Ashford Hospitality Trust Inc (AHT) 2015 Q2 法說會逐字稿

Good day, and welcome to the Ashford Hospitality Trust and Ashford Prime second-quarter 2015 conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Ms. Stacy Feit. Please go ahead, ma'am.

Thank you, good day, everyone. Welcome to today's conference call to review results for both Ashford Hospitality Trust and Ashford Hospitality Prime for the second quarter of 2015 and to 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 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 Company's filings with the Securities and Exchange Commission. 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 Company's earnings releases and accompanying tables or schedules which have been filed on Form 8-K with the FCC on August 6, 2015, may also be accessed through both Company's websites at www.ahdreit.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. Good morning, everyone, and thank you for joining us. During the quarter, we again posted a strong operating performance at both Trust and Prime, driven by the positive trends we continue to see in the lodging sector, as well as the success of our revenue initiatives. In addition, both Companies have been active in the acquisition market and completed value-enhancing transactions during the quarter.

We continue to manage each business with the long-term interest of all the shareholders in mind and believe our long-term track record, coupled with the industry-leading insider ownership among publicly traded hotel REITs demonstrates our aligned interest with our shareholders.

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

Our shareholders have benefited from our efforts. Since our IPO, Ashford Trust has achieved a 187% total shareholder return. We are particularly shareholder focused as we are also substantial shareholders in both Trust, with 16% insider ownership; and Prime, with 14% insider ownership. To put that in context, the next closest hotel REIT peer has 5% insider ownership and the peer average is around 2%.

Having so much of our personal capital invested in these platforms has created a high level of alignment between our management team and our shareholders. Thinking and acting like shareholders has always distinguished Ashford from others in our industry. We consider it one of our main competitive advantages and the reason for our superior long-term performance.

Our structure is much more aligned with shareholders than that of our peers. Our peers get paid mostly on the size of their platform and a bit on performance. Our advisor gets paid mostly dependent upon performance, with a base fee affected largely by stock price, and an incentive fee based exclusively on exceeding our peers' returns. Given our high insider ownership across both of these platforms as well as the structure of our advisory agreements, we are the most highly aligned management team with our shareholders in the hotel REIT space.

I'd like to take a moment to review the refinement and strategic direction that we recently announced at Trust. Following a full analysis of the potential strategies and the response from investor feedback, Trust has listed for sale a portfolio of 23 select service hotels that we will take an opportunistic approach to selling, and will take an opportunistic approach to selling the remaining select service hotels in the future.

The initial brokers' opinions of value are approximately in the $575 million to $600 million range for this portfolio. We have begun the sales process and anticipate completing the sale in early 2016. Trust focuses predominantly on the upper upscale full-service hotel. We believe this more simplified strategy will drive superior long-term returns for Trust shareholders and we plan to redeploy the proceeds from the select service portfolio sale, subject to always to other factors such as share price, and to accretive opportunities to acquire full service assets. This is another step forward towards our goal with the Ashford group of Companies that's having very well-defined distinct strategies within our investment platforms.

Further, Trust is not planning nor does it expect any future platform spin-offs. Trust will continue to target net debt-to-gross assets of 55% to 60%, and Trust will continue to target a cash and cash equivalence balance equal to 25% to 35% of its total equity market capitalization for financial flexibility. We hope these announcements and clarifications will provide investors with more comfort with our strategy and will help simplify the Trust story.

From an evaluation perspective, we believe shares of both Trust and Prime are currently trading at a significant discount to where similar assets are trading in the private market. Trust is currently trading at a trailing 12-month NOI cap rate of approximately 8.4% and Prime is currently trading at a trailing 12-month NOI cap rate of approximately 9.4%.

Based on deals we have seen trade and other market information from industry consultants, for Trust we believe similar assets to those in this portfolio are trading in the private market at an approximate trailing 12-month NOI cap rate of 7% or better, while the Prime portfolio's estimated private market cap rate is 6.5% or better. We believe these private market cap rates would imply share prices for Trust and Prime of $15.85 and $27.60 respectfully.

