Sotherly Hotels Inc (SOHO) 2008 Q2 法說會逐字稿

Welcome to the MHI Hospitality Corporation second quarter earnings call. There will be an opportunity for you to ask questions at the end of today's presentation. (OPERATOR INSTRUCTIONS). Please note this conference is being recorded. Now I would like to turn the conference over to Ms. Victoria Baker. Ms. Baker, please go ahead.

Good morning and thank you for joining us for MHI Hospitality Corporation's second quarter 2008 conference call. If you did not receive a copy of the earnings release, you may access it at www.MHIhospitality.com. In the release the company has reconciled all non-GAAP financial measures to the most directly comparable measures (technical difficulties) a live webcast which you can access on the website and an audio webcast will be available for one month at the same website address, under webcast presentations.

At this time, management would like me to inform you that certain statements made during this conference call, which are not historical may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although MHI, Hospitality Corporation believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that can cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in today's press release and from time to time in the company's filings with the SEC. The company does not undertake a duty to update any forward-looking statements.

I would now like to introduce the members of management with us today. Joining us are Drew Sims, Chief Executive Officer. Bill Zaiser, Chief Financial Officer, as well as Dave Folsom, Chief Operating Officer. I would now like to turn the call over to Drew Sims for his opening remarks.

Thank you, Vicki. Good afternoon, everyone. Thank you for joining us for our 2008 second quarter call. I will review key activities for the quarter and then provide our perspective on the lodging environment. Our CFO, Bill Zaiser, will then present the financial results. Following, our Chief Operating Officer, David Folsom, will provide a portfolio update. After that, we will be happy to take your questions.

We have maintained a very focused approach on our business. In particular, the value enhancement of our portfolio, within a difficult economy and the hospitality sector. At the same time, we continue to capitalize on opportunities to strengthen our financial resources. I am pleased to report that the renovations were completed in the second quarter at our Louisville, Kentucky and Wilmington, North Carolina assets. Both hotels are open and fully operational. We opened the new Sheraton Louisville Riverside on May first. We also made significant progress at our renovation projects in Savannah, Georgia, and Tampa, Florida.

Turning to other portfolio developments, in April we closed on the acquisition of a full-service waterfront hotel in Hampton, Virginia for $7.8 million. In conjunction with this transaction, we executed a 10-year franchise agreement with Intercontinental Hotels group to operate the property as the Crowne Plaza Hampton Harbor Side. In terms of continuing to strengthen our financial resources, in the second quarter we increased by $20 million the borrowing capacity of our credit agreement with BB&T and our lender group. We also refinanced the mortgage on our Hampton, Virginia property, and restructured the loan on the Hollywood Beach, Florida asset, with improved terms for each. Our results continued to be hampered by the substantial portion of our hotels undergoing significant physical improvements. We believe these major renovations will deliver measurable improvements in operating results in 2009 and for the longer term.

To highlight performance for the quarter, total revenue increased 5.6% to $20.5 million. Funds from operations increased 12.4% to $3.9 million, or $0.37 per share. Net income decreased 6.8% to $1.3 million. While same-store REVPAR and occupancy were slightly off for the quarter, same-store average daily rate increased by 2% for that period. For the six months of the year, ADR increased 2.8% over a year ago. The decrease in occupancy and REVPAR is primarily attributable to the negative impact that renovation is having at our Savannah asset. In addition to our extensive portfolio renovations affecting near term operations. there is no doubt that a recessionary economy, higher travel costs, and weakened consumer spending are impacting hotel performance sector-wide.

Within this current environment it is important to note the following. Our assets are located in markets with solid demographics in terms of business and tourism potential throughout the southeast and Mid-Atlantic seaboard. With regard to the increasing fuel costs and reduced air travel affecting the industry, upscale and mid scale hotels without food and beverage have historically exhibited greater vulnerability to these changes. Our hotels offer a full range of services that appeal to the broader meetings market, which is less sensitive to economic gyrations. Within our sector and our geographic markets, we still have not seen the significant growth of full-service upper upscale hotel product. We anticipate limited lodging inventory expansion through the remainder of 2008, as announced projects are canceled. The high concentration of capital focused on the industry no longer exists. The high leverage lenders have retreated from the market, and an unstable lending environment prevails. Cap rates, which last year were at an all-time low, are now moving higher.

