique opportunities created by attractive debt market conditions, to proactively manage our upcoming debt maturities. This has allowed us to generate substantial excess proceeds and further strengthen our liquidity position. We ended up putting these excess proceeds to good use.

During the fourth quarter, we announced an agreement to acquire the remaining 28.26% ownership interest of the Highland Hospitality portfolio, from our joint venture partner for $250.1 million. The total transaction value is $1.735 billion, or $215,000 per key.

On a forward 12-months basis, the purchase price represents a cap rate of 7.4% on net operating income and 11.6 times forward EBITDA multiple. This purchase will be funded with cash and is expected to be completed in the next couple of weeks, simultaneous with anticipated refinancing of the Highland portfolio.

Ashford Trust continued executing on its investment strategy in 2015, with the acquisitions of the 168-room Lakeway Resort and Spa, for a total consideration of $33.5 million, or $199,000 per key, and the 232-room Memphis Marriott East Hotel for $43.5 million, or $187,500 per key.

The Lakeway Resort and Spa has unique lakefront location in Austin, Texas, one of the fastest-growing MSAs in the country in both population and job growth. By installing Remington as property manager, we believe we will be able to capitalize on the recent renovations and growth in the market to drive better bottom-line performance.

On a forward 12-month basis, the purchase price represents an estimated cap rate of 8.7% on net operating income, which equates to an estimated 9.5 times forward EBITDA multiple. The Marriott Memphis East acquisition offered us a great opportunity to add an asset in the solid submarket, with no new competitive supply and stable corporate demand generators.

Additionally, the hotel has minimal CapEx needs after undergoing a complete renovation and conversion to a full-service Marriott. The property is being managed by Remington Lodging, and our expectation is that Remington will be able to achieve solid increases in RevPAR penetration as the property stabilizes. On a forward 12-month basis, the purchase price represents an estimated cap rate of 8.6% on net operating income, and an estimated 10.3 times forward EBITDA multiple.

Also in November, Ashford Trust completed the sale of the Homewood Suites Mobile, for a total consideration of $7.4 million. The sale represented a trailing 12-month cap rate of 7.4% on net operating income, and a trailing 11.8 times EBITDA multiple after factoring in the expected cost of PIP-related CapEx.

Looking ahead, our deal pipeline remains strong and we'll continue to leverage our multi-platform capabilities in the marketplace. Our investment strategies are focused, as Ashford Prime will continue to focus on high RevPAR assets, and Ashford Trust will continue to be opportunistic while focusing on full-service hotels, with less than 2 times the national RevPAR average.

In addition, Ashford Prime does not expect to exercise its option to purchase the Marriott Gateway from Ashford Trust. We believe both platforms are well-positioned as favorable lodging market conditions are expected to continue as the US economy grows. Our goal is to provide you with superior investment returns, something our track record clearly demonstrates.

That concludes our prepared remarks and we will now open it up for your questions.

(Operator Instructions)

Ryan Meliker, MLV & Co.

Good morning, guys. Nice RevPAR this quarter. I'm sure Jeremy was running through the halls when those numbers came in. Quick question, I guess a couple for you. First of all, can you give us and I apologize if I missed this, can you give us any update on the Philadelphia sale for Ashford Prime? Can you also, if you can you talk to us a little bit about the Highland refinancing. My understanding is you guys are out in the market looking for CMBS debt for the Highland portfolio?

Obviously, you're not going to give us any information in terms of how things are coming out but just give us an idea of what we should expect, whether you're going to take out excess proceeds or you're going to try to unencumber some assets. Things along those lines would be helpful in terms of how we model that.

And then the third thing was, can you talk a little bit about Ashford Inc. and the structure for how Select is going to progress, whether it's going to be -- it sounds like it's going to be private capital you're being raised. How much of that has been raised thus far, when you expect to finish raising that capital, how big you want it to be and what type of structure and then how the fee structure to Ashford Inc. might unfold? I know it's a lot but hopefully, that will take a few minutes. Thanks.