Now let's review the second quarter highlights. From a macro perspective, the fundamentals in the lodging sector continue to exhibit positive trends in the second quarter, with strong demand growth and supply growth remaining well below historical averages. Currently, PKF projects that supply will only grow by 1.2% in 2015 while demand will grow at a 3.1% pace. With occupancy at all-times high, this dynamic should lead to continued strong RevPAR and EBITDA growth.

In the second quarter, these positive trends support a strong performance at both of our platforms as Trust's second-quarter RevPAR for all hotels increased 6.6% while Prime's RevPAR grew 9%. Much of this growth is attributable to the successful revenue initiatives we have implemented in both of these platforms as our hotels continue to outperform their competitive sets.

On the transaction front, we had some notable activities during the quarter. Trust closed on the Le Pavillon Hotel in New Orleans for $62.5 million, including $4 million in key money consideration provided by Ashford, Inc. This was the first Trust deal to utilize the new key money concept from Ashford, Inc. recently announced. Subsequent to the end of the quarter, Trust also closed on the acquisition of the W. Atlanta Downtown hotel for $56.8 million.

Prime announced the $85 million acquisition of the award-winning Bardessono hotel in Yountville, California, in the attractive Napa Valley market. Ashford, Inc. provided $2 million in key money consideration for this transaction, the first key money deal for Prime which closed subsequent to quarter end.

In closing, we are proud of the strong operating performance we have continued to generate at both platforms in the second quarter. We believe we are well-positioned for a strong second half of 2015 as market fundamentals in our business remain positive.

We expect the more simplified and defined strategy of Trust to drive superior long-term returns for our shareholders and we continue to focus on generating value-creating opportunities for both platforms. As always, maximizing shareholder value is our primary goal, and our significant ownership in the platforms and revolutionary advisory agreements and shared -- the alignment of management's interests with our shareholders.

We thank you all for your continued support and look forward to updating you on our progress in future calls. I'll now turn the call over to Deric to review our second-quarter financial performance.

Thanks, Monty. For the second quarter of 2015, Trust reported AFFO per diluted share of $0.49 compared with $0.39 a year ago. This reflects a 26% growth rate over the prior year. Prime reported AFFO per diluted share of $0.60 compared with $0.45 a year ago. This represents 33% growth over the prior year. For the second quarter, we reported adjusted EBITDA of $120 million for Trust and $29.1 million for Prime. These results reflected a 24% growth rate over the prior year for Trust and a 12% growth rate for Prime.

At quarter's end, the Trust had total assets of $5 billion in continuing operations. It had $3.7 million of mortgage debts in continuing operations with a blended average interest rate of 4.96%. The debt is currently 35% fixed rate and 65% floating rate, all of which have interest rate caps in place. Including the market value of Trust Equity Investment and Prime and Ashford, Inc., Trust ended the quarter with net working capital of $558 million. Subsequent to quarter's end, Trust distributed its equity investment in Prime to its shareholders.

Prime, at quarter's end, had total assets of $1.3 billion in continuing operations. It had $762 million of mortgage debt in continuing operations, of which $49.2 million related to its joint venture partner's share of the debt on the Capital Hilton and Hilton La Jolla at Torrey Pines. Prime's total combined debt had a blended average interest rate of 4.53% and it's currently 55% fixed rate and 45% floating rate, all of which have interest rate caps in place. Prime ended the quarter with net working capital of $245 million.

As of June 30, 2015, the Trust portfolio consisted of 127 hotels with 27,180 net rooms. And the Prime portfolio consisted of 10 hotels with 3,472 net rooms.

On the financing front, during the second quarter, Trust closed on a $25.1 million nonrecourse mortgage loan for the Lakeway Resort and Spa in Austin, Texas and a $43.75 million nonrecourse mortgage loan on the Le Pavillon hotel in New Orleans.

Turning to Prime, during the quarter Prime closed on a private placement of its 5.5% Series A cumulative convertible preferred stock at a 144-A offering for $65 million in gross proceeds. This transaction enables further platform growth without raising common equity at the currently depressed prices.

Trust's share count currently stands at 120.4 million fully diluted shares outstanding, which is comprised of 101.2 million shares of common stock, and 19.2 million OP units. Trust has 20.4 million OP units, but as a result of the current conversion factor being less than one for one, these units are convertible into approximately 19.2 million shares of common stocks. Prime share count currently stands at 32.5 million fully diluted shares outstanding, which is comprised of 24.2 million shares of common stock and 8.3 million OP units.