It is our view that hotel asset transactions will remain slow, until many owners are forced to face the new reality that there is very limited market available -- a very limited market available to refinance the maturing debt. In many instances, the maturing debt will require additional equity contributions that will send the projects into the distressed sale market. With that, I will turn the call over to Bill.

Reviewing performance for the second quarter, the company reported consolidated total revenue of approximately $20.5 million for the quarter ended June 30, 2008, which is an increase of 5.6% over the approximately $19.4 million of total revenue in the second quarter of 2007. Same-store revenue per available room, or REVPAR decreased 0.3% on a 2.3% decrease in occupancy. This was partially offset by a 2% increase in average daily rate, or ADR. Total revenue and REVPAR were negatively impacted this quarter by the continued renovation of our properties. For the same period. the company's portfolio of same store hotels generated consolidated total revenue of approximately $18.8 million, a decrease of approximately $0.3 million or 2.1%. This compares to the consolidated total revenue of approximately $19.2 million for the same period one year ago. and approximately $15.3 million for the first quarter of 2008. For the second quarter, the company reported consolidated net income of approximately $1.3 million or $0.19 a share, as compared to consolidated net income of approximately $1.4 million or $0.21 per share for the comparable period in 2007. Operating income was approximately $2.9 million as compared to approximately $3.4 million for the second quarter 2007.

During the second quarter. funds from operations, or FFO, was approximately $3.9 million, or $0.37 a share, as compared to approximately $3.5 million or $0.33 per share for the second quarter of 2007. As of June 30, 2008, total assets were approximately $194.1 million, including approximately $147.7 million of net investment and hotel properties. Approximately $16.8 million of properties under development, plus approximately $10.9 million for the company's joint venture investment in the Crowne Plaza Hollywood Beach Resort. On July 14th, the Board of Directors declared a quarterly cash dividend of $0.17 a share. This equates to an annualized dividend of $0.68 a share, and effective yield of 13.5% at a share price of $5.02 as of June 30, 2008. The dividend will be paid on October 10, 2008, to shareholders of record as of September 15th.

On April 15th, 2008, we entered into a second amendment to our credit agreement with BB&T. which was originally dated May 8, 2006. This amended agreement with BB&T and other lenders of our banking group increases the revolver commitment by $20 million and consequently increases the maximum revolver commitment to $80 million. During the quarter, we closed a $9 million refinancing on the mortgage for our new Hampton, Virginia hotel asset with improved terms. The new mortgage bears a rate of LIBOR plus 2.75% during the renovation period, and LIBOR plus 2.5% from that point on. The initial term is three years, and can be extended for an additional one-year period. A portion of the proceeds will fund our product improvement plan for this property.

In June, the entity through which we hold a 25% interest in the Crowne Plaza Hollywood Beach Resort restructured the property mortgage. Our joint venture partners purchased a $22 million junior participation at a $3 million discount, as well as a negotiated reduced rate of interest on the first $35.6 million of debt. At June 30, 2008, the company had approximately $8.8 million of available cash and cash equivalents, of which approximately $2.8 million is reserved for capital improvements and certain other expenses. The company also has approximately $62.2 million outstanding on its $80 million revolving line of credit. The outstanding balance was deployed to fund the acquisition and renovation of the Sheraton Louisville Riverside, as well as the company's equity contribution to its joint venture with the Carlisle Group for the purchase of the Crowne Plaza Hollywood Beach Resort, and a repurchase of the portion of the mortgage loan, as well as the company's acquisitions and renovations of the Tampa, Florida and Hampton, Virginia hotel properties.

We believe our leverage ratios remain competitive with our peer group. At the end of the second quarter, our interest-bearing debt to total capitalization, which we define as the gross market value of our properties, plus cash or other current assets, was a conservative 41%. Our debt to total assets on a cost basis, 65%. We have no debt maturing before July 2010. Our mortgage debt was approximately $63.9 million, and unit holder equity was $18.9 million, with approximately 3.7 million limited partnership units outstanding. With that, I will turn the call over to our Chief Operating Officer, Dave Folsom. Dave?