All right, thanks Ryan. This is Monty and appreciate the kind words on RevPAR. Jeremy and his crew and the team over at Remington had really worked their tails off in the past 1.5 years, with all these revenue initiatives we've been mentioning and they're producing fantastic results so we are very proud of those.

Regarding Courtyard Philly, we're still marking it for sale. It's still out in the marketplace. It's going along. Although with the Ashford Select initiative, we are looking at it and just to keep in the back of our mind whether it be an inappropriate asset for Ashford Select or not as an alternative. So that's currently in our minds but no decision has been made regardless which way.

For Highland, we are in the process of closing the transaction and buying out our partner and refinancing the portfolio simultaneously. It is a use of cash to buy out our partners. The financing itself will produce proceeds; it's just how much of those proceeds, will those proceeds be enough to pay for some or all or more than all of the purchase price to our partners. We should have some details on that to you soon. I know you would like more details but we should be wrapping that up in the not too distant future. In that way, should be able to give you all the details that you're looking at but we're in the throes of trying to get that closed here in a pretty near future.

Regarding Ashford Select, unfortunately, we're just prevented from Securities Laws, from commenting very much on that. That's just something that we can't talk about in a broad audience. We wish we could give you more details on it but we just can't at this point in time. But as soon as we can, please know that we absolutely will because we know how important it is for you guys to do your models, both for Ashford Trust and Ashford Inc.

All right. I understand that. And then so in terms of timing for Select and the transactions out of Trust and Select and the decision on Philadelphia for Ashford Select or we -- is 2Q a reasonable expectation for when those transactions could occur?

Yes, I think so. I think Q2 is reasonable, of course, you never know but I'd say that's pretty reasonable

Sure and then with regards to the Highland refi, I appreciate some of that color. Are you planning to unencumber a few of the assets and would they be assets that Prime has a ROFO on?

Not necessarily. What we're trying to do is make sure that we've got plenty of abilities to release assets so in a way, it's the same thing, right? Flexibility. Because we do want to have the flexibility to have assets go into Prime and/or into Select as that gets formed. We're definitely working to include that kind of flexibility.

Great. That's it for me for now. Thanks a lot and great quarter.

Thanks Ryan. I appreciate it.

David Loeb, Baird.

Good morning. I wanted to ask a couple of follow-ups on some of the things that Ryan talked about. I won't beat the dead horse about Select although that's clearly an interest. Just in terms of the strategy for the Highland refinancing, are you looking at one big CMBS package or are you looking to split that up and finance a number of assets differently and separate?

David, it's Deric. Three of the assets in the portfolio have existing fixed rate debt on them so we are not looking to refinance those. The remaining assets we're looking to finance and it will probably be a big pool, but as Monty mentioned, we've -- we're seeking a lot of flexibility in terms of our ability to move some assets around. So again we hope to have some more information for you here pretty soon.

Great, thank you, Deric. And Monty, I heard you on the Philly sale process for Prime and particularly, the potential of that could be interesting for Select. But I wondered if you could just talk more broadly from the Prime perspective, the results of that hotel were spectacular this past quarter. You're still running off of the renovation benefit there. How do you evaluate time versus the interest in getting that property sold and do you think there is additional value to be had by waiting to sell it given the ramp or do you think that buyers are likely to pay for that anyway in the near term?

David, well, you hit right on it. As we went to market the asset, trailing numbers are something that buyers are much, much more willing to pay for than hopefully anticipated future numbers, no matter how positive that might look. Here in the fourth quarter, we saw it just being shaping up as a fantastic quarter for that asset.

When you start a marketing process, many times you have to use numbers that are a few months old for a number of reasons so we wanted to make sure that, that value creation and years to the full benefit of Ashford Prime. So that's why we aren't in a dead rush to go market it and to sell it although that's our process. We want to make sure we're getting full value. So the point you bring up is exactly why we're still marketing it but we just want to see how everything works out because we do want full value for those Prime shareholders.