With regards to dividends, the Board of Directors of Trust declared a second quarter 2015 cash dividend of $0.12 per share or $0.48 per share on an annualized basis. The Board of Directors of Prime declared a second quarter 2015 cash dividend of $0.10 per share or $0.40 per share on an annualized basis, which is a 100% increase over the prior dividend. The adoption of a dividend policy does not commit either Company to declared future dividends. Both Trust and Prime will continue to review their dividend policies on a quarter-to-quarter basis.

Finally subsequent to quarter end, Trust distributed the remaining units of Prime's operating partnership and shares of Prime common stock that Trust owned to partners of Trust's operating partnership and Trust shareholders, respectively. The distribution, which equated to approximately 0.04 shares of prime common stock for every share of Trust common stock owned was completed through a pro rata taxable dividend of Prime common stock on July 27, 2015. Trust no longer has any ownership interest in Prime.

This concludes our financial review. I'll now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Thank you, Deric. During the second quarter Trust grew RevPAR by 6.6%. Trust assets continued to outperform their competitive sets, gaining 70 basis points of market share index. This marks the sixth consecutive quarter that Trust has gained market share.

Moving to the Prime portfolio, RevPAR grew by 9% during the quarter. The West Coast properties primarily drove this growth with a combined RevPAR increase of 12.1%. The Courtyard Philadelphia Downtown continued its strong year, growing RevPAR by 14.6%, outperforming competitors by 170 basis points.

The Washington, D.C. assets in the Trust portfolio showed particular strength this quarter, producing a combined 12.5% increase in RevPAR. This strength was broad based with seven of 10 assets growing by double digits and encompassed the Downtown, Crystal City, and suburban markets.

We continue to feel optimistic about the long-term Washington, D.C. market outlook. The influx of new supply in 2014 has been mostly absorbed and Smith Travel Research projects tepid supply growth over the next 24 months. This combined with an improving city-wide calendar in 2016 and 2017 suggests continued favorable market conditions.

Oil prices remain relatively low in the second quarter, primarily impacting the Houston market. Trust assets in that market grew RevPAR by 1.7%. We were pleased to see our Dallas/Fort Worth assets remain largely unaffected, as they represent a larger portion of the portfolio. Trust assets in Dallas/Fort Worth grew RevPAR by 7.3%, and the Marriott Plano in the Prime portfolio grew RevPAR by 9.7%.

We maintain a positive outlook for the Dallas/Fort Worth market and believe its diversified demand drivers will continue to shield our assets from the negative impact of cheaper oil.

Lastly, in August of 2013, Trust announced a plan to convert the Beverly Hills Crowne Plaza to a Marriott. We had identified a gap in the supply of Marriott rooms in that market, with no full-service Marriott within six and a half miles of the property. In preparation for the conversion, we began a comprehensive renovation.

During the second quarter, Ashford proudly announced the completion of the new product, which successfully opened on June 30, 2015, as the Marriott Beverly Hills. We're excited for the future performance of this property and believe it will be a valuable addition to the Trust portfolio.

I will now hand the call over to Douglas.

Thank you, Jeremy. As Monty mentioned, in the second quarter we continued to successfully execute on our investment strategies. Consistent with this new strategy in June and subsequent to the end of the quarter, Trust announced the acquisition of a number of high-quality assets with great locations and growing demand drivers.

These included the $62.5 million acquisition of the 226-room Le Pavillon hotel in New Orleans; the $56.8 million acquisition of the 237-room W. Atlanta Downtown; and the $101 million acquisition of the iconic W. Minneapolis Hotel, The Foshay, and the Le Meridien Chambers Minneapolis.

All these assets are well-aligned with Trust's refined investment strategy and we anticipate them to be accretive contributors to our performance going forward.

Turning to Prime, during the second quarter we announced the acquisition of the leasehold interest in the award-winning 62-room Bardessono hotel and spa in Yountville, California, for a total consideration of $85 million. This acquisition closed subsequent to the quarter and providing Prime with a foothold in the attractive Napa Valley market. Given the superb quality of this recently-built asset, its unique location, and extraordinary RevPAR generation, the highest in the Prime portfolio, this property aligns perfectly with Prime's strategy of investing in luxury assets in gateway and resort markets.