Thank you, Bill.

For your reference, the summary of individual property performance can be viewed on our website within the Investor Relations section at www.MHIHospitality.com. This was another challenging quarter in terms of the economic environment, and its impact on the hospitality sector. However, this was also a very productive period for us in terms of making measurable progress on our portfolio's growth in value. Turning to our newest acquisition on April 24th, we closed on the purchase of the 172-room former Radisson hotel in Hampton, Virginia, for approximately $7.8 million, or $45,000 per key. The waterfront property is situated on four acres in downtown Hampton, and features 21,000 square feet of retail space, 7600 square feet of flexible meeting space, a rooftop pool, and a 300-car parking garage and indoor and outdoor food and beverage outlets. The hotel is situated in the greater Norfolk, Virginia metropolitan statistical area. In conjunction with the purchase we entered into a 10-year franchise agreement with Intercontinental Hotels Group to brand the hotel as the Crowne Plaza Hampton Harbor Side. We are now executing a $4.5 million renovation, in line with this upbranding. Renovations are expected to be completed in the first quarter of 2009 with the hotel remaining open throughout. As of June, we have spent approximately $1.2 million towards this renovation. We expect to reposition the 21,000 square feet of retail space, attracting new tenants, to add additional cash flow and to improve the overall quality of the asset.

Turning to our other Crowne Plaza hotels, the Crowne Plaza Tampa West Shore in Tampa, Florida is undergoing a $23 million product improvement plan. The hotel is currently closed during this deep turn renovation. As of June 30, we have spent approximately $2.9 million in capital on the renovation. Our plans for the hotel include a new ballroom, a new third party restaurant space, as well as a complete modernization throughout the entire site. We continue to project a Q1 2009 opening for the hotel. In Hollywood Beach, the 311-room Crowne Plaza Hollywood Beach Resort, which opened last fall, continues its ramp-up and stabilization. For the second quarter, occupancy at this JV hotel was 57%, average daily rate was $142.13, and the resulting REVPAR was $81.06.

Turning to our Crowne Plaza in Jacksonville, Florida, in Q2, REVPAR was $70.96 compared to $73.93 for the same quarter last year, a 4.0 decrease. Occupancy for the quarter was 63.2%, and rate was $112.23. Turning to our First Sheraton asset in Louisville, Kentucky, this newly renovated upper upscale hotel opened for business on May 1st, coinciding with the 2008 Kentucky Derby and well in advance of the Ryder Cup in September which is estimated to have a quarter million people in attendance. The Sheraton Louisville Riverside is the only Starwood-branded product in the market. The Louisville lodging market has seen considerable improvement compared to 2007. According to Smith Travel Research, hotels comparable to our Sheraton have experienced year-over-year REVPAR growth in excess of 9%. As of June, we have committed and spent approximately $16.1 million at the hotel making our entire project value approximately $23.8 million or $132,000 per key. Considering the market value of the retail restaurant building adjacent to the hotel, which we own, that includes approximately 15,000 square feet of rentable space, we believe our cost room in the hotel is more in the range of $100,000 to $110,000 per key for the new Sheraton. This is a very competitive basis for a new Sheraton hotel, as a recent study commissioned by the city outlined the cost of between 200,000 and 225,000 per key to build a new downtown full-service hotel adjacent to our asset.

Turning to our Hilton assets, at the Hilton Wilmington Riverside in North Carolina, we concluded in the quarter with our renovation of the property and the opening of a new Ruth's Chris restaurant at the hotel. The product quality is without peer in the market, and we are already seeing significant positive impact as reflected in rate and occupancy at the hotel. With the new product, the new Ruth's Chris, and recent managerial initiatives, we believe the hotel will continue to ramp up from the renovation and in 2009 will be a solid contributor to the operating cash flow. REVPAR in Q2 was $110.88 at this hotel, compared to $97.17 for the same period last year. A 14.1% improvement in REVPAR, reflecting the positive impact of renovation. Rate was up from $125.42 last year to $135.66 in Q2 of this year, and occupancy was up from 77.5% to 81.7%. We believe that the positive developments will continue as the full impact of the product improvement and the opening of the Ruth's Chris will continually be absorbed in the market.