Great and Monty, could you also give us a view on your thoughts of markets that have energy exposure like Houston or other parts of Texas, Denver, other markets. What do you think about the outlook for those and how does it impact your acquisition efforts?

Sure. We're just gun shy about those markets. Doug and I grew up in Houston in the 1970s and 1980s and so we saw the great run-ups and the great rundowns. And while the chatter is that the markets are much more diversified now and in some cases, they are, we just don't see the need to take risks in markets that have question marks on them when there's so many other markets and assets selling for pretty attractive prices. So as we look to buy assets, we're going to generally be straying away from Texas and Colorado and any other markets although many times, when you chase portfolios, there are a few assets in these markets and that's fine.

We're not completely redlining them but we do have a very strong cautious stance towards them for the reasons that I shared. We have been beat up once before. We don't need it again. So we're going to be careful. As far as our existing assets in Houston, we are seeing some softening. The business on the books is not as strong as it was at this time last year so it just has a question mark on it. We're just being careful.

And then finally, can you just talk a little bit more about your acquisition pipeline? How optimistic are you that you'll be able to find acquisitions for Trust, for Select, for anything?

We're pretty optimistic. A number of years ago, in 2009, 2010, was a great time to buy assets but no one would sell because everyone knows that it's a low time in the industry. That's why, as you know, we went and bought back so much of our stock because that was the best opportunity at the time. Right now, it's interesting because values have come back and they have come back strongly and sellers can sell assets at decent profits from whatever they might have bought it or build it, and therefore, can make some money. But we're pretty optimistic for the next number of years in the industry which some people are and some people aren't.

Well, that gives us a great dynamic where you do have sellers in the marketplace selling and so volumes of assets are rising and are very, very strong yet it's not, in our opinion, close to the peak of the market and therefore, the wrong time to buy. We see product in available for all platforms and we're aggressively looking at products and underwriting them. Doug, do you want to comment?

Dave, if I could add just one thing. With the platforms we have, Prime Trust and soon, Select, we're seeing portfolios in the market that oftentimes have mixed assets, full- service and select-service or high RevPAR and more middle-of-the-road RevPAR assets. We believe that our Ashford group of companies gives us a competitive advantage. Sellers typically like to sell to one group rather than to engage in multiple groups that attempt to cherry pick and there are already a couple of those opportunities like that in the market where the competitive landscape is significantly reduced and we're obviously one of the groups that's participating.

That's very helpful, Doug. I was actually going to ask about that competition. So thank you. Thank you all. That's all I have. Very helpful.

Chris Woronka, Deutsche Bank.

Good morning, guys. Just want to ask on the Courtyard Philly, when you do -- assuming you do sell it, thoughts on use of proceeds there? I think you have about $40 million of debt and since you did $11 million of EBITDA last year, your price will be well in excess of that so just thoughts on what you might do with the proceeds?

Sure, we're out in the marketplace mining for opportunities for Prime and we think there are some great opportunities for Prime. So we're going to keep looking for good quality, high-end assets to buy so there's a chance to recycle the capital out of lower RevPAR assets and to reinvest it into assets that are more in line with the Prime strategy.

Okay, would that -- is that going to be part of a 1031? Is that the idea?

If we can and if it's helpful. We absolutely want to take advantage of that when and where we can. It depends upon a number of factors, as you know. I'm sure you're familiar with all the regs around it.

Yes, sure. And then just as we think about it, you touched on it in the last question so I don't want to spend too much time on it. But I mean, as we think about Trust and you have clear criteria for Prime and you have clear criteria for Select, do you think there are opportunities out there for Trust to still acquire? Obviously, you did a few things in the fourth quarter and early this year but is it a fairly wide band still or are the criteria making it more narrow and difficult for Trust to find things that, that might fit?