Our investment strategies are focused as Prime will continue to focus on high-quality, high-RevPAR assets in gateway and resort markets. And Trust, with its refined investment strategy, will focus on full service, upper upscale hotels. We believe both of these platforms are well-positioned to capitalize on the attractive lodging market conditions and will have opportunity to grow both organically and through acquisitions.

As always our goal is to provide you with superior returns across our platforms, something our track record clearly demonstrates. That concludes our prepared remarks and we will now open it up for your questions.

Thank you.

(Operator Instructions)

We'll take our first question from Ryan Meliker with Canaccord Genuity.

Hey, guys, good morning. Thanks for taking my questions. I had a few, but I'll try to be brief here.

The first thing that I was hoping you guys could talk about a little bit was -- you published what you believe the private market value of your portfolio is and I think that's helpful for a lot of people. I'm just wondering, given the fact that both Trust and Prime trade at, you know, almost 50% discounts to that private market value, have you and the Board discussed any alternatives, whether you're looking to, you know, commence on a strategic review to try to figure out how you can get things on the right track? Just any color surrounding, now that you have publicly stated what you think the value is, how you're going to realize that value?

Thanks, Ryan. There is a market to disconnect going on in the marketplace today between public and private market values. It's as big as I have ever seen. We've tracked it all the way back to the 1990s. It is really just astonishing.

What we find is that the private market values move from year-to-year somewhat modestly while public market values can move around a lot and be out of sync much more so than the other way around. And so our belief is that this is a temper tantrum of sorts that's going on in the markets that will be corrected in the not-too-distant future.

That being said, we are always open to alternatives, and we continue to talk in both platforms to any way to increase value. Of course, that's, we think maybe, within our control.

Over on the Prime side, we've really focused on this. So we've been continuing our plan of deleveraging. We've added a very high RevPAR attractive asset. We recently did a convertible preferred deal with Ford in order to continue to try different techniques and to create value for our shareholders. And the performance of the assets have been fantastic, especially on the Prime side.

So while putting our Companies up for sale is not something that we are here announcing, we are constantly looking at alternatives, strategic and otherwise, to see what we can do to create value for our shareholders.

All right, thanks for the color, Monty. And then with regards to, I guess the discounts in NAV and I guess you've embarked on, first of all, I thought the convert made a lot of sense and I think it was certainly a good way to raise capital and potentially buy an accretive asset.

How do you balance buying assets with buying back stock when now you take the view that the stock is trading at such a big discount to NAV? And you've been pretty aggressive in both Trust and even Prime on a relative to market cap basis in acquiring assets where you could be buying back stock and that would be much more accretive?

Sure. We anticipate that the rate of acquisitions in the second half of the year to be markedly lower than in the first half of the year.

And when it comes to buying back stock, no one has bought back more shares over time than we have. We have been the most aggressive, I think of any Company that I know in the REIT sector. You may know of more with all of your knowledge across the other sectors.

We had an opportunistic approach to buybacks for both platforms. Dropping share price certainly creates a greater likelihood for buybacks, but share price is not the only factor. There's quite a few other factors that go into a buyback. So we approach every opportunity individually and opportunistically we continue to look at those.

So I know that last month when you put out your press release during your strategic review -- or your strategic changes for AHT you had mentioned that you would only be looking to buy back stock when extraordinary returns are there. Would the 90% upside to NAV that you seeing across both of these Companies warrant extraordinary returns in your perspective?

I think you might have noticed that in our statements we took out that line.

I did notice that.

Yes. So there you go, maybe that helps you with your answer.

That does. And then I guess the last thing I wanted to ask you guys about was I just wanted to get your perspective on the call with regards to the change in the external management contract structure. That was announced in June. You know, the key money from Ashford, Inc. coupled with, you know, I guess the alteration in the structure.

I understand that, you know, Ashford, Inc. felt the need to get something back for the key money. So the structure was shifted a little bit with the termination fee being triggered with a higher level of sales.

But you just said that you're not looking to buy assets? At least not in the near term. So how do you balance those two dynamics?