Turning to Philadelphia, the Hilton Airport Hotel continues to post solid operating performance, and is a consistent leader in its market, both in terms of rate and occupancy. In the second quarter, REVPAR was $116.66 compared to $114.12 a year ago. We continue to apply good rate pressure at the hotel and saw second quarter's ADR at $140.38 compared to $133.80 from a year ago. At our Hilton Savannah de Soto property in Savannah, Georgia we are in the midst of our $11 million renovation. As of June 30 we have spent approximately $4.4 million in capital at the hotel. Renovations are scheduled to be completed in the first quarter of next year. In the second quarter this year, Savannah posted REVPAR of $102.63 as compared to $121.50 of a year ago. a 15.5% decrease. The quarterly REVPAR decrease at the hotel is fundamentally an unwelcome but inevitable consequence of the ongoing construction of the property. Occupancy declines during the quarter remain the biggest challenge and was due substantially to our ongoing renovation activity. We saw the previously the same general trend in Wilmington in previous quarters, and we believe Savannah's performance will rebound in 2009, reflecting the new product we will introduce.

Moving to our Holiday Inn assets, at the Holiday Inn laurel in the Washington, D.C.-Baltimore corridor, in the second quarter, the hotel posted REVPAR of $71.73 compared to REVPAR of $76.27 for Q2 of last year, a decline of 6%. For the quarter, negative rate pressure drilled down the year-over-year REVPAR figures. We continue to monitor management initiatives at the hotel and are focused on capturing market share which as evidenced by current Smith Travel Research reports is down. Finally, our Raleigh asset continues to post solid results. In the second quarter, the asset delivered REVPAR of $66.90, which compares favorably to $58.92 last year, a 13.5% increase.

With that I will now turn the call back over to Drew.

Thank you, Dave. We expect a weakened economy to continue to impact consumer travel, and as a result, the near-term lodging demand in most U.S. markets is softening. Therefore, we are revising FFO guidance for the year downward to a range of $0.89 to $1.01. Our FFO forecast is predicated on our expectation of a challenging lodging environment through year end, due to a weaker economy. Higher travel costs, decreased consumer spending, continuing renovations at our Savannah and Hampton hotels, and the ramp-up of our newly opened Louisville and Hollywood assets.

For 2008, we expect REVPAR growth to remain stagnant at 2007 levels. These projections are based on occupancy and rate estimates that are consistent with 2008 trend forecasts by Smith Travel Research for the market segments in which we operate. I communicated on the last call that as a counter measure to slowed revenue growth, we initiated an extensive review of our expenses with a goal to reduce operating and personnel costs. These initiatives were implemented in the second quarter. An additional round of cost curtailment measures were implemented subsequent to the quarter end in July.

At this point, midway through the year, I would like to review our progress. One of our principal goals for the year was to seek out additional sources of equity to enhance our financial position. The increased borrowing terms at BB&T, and restructuring of our Hollywood Beach joint venture property, and refinancing of our Hampton asset further strengthened financial capacity. With the Hampton hotel acquisition during the second quarter, we have achieved our direct investment goal for the year. We bid on two additional assets in the southeast, with a combined value of $65 million. We continue to pursue these assets. If accretive to the bottom line, we may acquire at least one additional hotel through our joint venture with the Carlisle Group this year. However, the current market value of hotel assets is high, and a disconnect remains between the asking price and what investors are willing to pay, a direct result of the credit crisis. We continue to provide an above market dividend to shareholders. The company's attractive 13.55% dividend yield at June 30, 2008, continues to out pace both the lodging sector average and the May equity REIT index. While we are navigating a challenging phase of the hospitality cycle right now, we have been productive in systematically implementing our portfolio improvement plans. The end result, which is now well in sight, will be a portfolio of significantly improved assets in markets with solid demographics. For investors, we believe our real estate platform presents an attractive investment opportunity with promising long-term future earnings potential.