Good question and just to be clear, we have very clear criteria for Prime and for Select. But that also gives very clear criteria for Trust because that means it's everything else that doesn't fit in those other clear criteria. So the criteria for Trust is very clear and we do see opportunities. We just closed on the Lakeway in Austin acquisition. We just closed the Marriott in the Memphis acquisition and we're looking at an opportunity right now that's full-service asset and looking at a few others so there's no question there is plenty, plenty of hotels in the United States that are full-service that are below twice the national average.

I think just one thing to add to it is that the race to RevPAR has been exhibited by many of our REIT peers. We've created that dynamic by separating out platforms to address opportunities across all RevPAR segments. With respect to Ashford Trust, we believe that this focused strategy actually reduces some of the competition because when we look at some of the opportunities such as that property in Memphis, I don't believe that there were very many REIT peers that were bidding on it. And yet we feel like we bought it at a very attractive cap rate for the RevPAR that it delivers with the potential upside opportunity by bringing in our affiliated manager at Remington.

So we continue to see many opportunities, less competition and arguably more value-add opportunities given that many of these types of assets are run by regional or local managers that don't necessarily have the same competitive advantages that we bring to the table given our scale and operational know-how so all three platforms have a good pipeline of opportunities right now.

Okay, very good. Thanks.

And it looks like we have time for one last question. Robin Farley, UBS.

Thank you very much. It's actually [Archana] for Robin. Just two quick questions. Good flow through in the quarter. Could you give some color what's driving management fees to be down year-over-year. And then on the transaction market, at this point in the cycle, there are not that many distressed hotels remaining in the US. Do you expect to be a net buyer this year? Thank you.

We do expect to be a net buyer. Doug, if you want to hit the transaction and Jeremy, you can talk about the first question.

Sure, we view that we're at a point in the cycle where there's still plenty of runway and we also view that with the performance of the assets given where we are with respect to the relative contribution of occupancy and ADR to RevPAR growth. Clearly ADR is contributing more to the growth because we are really running at peak occupancy as an industry and obviously, that ADR growth drops to the bottom line with greater profitability. So we view this to be and you can look at the RevPAR performance out of our assets, which has been exceptional, not necessarily the best time to sell while we have been a net buyer.

We have clearly sold onesies and twosies such as the Mobile property and we continue to evaluate the sale of the Philly Courtyard but you can see our discipline in evaluating that sale given the strength of the RevPAR growth performance that it had. So we will be strategic and very, very selective sellers at this phase of the cycle.

We prefer to capitalize on what we see to be the net growth opportunities for the industry overall, continue to implement our value-add asset management strategies which have been clearly demonstrated this quarter and be disciplined in how and what we buy, allocating capital to the appropriate risk adjusted returns in each one of these platforms. Jeremy?

Can give me a little bit more clarity on your question for management fees because at least for Trust, they're right in line with what they were in the prior quarter.

I'm just looking at the consolidated $7.5 million versus $8.4 million last year.

Okay, okay, I see what you're looking at. Okay, so last year, we had some of the Prime assets consolidated. I think what you're looking at is maybe consolidated that includes some incentive fees so not just base management fees and incentive fees clearly are up in the portfolio.

Okay, okay. (multiple speakers) I guess is that's exactly what I was looking for. Could you guys give some color how much?

For tenant fees? They can -- as a percentage of revenue, all the increases that you see in the management fees are comprised of incentive fees.

Great, thank you.

And it does look like we have no further questions at this time. We will now hand it back over to Management for any additional or closing remarks.

Thank you. This is Monty. Just one clarification on that last call. If you don't mind giving a call to our CFO because in looking at Ashford Trust last year, the management fee levels that included for a lot of the year, Ashford Prime management fees are -- but now Ashford Prime pays so you have to look at it on a pro forma basis so that might help. So otherwise, thank you everybody for your participation today and we look forward to speaking with you again on our next call.

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