Well, if I understand your question, Ryan, is that the modifications that were made through the advisory agreement were fairly minor. The termination fee was just a clarification, no changes there. And on the change for control we did button it up. What we're trying to avoid is gaining between platforms.

There are a lot of investors out there that have a very short-term focus and not the long-term interest of the shareholders in mind, even counter to a number of the shareholders in many regards in which we have seen. So we don't think it's fair to the other shareholders to have shareholders jump in and try to gain one platform for the other. These platforms do well because they operate in concert and help each other. And the key money concept is just one of those.

That's money that can be used for these other platforms. It's a great incentive. It helps Trust and Prime grow when they otherwise could not. It lowers Trust and Prime's cost of capital, right? When you factor that in, it's a lower cost of capital that Trust and Prime had than they otherwise would.

So those are the reasons behind those changes and we think they're great reasons. We think they help all the platforms. We think over the long term it will really benefit our shareholders.

So we've put these pieces in place. And if we can get the public markets to behave a little bit and reflect more proper values, it'd be even better for our shareholders and our strategy.

That makes a lot of sense. Thanks, Monty. Just one last one here real quickly.

On the termination fee, a lot of investors, and myself included, have had a difficult time modeling out what the termination fees might look like because we don't know how the expenses at Ashford, Inc. would be allocated to the different REITs. Are you planning to provide any color on that at some point down the road once you -- or maybe you have to figure out how you would allocate those expenses, but I think it would certainly be helpful for people to understand the value?

Ashford, Inc. can't be put out of business. Ashford, Inc. has public shareholders, it's a going concern. What we wanted to accomplish with that, what all platforms wanted to accomplish is that Ashford, Inc. can't just wake up one day and be out of business.

So we, from the very beginning, tailored those termination fees to, as best we could, match the loss in value to the extent that one of those contracts go away, the loss in value to Ashford, Inc. Well, the value that those contracts bring to Ashford, Inc. change over time. It changes based upon what the allocation of those expenses are.

And if you -- if Ashford, Inc. is able to retain the same margins before and after one of these contracts goes away, the termination fee in both platforms is as low as $1 and change. What it is at any specific time is something that we will have to go through at that specific time and go through this whole analysis, which is something that we haven't done.

But we also find that it's not a factor that affects stock price, we found that another externally managed vehicles -- I think we found that -- I think it was in Sam's termination fee, something like almost 40% of their equity value and it doesn't affect them. I think that not only is the number, at least under certain circumstances, very modest, but we don't think it's affecting our stock price.

Okay, that's helpful. That's all for me. Thanks a lot, Monty.

Thanks, Ryan.

Next we'll hear from Ian Weisman with Credit Suisse.

Hi, guys, this is Chris, in for Ian. Just wanted to come at Ryan's question in a slightly different way. Obviously the subsector is out of favor, but over the last four quarters you posted RevPAR growth, an average of about 10%, and yet your stock price is down 17% over that time, which is kind of among the worst for your peers. You know, sentiment is obviously pretty poor.

I know that you've taken steps to simplify the businesses, but just wanted to get your take on why you think the stock continues to underperform despite the results you're posting?

Are you talking about Trust or Prime?

Trust.

Over on Trust, if you look at our results since we've refined our strategy, we've outperformed our peers, at least when I last looked at it, by almost 15 points -- 12 points, 15 points. It has been very, very dramatic. That was based upon feedback that we've heard from our shareholders.

From what we heard from our shareholders prior to that, which is where the underperformance occurred that you mentioned, is a number of them felt like our strategy was a little confusing. There were concerns about the select service platform being dividended out of Trust and, therefore, that destroying some value.

And so despite the fact we assured them that was not in our plans, at some consultations with some of our shareholders, we thought that just absolutely taking that off the table and saying that Trust would not be launching any type of select program would help that. And also settling down and more closely focusing our strategy.

So after these spinouts back in November ended with some of the activity over the spring, we think that there is some confusion about the platform and we think that led to underperformance. And since we have clarified that with investors, we've had a dramatic outperformance and we expect that to continue.

Okay, great. Then on the NOI margins, they really probably the biggest source of the earnings fee, other than the expense as a percentage of revenue declines around the 600 basis points over 2Q 2014. Just wondering how much of the decrease is related to Highland consolidation and how we should think about NOI margins in the back of the half of the year?