With that, we'll open the call for questions.

(OPERATOR INSTRUCTIONS). It seems we have no questions at this time. I'd like to turn the conference back over to Mr. Drew Sims for any additional comments.

Operator, why don't we wait a moment or two. It would be very unusual for us not to have any questions.

Let's try it again. (OPERATOR INSTRUCTIONS). Okay. People are queueing up now. Our first question comes from Craig Kucera from BB&T Capital Markets.

This is Steve Radanovic for Craig.

Hello, Steve. How are you today?

Good, thanks. Wanted to see if you could give us any color on how demand trended throughout the quarter and so far in July.

April and May were very good, and June was very, very slow. It seemed that the American consumer hit a wall with the continuing increase in gasoline prices, and they just elected to stop traveling in June, I would say is the best way to describe it. July, unfortunately, has mirrored June somewhat. And in the first 10 days or first week of August, has been surprisingly good. So it's been, I would say, an up and down demand, is what we've experienced, in our various markets, throughout the southeast and the Mid-Atlantic states.

Okay. And then in regards to your revised outlook, I know you said REVPAR was going to be down, flattish to modestly, can you quantify that? Are you talking down 2%? 3%? 4%? Or what's kind of the range?

I think what we're saying is that we think it's going to be flat. We don't think it's going to be down. And a lot of the reason that we believe it's flat is our Savannah asset is -- we're getting a very negative reaction to the construction activity that's going on, and the reason for that, most of the construction activity has gone on at the front door of the hotel. We are expanding the lobby, we've torn out the old entryway, and so we've had to install a new temporary secondary entrance to the lobby. We've moved the front desk.

There's construction activity all over the first floor of the site, and it's, unfortunately, even though I think we're managing it as best we can, it's a noisy, messy prospect. And our guests are going to our competition. We think they'll come back, very similar to what we experienced in Wilmington, but right now, we've had si months -- well, we've had about five months of pain. We think when the fourth quarter gets here we will see a pretty good bounce-back because all of the construction activity at the front door will be over, and we'll only be focused on guest rooms up in the tower. And then 2009, we should be completely finished, so we believe that 2009 will be -- that hotel will be back to where it was. Just to quantify, through the first half of the year, our GOP was down over $1 million at that hotel alone, which is $0.10 in FFO for us. You can see what it will do. We start averaging that into seven or eight hotels, it has a pretty monumental effect.

Lastly, and I'll get back in queue, regarding the impairment on the notes receivable, is that related to the serial financing you provided on the Williamsburg sale?

Yes, it is.

And, I mean, what happened there, and are we expecting the remaining 400 -- or, I guess, 200?

In discussion with our audit committee, and with our attorneys, we believe that that was a conservative measure to take. We may collect all of it. We may -- but we feel right now that is an estimate which is reasonable and fair at this point.

Okay. So no further impairments?

We're not expecting it, but I can't absolutely positively guarantee it.

Sure. So the buyer down there is struggling?

That's correct.

Let me had add something. We provided some seller financing, and we have a guarantee from the borrower, and we're pretty confident that we're going to retrieve those funds.

Okay. Thanks.

Our next question comes from Carol Kemple at Hilliard Lyons.

Good afternoon. I just had a couple questions. First, what kind of cap rates are you seeing out there right now?

We're not really seeing any because there's hardly any activity in terms of sale. Unless it's a forced sale, almost no transactions that I'm aware of. We have looked at a couple of properties, and the ones that we're looking at are distressed assets, and, therefore, cap rates don't really factor into the equation when it comes time to value the asset. It's really -- we're looking at what's the real estate worth, not what's it worth as an ongoing hotel asset. So I couldn't answer that question. Based on what I read, I think cap rates have moved up probably 100 to 150 basis points in the last year, and they're probably going to go higher in the next six months, I would think.

Okay. And also, I know you all said on the website you have information on the individual hotels and their performance. Where is that?