For this past quarter, what affected our NOI margins, our flows were in the 40% NOI flows. And, of course, as your margins get higher and higher, you know, having 50% flows, like we typically try to achieve, has a less impact on margins, just the way the math works. This past quarter, incentive fees impacted us negatively and property taxes. And without those, the flows would have been significantly higher.

We have a policy on property taxes. As soon as we are assessed something, we book it and only if and when we are able to beat it, many times years later, do we offset it. And that's a little different practice than our peers. Our peers sometimes most of them will estimate what they think that prop tax will ultimately come in at.

And so some of those assessments that have come in over the past quarter has -- a lot of those locales have seen a great opportunity to increase their tax base, has spurred some higher assessments. So we go ahead and book them. We almost always get some clawback of those and have those come down.

You know as far as the last half of the year, I don't know how to predict whether there's going to be any more property tax assessments from these locales that will be materially higher, like they were in the second quarter. Incentive fees, that's just a math calculation that we can help you with offline about which properties it affects and how much and under what circumstances.

Okay, great. Thank you.

Thank you.

Next we'll hear from Thomas Allen with Morgan Stanley.

Hey, good morning. So you are divesting (inaudible) with Trust? And I'm just wondering, once you have those proceeds, would you be interested in portfolio acquisition?

And on the topic of acquisitions, you highlight in your strategy refinement your focus on owning upper upscale full-service hotels. But can you give any more clarity around maybe market exposures you're interested in or inner city versus [stellar]. Thanks.

Sure. On the select service portfolios, we hope that we will close sometime in the first quarter of this coming year. You know, right now we very tentatively are saying that we plan on redeploying those proceeds in other acquisitions. But it depends and it depends upon what's going on in the marketplace as far as stock price and other factors.

So that's the plan as we sit here this moment. But plans can change because we believe we're one of the most aggressive capital and best capital allocators in the business and we want to make sure we get the best returns for our shareholders and are very incented to do that.

Please repeat that second part of your question?

Just trying to get your interest on it, in portfolio acquisition.

Yes. If we decide that we should redeploy the capital on acquisitions, then portfolio acquisitions is certainly something that we would look at.

Do you think you can compete there, given your cost of capital? And the final part of the question is just around a little more detail around the kind of markets that you're interested in?

We think we can repeat generally because not many of our repeaters are going after assets that we target. We're targeting all kinds of full-service hotels, generally in the top 25 markets, although we'll look outside those markets. But a lot of our peers won't focus unless it's one of the top three or four markets, at least that's what we've experienced.

And so in a lot of these other markets, we don't see the other REITs pursuing. So there's a competition there. And then there's our cost of capital, so we have to continue to look at that.

But the cost of capital can be a complicated thing. It's not as simple as, you know, what the NAV is. We find ways of making money in all different types of situations. Anyway, we have to go through all of that at the time.

Okay. And then any update on the Courtyard Philadelphia, potential of selling it? Thank you.

Sure. We would like to strategically sell that asset, but the performance continues to be absolutely fantastic. And we don't think that the prices that we're seeing in the marketplace for that asset properly reflect the short-term upside. And so we're reluctant to dispose of it under those circumstances.

We'd still like to. We're going to keep monitoring it and then decide as we go.

Thank you.

Next we'll hear from Chris Woronka with Deutsche Bank.

Hey, good morning, guys. I wanted to ask you about the Bardessono acquisition.

How much kind of asset management upgrades, I guess I'll say, have you built into that in terms of your forecast? And also is there any consideration for a soft brand?

Sure, good questions. Right now we're not looking at the soft branding options, but we are -- we always consider it. We looked at it when we underwrote it, but we will constantly revisit that because we think in many situations that can add value.

We think there's a lot of upside on this. When we issued our press release and gave you some of our initial thoughts on what the first year could do, we were fairly conservative and kept it in our forecast because that is just our nature.

But now that we're in at the property, we see a good bit of opportunity. The food and beverages department with $3.5 million of revenue runs an 8% profit. Well, in most of our hotels we run close to 25% profit. That is a huge delta.

On the revenue side, we have a much more sophisticated revenue management system than had been employed at that property. The Prime management team had done great work in many respects, so no intended disrespect. It's just that they were a much smaller team and we've got great resources on the revenue management side that they don't have.

So we think that property is going to do fantastically well. So we're very excited about it.

Okay, that's helpful. Then just going back to the select service assets that are for sale at Trust. It looks, based on your press release, it looks like you'll have maybe $200 million plus of proceeds.

I won't ask the share repurchase question again, but how do you think about if you wanted to redeploy those into acquisitions, how do you think about the timing on that? I know you've done a few deals in June and July. Was that kind of ahead of this sale or are those net proceeds kind of viewed differently when they actually come in?

Those proceeds will be coming in in the first quarter. So in the public market, that's a long, long time. So our acquisition pace is going to be markedly below on the second quarter what it was in the first quarter.

I'm not promising that we will do any. We want to be very, very selective.

But as we sit now, our net debt to gross assets is a little on the high side. It's slightly above 60%. So we keep that in mind as far as what we continue to do.

We think there is going to be acquisition opportunities. Where we sit here today, we think we can deploy that capital accretively, but that doesn't mean that's where we end up. Our stock price and where it's trading is a big factor, but it is just too far away when we receive those proceeds for me to sit here and tell you for sure what we'll do with them.

Okay. Very good. Thanks, Monty.

Thank you.

We'll now hear from Robin Farley with UBS.

Thanks, I have two questions. My first one has kind of being asked already, but maybe I'll ask it slightly differently. It's just going back to your comments in the press release that your stock would have 90% upside if it were at private market valuations.

I know you said that share price is not the only factor in whether you decide to do a buyback, but could you maybe give a little more color on then what else is more compelling? If you feel that there's 90% upside there versus acquiring other assets -- a significant amount of other assets this year at what I guess we would conclude are much higher prices than buying back your stock, your own stock.

Sure. And it's a good question. When you look at buybacks, there's quite a few factors that we look at and we think everyone's should look like. The stock price is one of them. But there's the volume of that stock that you think you could get and how long it takes for you to get it. When you're buying back, you know, stock and doing things like that, it creates limitations of what you can do in the marketplace and what you can announce.

There's a liquidity of your stocks. And we believe, especially on the Prime side, that its liquidity is very -- low liquidity is very detrimental to the stock price. We think it is just very modestly affecting Trust, very, very minorly, but we think it's significant over in Prime.

We look at our cash on hand and what we think we might want to use that cash for and you have to kind of plan it out, because you don't know when you'll be able to replenish that cash. And do we have the cash that we want to keep and have on hand if and when we go into a recession? There's other opportunities and where we can deploy it, like you mentioned, including other acquisitions. There's our long-term strategic goals and what we want to accomplish as a Company that we think helps long-term value.

We look at where we think the stock is going to be in six to 12 months. If we think the stock is going to be significantly lower, that's a reason not to do buybacks and to wait for that period of time, for example. But there's all kinds of other reasons not to do buybacks.

We think if the stock is going to run up shortly that could have an impact on the alternatives that we're looking at. And, therefore, we want to hold off for a little bit. We look at the price we last raised equity at. We look at other sources of capital that we have. So all of these go into a buyback strategy.

And one other factor is that realizing when you get rid of that cash for a buyback, it's not like it's easily accessible again to grab on to it. So we would look at all these.

And I want to repeat that, no one has bought back more shares over time than we have, so we are very stock buyback oriented. But we very carefully look at quite a few factors.

Great, that's helpful. Thank you.

And then also just kind of a bigger picture question, maybe thinking about where we are in the cycle and all of that. When you look at, maybe there's sort of better RevPAR growth right now at select-serve properties versus full-serve properties in the US, I guess what are your thoughts about moving out of select and into full service at this point in the cycle, or how should we think about your strategy relative to where we are in this cycle?

There's a lot of opportunity in full service and when it comes to repositioning and value add, full service always has much more opportunity in that regard than select service does. That being said, I think select service is a great sector to be in as well for its own reasons. But full service has got great value-add opportunities and there's great opportunities in that sector.

And we think we've got a number of years left in this cycle, and we think the market is going through a heavy overreaction. And we've seen this in the past, in this cycle and the past cycles. So we think that we'll just keep on posting these strong fundamentals and keep executing our business plan.