It's on our Investor Relations tab. I'd have to ask Bill to tell you how to navigate that portion of it, though.

Okay.

Let's see here. I thought we had the directions actually on the information. Rather than spend the time, just give me a call off-line, and I'll walk you through it.

Okay, thanks, Bill.

Our next question comes from Andre Pineda at Cary Street Partners.

Good afternoon. How is everyone doing?

Doing well.

Great. I had a question related to the stock price. I know that it had been dropping quite a bit, and obviously with today's conference call it's popped up quite a bit. Are you at all concerned about the movement in the stock price?

Absolutely. I mean, we've watched our stock go from $11 this time a year ago to a low of $4. But I would point out that if you -- what we consider to be our peer group, which are other hotel REITs, we are actually doing better than just about everybody else, which isn't saying a whole lot, but it's just -- I guess we're a financial holding company, we've gotten roped in with maybe some of the other issues that are gone on with regard to our group, and it's disappointing. But I think at this point, all we can do is continue to run our business, and do what we know is the right thing to do, and that's what we've been doing. So obviously, we are taking measures to try to enhance our stock price. We're trying to get out and get into some new systems and get more analyst coverage and doing those kind of things. But it's a tough market out there for folks to be engaged in the purchase of hotel stocks. You got anything to add, Dave?

I would add, just structurally, about our stock, as you've probably seen, it can be very volatile on very little trading.

That's right.

And that's really a function of our limited liquidity and a very small float. We're obviously aware of that. People who own our stock or trade it are aware of that, and it can move pretty wildly if the traders and brokers aren't paying attention, and that sometimes adds a bit of frustration on the part of potential sellers or owners. We recognize that, we moved over to the NASDAQ to try to create as much transparency as we could. Our long-term goal is to increase that float for the benefit of the shareholders and create a more efficient platform to bay our stock, hold it and sell it, if that's the desire of the owner. But right now we're a little ham strung by that lack of liquidity.

Thank you.

Our next question comes from David Loeb at Baird.

First let me assure you I was trying to get in the queue before you had no questions.

I would assume that was the case. I should have said okay, and hung up, is that what you were saying?

There was some problem, but it got fixed, which is good. I want to start with a couple questions on Hollywood, on that transaction. Basically you bought back a piece of your own debt on that, right?

Yes.

Was the interest rate change on the balance, was that just the result of the fact that you bought back the higher coupon slice, or was there an actual change to the remaining slices?

It was a negotiated reduction in the interest rate.

In exchange for essentially a paydown?

A paydown, that's right.

Looks like a pretty interesting opportunity. How did you source that? Was that just from discussions with the banks, or did Carlisle --

Sometimes it's good to have a partner like Carlisle, is how I would explain it. It certainly came through Carlisle and their efforts is how it was initiated.

That's great. And on the personal guarantee in the Williamsburg, not to beat a dead horse, but do you have a claim on the asset? If the buyer defaults, the borrower defaults, aside from getting his house and his car, do you get the asset back?

No, we don't want the asset back. We only held a very small piece of the purchase price, as you will recall. It was about -- less than 10% of the purchase price, and it was really just a slice of equity to get the buyer so that he could qualify for all the requisite is loans that he was trying to get. As you know, David, the Williamsburg market is performing at about a 45% annualized occupancy rate, and we've just thought if we could get our money out of that asset for what we put in would be a good time to bail out, and that's what we did. So the buyer has had a difficult time. He is in foreclosure, but to answer your question, there is going to be -- if does it go to foreclosure and auction, we have negotiated, we're going to get some payout on that, and then we'll have to take action against the buyer. He has other assets in the nearby market so that we're not going to simply say okay and walk away. I think there will be an opportunity to collect some of that.

I see. So his lender is foreclosing on the hotel, but your claim is against him and, therefore, his other assets.

It's against him and his other assets, and we're going to get some payout at auction for the collateral.

Okay. Well, that's good. Back on the guidance, how come you're leaving the gain on the Crowne Plaza transaction in the guidance? How are you viewing that relative to, for example, the swap charges and gains?

Well, the swap turned around this quarter, so if you look at that on a year-to-date basis it's almost 0. There's no benefit, no cost.

I'm just talking about the concept of excluding that because it's volatile, and it ends up at 0. This was also one-time gain.

But it's not volatile.

That's true.

It's there, it's done, and it passes through the JV, right on to our income statement. So it's going to be part of the FFO.

Yep. I agree. And -- I'll come back to that idea. One more question, if you don't mind. The indirect operating expense was a little higher than what we were expecting. Is that preopening start-up, or is that more related to Savannah or all of the above?

Bill, you are going to have to answer.

It is related to the pre openings of the new properties. Hampton, Louisville. They are larger than they were a year ago for that reason.

Can you quantify those kinds of start-up costs at all?

Off the top of my head I can tell you there was approximately $300,000 in the quarter for Louisville, and I don't recall the other numbers right this second. I can check on them.

That really does help. Thanks. I may ask some more but I will come back.

Okay.

Our next question comes from Craig Kucera from BB&T Capital Markets.

Hi, it's Steve again. You alluded to this in your remarks about the savings on the expense side, and certainly I think you guys have done a great job, at least relative to our expectations in the quarter, and wanted to see more specifically, what you thought could be done in the back half of the year.

Well, we have had a second round of cuts that were implemented in the third week of July. So you will see additional reductions in personnel and some expenses. So we will get a benefit from that. I couldn't quantify that just off the top of my head to tell what you those are, but I would say we will be publishing our GOP margins later today. They will go on the web. And you can see that our margins have actually at most of the hotels have improved. And it's not an easy thing to do in a down market when sales are flat or even going down, to have your margins expand is a good thing. So I think we've done the right thing, and it's having the right effect. I think this next round of cuts will also have some positive impact on the margins as we go forward.

Okay. So the containment is really on the personnel side as opposed to --

At this point it is. The first round there were some things we could do to cut back, and I think most of those measures were taken. Now it's a matter of having to sift through some of the management positions and not fill those, or in some cases, transferring people to other hotels, taking action to try to reduce our exposure.

Okay. Great. And real quick, housekeeping items, do you have what the capitalized interest was for the quarter?

Bill, that would be you.

Hang on one second. I've got that the capitalized interest, you will see this in the Q, by the way, 183,623, and 348,023, for the three months and six months respectively.

Do you happen to have the weighted average interest rate on your all-in debt cost?

Hang on one second here. I -- I just gave you last year's. This year is 362,771, and 924,659, as compared to the other numbers for last year. That's the three and six-month numbers. And, I'm sorry, what was your second question? I missed that.

I was trying to get a sense for what your weighted average cost of debt was for the quarter.

Hang on one sec. If I can get it for you.

If not, I can follow up.

Yes, roughly the fixed rate debt was at about 6.72%.

Let me comment.

That's the weighted average.

Let me comment on that for everybody's benefit. We made significant improvements in our financial structure in the quarter, and so far this year. The spread on our line of credit was reduced by 40 basis points from our bank. At the same time, it gave us another $20 million, and it's a secured facility, and they lowered the cap rate by 150 basis points. So our core set of financing through our line of credit is an extremely attractive, I would say, Bill, probably LIBOR plus 225 or 250 right now, depending where we are in the matrix. The $9 million loan we got for our Hampton property is 250 over LIBOR spread, and we cut that deal with a local bank just a matter of a few weeks ago, and that's in a market where I think equivalent loans from major banks, if they were to be issued, would probably be LIBOR plus 450. Our permanent financing, which we are -- our permanent financings on mortgages that we refinanced earlier and last year, the new money was at LIBOR plus 90 or LIBOR plus 100. So our debt costs, I think, are about as good as you are going to find right now in the market. And we're very happy with the way we were able to manage that process with our lending partners.

We also don't have any maturities for the foreseeable future. A good thing, given today's market.

Yes, absolutely. Thank you very much.

Next question comes from David Loeb at Baird.

One more question about Hollywood but not actually about the debt thing. The JV line looked like there was, absent that gain, there was about 225 of loss. Is that pretty normal run rate for this time of year?