Is your -- I know you don't have that full-year guidance and changes every quarter, but when you look at kind of what some other folks are doing with their guidance -- or maybe the way to ask it is, when you started the year, your expectations, your internal expectations for where RevPAR would be for the year. Has that moderated similar to what some other lodging companies are saying?

Our RevPAR performance so far this year has exceeded our expectations. We're very, very pleased with our results.

And as far as guidance goes, we've discussed that topic extensively here over the past number of weeks, both in our management team and our Board. And we keep coming back to the same conclusion, in that we don't see a lot of benefit. We see what happens to our peers, especially these past few weeks that have missed their guidance. And what happens to their stock price and how bad that is for investors.

And we look at our own track record and note that our stock performance has been one of the best. I think it has been the best since we've been public, and we haven't given guidance. And so it's just hard for us to come to the conclusion that giving guidance will help our performance of our stock price.

We think with Trust, there's a little bit of noise here this past couple of quarters. And therefore the consensus numbers got out of whack, but Deric and his team has worked with analysts and the analysts have updated their models, so that's getting us back on track. And so we think that was just a little hiatus where there was a decent mismatch between what our internal expectations were and what consensus was.

So at this time, we're not focused on providing guidance. We just think it might hurt our shareholders as much or more than it helps them.

Okay, great. Thank you very much.

We have time for one final question. That will come from Shaun Kelly with Bank of America Merrill Lynch.

Hey, guys, good morning. Thanks for taking my question. So, Monty, I just wanted to go back to the NAV discussion. I believe in the press release -- could you just remind us when you said the 8.4% versus the 7.0%, those were trailing cap rates, is that correct?

Yes. Those were trailing cap rates.

So when we look at the number of acquisitions, a number of the recent acquisitions you guys have done, and I think you've done, you know, a handful over the last six months. We averaged those out including a portfolio in June, right around 7.8% cap rate and that's [up] forward. So presumably those are better than your core portfolio because you're buying them? And you've got opportunities ahead with this.

So I'm struggling a little bit. If you're buying at 7.8%, why do you think you'd be worth 7.0% on trailing if you're buying at 7.8% on forward?

Sure. The way you're describing it is we think is not the right way to look at it. What we do is we take our stock price and we look at where we think -- we know it is today, where we think it is going to be about five years from now, as best as we can, based on what's going on in the industry. And then we look at potential acquisition.

And if we buy that acquisition with this stock at that price, is it accretive to our stock price or not? And if that accretion that we focus on, an increasing stock price -- so when you look at the individual assets, many of our value-add initiatives don't hit in the first year. It just takes too long. We can't get the CapEx in in the first year, for sure, for instance. And so the first year numbers are just not that perfect to look at.

And this is the analysis we go through. So we find that has been a better way of allocating capital than the one that you described and I think our results show it. So I think that's the mismatch that you're seeing. And would be happy to go over it in more detail with you offline so that you can better understand how we approached it.

Yes. I mean, I'm not meaning to be difficult, but, again, 7.8%, if you could improve those numbers, then you'd be buying at an even higher forward cap rate than that. And that just doesn't seem to square at 7.0%.

Like I can't say it any more simply than that because, again, you'd be buying at a number -- assuming you can improve the assets, that would be 8.5% on forward, so why would you be worth 7.0% on trailing?

You're looking at it wrong. You're looking at it the wrong way.

You've got to look at the accretion to the stock price. That's what matters. All of those that you just described are factors that go into the long-term accretion of the stock price. But what matters in the end is the accretion to the stock price.

So it's probably better if we talk offline and we take an example and go through it step by step, because we just look at it differently. We think that the way you're describing is not the right way to look at it in a vacuum. Those are factors, but those are not all the factors.

But when you're comparing yourself to private market values, like those should be apples to apples. You're comparing yourself to where things are trading and we can just compare to where you're buying.

Right. I'm not sure how to answer the question a different way.

Okay. We can follow up offline.

Okay.

And that concludes our question-and-answer session. I'll turn the conference over to Mr. Bennett for any additional closing comments.

Sure. Thank you all for your participation today. We look forward to speaking with you again on our next call and seeing you at our Investor Day which has been scheduled for October 20 in New York.

Thank you. That does conclude today's conference call. Thank you for your participation.