Well, this is not a particularly strong time of year at the property. The summer is the weakest, or the late spring and summer are the weakest part. So that, when you factor in all of the aspects, yes, I would say that's -- hope we will be doing better in the future, but given this period of time, yes, that's about right.

And clearly that's a net income number, so it's after depreciation and interest which are not seasonal.

Correct.

Can you just give kind of a broad comment on how the construction progress is going, particularly Tampa and Hampton? Are those on time, on budget? Are you finding any surprises?

I'd be glad to comment on that, David. First, I would talk about Savannah. Savannah, we really went after the public spaces beginning April 1st, or thereabouts. So at that point in time, all the way through the end of September, we anticipate very major negative effect on the hotel. Not as negative as we're having, but we anticipated that it would not be a good thing. We have significant future bookings for the month of October and November, so it is imperative that we stay on track and on time and Savannah, with the public space renovations, because, I mean, we have some really killer pre bookings for those months, and we need to take advantage of those. And so we are very focused on making sure that that comes to pass. And I think it will, based on my viewing of actually being on site in the last couple weeks.

In terms of Savannah -- I mean, in terms of Tampa, our goal is to get that open by the end of the first quarter. Our super goal is to get that opened by the Super Bowl. When that's possible or not, I don't know, but I can tell you that an unbelievable amount of progress was made in the last three weeks. If you go there, it's a bee hive of activity. General contractor and our forces together, probably 100 to 120 people working on the site every day, and we've given significant financial incentives to our general contractor to get us open by Super Bowl. Basically, we're going to share the profits with them for the first quarter if he can get us open. And that's what we're focused on right now. We're obviously through the planning, through the demolition, and well into putting all the pieces back together there, and it's going to be a very fine hotel. We're very happy with the progress there.

Hampton, Virginia. We did a lot of pre planning before we bought the hotel. We actually had the whole design package and all the permits ready to go, so within three weeks of owning that hotel, we were under renovation. And we have made a fast track agreement with Crowne. They are going to permit us to put the flag on the hotel early if we can deliver 60% of the rooms, the lobby, the restaurant, and the lounge. The lounge is complete. The restaurant is probably 80% complete. We haven't started the lobby yet, but we're well into that renovation.

I will tell you the one problem we've had on all of our projects is that, all our case goods are coming from China now, and I don't know if it's because of the earthquake or the Olympics, or whatever it is, but I think everyone is having the same problems. Really difficult getting your goods out of China right now. They're not showing up on time. But that's our only big concern. I think all of our projects are moving forward at pretty good pace.

Last question, I promise. The dividend coverage is clearly looking a little tight, especially the industry heading into a downturn. What's your thought on maintaining that even if you're not covering, and how does that relate to your remaining investment capacity?

Well, I would say that our intention is to maintain our dividend. That's always been our focus. That's always what we're about. We feel like it would be a huge let-down to the investment community if we were to curtail our dividend. Having said that, if things were to spiral down out of control, we don't control the overall U.S. economy, so we have to play in that arena. If things get really, really bad, we would have to consider that but at this point in time, it's not something we're considering doing. So in terms of future financial capacity, I would say this next six months is probably the low point of our performance, just because we've had so many projects under renovation and we're bringing so many projects back, with the relaunch and such that this is the worst time for us.

We feel like 2009 is going to be a breakout year for us because all that is going to be behind us. Not going to have any projects under renovation next year. Our product is really, really outstanding and the markets that we're in. We either have -- we have some of the best products in every market that we're in. We're going to be in a great position to compete. And so in terms of what's 2009 look like, we're very bullish on that. Even though we have the expectation that the economy is going to be weak, I think the reason we're bullish is we know we're going to have the best product, we know we've lost a lot of market share because we went under all these renovations and we know we can get it back because in most instances or in many instances we are going to have the best product in the market and we have good management team to back that up.

Great. Thank you very much for your candor.

(OPERATOR INSTRUCTIONS). And it looks like we have no further questions.

Okay. Thank you for participating today's call and for your interest in the company. We look forward to reporting our progress next quarter. Everyone have a good afternoon.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.