Sotherly Hotels Inc (SOHO) 2009 Q3 法說會逐字稿

Hello, and welcome to the MHI Hospitality Corporation's third quarter earnings conference call. All participants will be in listen-only mode for this event. Should you need assistance, please signal an Operator by pressing the star key, followed by the zero. After today's presentation, there will be an opportunity to ask questions. (Operator instructions.) Please note this event is being recorded.

I would now like to turn the call over to Ms. Vicki Baker. Ms. Baker, please go ahead.

Good morning, everyone, and thank you for joining us for MHI Hospitality Corporation's third quarter 2009 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 in the most directly comparable GAAP measure in accordance with Reg G requirements. We're hosting a live webcast of today's call, which you can access on the website.

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 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 any 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, Dave Folsom, Chief Operating Officer, and Bill Zaiser, Chief Financial Officer.

I would now like to turn the call over to Mr. Sims for his opening remarks.

Thank you, Vicki. Good morning, everyone, and thank you for joining us on our third quarter call. Today I will cover highlights for the quarter. Bill Zaiser, our CFO, will then provide a financial update. Following that, David Folsom, our COO, will give us a report on the portfolio. Then we'll be happy to take your questions.

First, I am sure everyone is interested in the pre-effective amendment to the Form S-3 filed yesterday with the SEC regarding our rights offering. To explain, we are offering rights to our existing shareholders to purchase additional shares of common stock at a price of $1.60 per share. This represents a 30% discount to the closing price of the stock as of October 22nd, the day prior to our Board pricing the offering.

Shareholders can subscribe in the offering for up to 100% of their current holdings in the basic subscription right. They may also elect to over-subscribe for additional shares. SEC rules limit the total amount we can raise in this offering to approximately $6.9 million. Based upon this limitation, shareholder subscriptions will be allocated, first, to fill the basic subscription and then any over-subscriptions will be filled prorate.

The rights conveyed in this offering are not transferable, and, therefore, there will be no market for the rights. The rights convey solely on our existing shareholders as of record date of October 14th, 2009. The rights offering will be made by means of a final prospectus only. When available copies of the prospectus may be obtained by contacting Investor Relations at our Corporate Office.

This announcement does not constitute an offer or the solicitation of any offer to buy any securities, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the Securities law of any such state.

A registration statement related to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective.

We have undertaken this rights offering for several reasons. During the year we have seen many of our peers and a number of REITs in general raise common equity. Although raising equity has been and still is a viable option for us, we believe that many of the equity raises taking place were predicated solely on near-term problems associated with defaults and looming debt maturities.

Early in the year when share prices were at their lowest we examined our own balance sheet and liquidity needs and determined an equity raise was not a prudent move. We had no stated maturities until 2011, and we saw no potential loan compliance issues through the remainder of the year.

Furthermore, as we completed the last of our portfolio renovations in the first quarter we concluded that an equity raise should come only after the market had the opportunity to fully recognize the benefits of these valuable additions to our portfolio, which would be evidenced we believe by improving revenues, margins, and RevPAR.

In the second quarter of 2009 our performance improved as a result of the portfolio transformation. As we announced today, these positive trends have continued in the third quarter.

Our strategy is to wait to raise equity until our performance captures and reflects the positive affects of the newer assets in our portfolio. Any future equity raises will go toward deleveraging the balance sheet and funding accretive acquisitions.

In the interim, the rights offering will provide additional liquidity for our balance sheet and be used for working capital which may be used to reduce or purchase existing or future indebtedness or for general Corporate purposes.

Turning to performance, our results continue to improve in the third quarter. This is the direct result of our portfolio transformation strategy and the ramp-up now taking place in spite of headwinds that remain within the hospitality industry.

For the quarter we delivered year-over-year growth in top line sales in contrast to our competitive set. We also saw significant improvements in hotel operating margins over last year, both within overall portfolio and for our same-store assets. The improved top line sales and efficient expense management significantly contributed to the increase in our net operating income over prior year.

Over the past 12 months our top priority has been an aggressive ramp up of the renovated hotel assets. We've employed a variety of sales and marketing tactics, including enhanced internet strategies and repositioning our customer mix. As a result of these efforts, our portfolio continues to gain market share.

Also during the quarter the Company continued to execute on its mission to establish a recovery group to provide asset management services to the financial community. We have successfully marketed to special servicers and other entities involved in distressed hotel loans and workouts. The Company is now on the approved vendor list for four major special servicers.

Prospective assignments include property management, receiver services, litigation support, franchise selection, construction management, value optimization, and project management. The Company will receive a fee for its services.

We have seen evidence of a significant number of hotels that are currently in distress with both balance sheet lenders and the CMBS market. We believe a significant portion of these assets will fall into lender and servicer workouts, and our asset management strategy is poised to take advantage of what we believe will emerge as a lucrative business opportunity.

The asset management strategy accomplishes two key objectives for us. First, it creates a valuable income stream and, second, puts us in a favorable position in terms of gaining insight into the marketplace with regard to future acquisition opportunities.

With the portfolio transformation behind us, the existing portfolio has no significant property level capital requirements for the next six to seven years. We also have no refinance risk until the second quarter of 2011 when our line of credit matures. We have a mix of variable and fixed rate debt that was put in place before the markets dropped and which carries favorable terms. Today we believe we have the lowest debt per unit among our peers at approximately $72,000 per key.

We will continue to pursue a variety of strategies to reduce short-term risk. The rights offering that I outlined is the first step in our capital raising strategy. Next year we expect to continue to deleverage our balance sheet and position it for opportunistic acquisitions that we expect to emerge in the latter half of the year.

We will accomplish this depending upon market availability, via one or more of the following -- common stock issuances, individual property refinancings and, or preferred stock issuance. We feel refinancing our variable rate debt is a prudent strategy as interest rates appear poised for dramatic increases over the midterm.

Before turning the call over to Bill, I would like to provide some perspective on the hotel environment. Within the hospitality sector operating conditions remain extremely challenging. Hotel fundamentals continue to decline, albeit it at a slower rate. The prolonged economic recession and increasing unemployment continue to hamstring the lodging market.

We are also in general agreement with the recent Moody's report stating that the U.S. lodging industry will remain under pressure through the end of 2010. Weak demand, especially in the group segment, continues to plague full service hotels, but we feel we are now at the bottom of the cycle. There are many near-term factors, however, that are unclear and they could upset a recovery.

One positive factor for the lodging industry centers on future supply growth. We believe the midterm supply outlook is favorable for our industry and especially so for the upper upscale segment. There are going to be almost no upper upscale hotels built in the United States in the next several years, which will contribute to an accelerated recovery once demand fundamentals improve.

I will now turn the call over to Bill.

Thank you, Drew.

Reviewing performance for the Company, the Company reported consolidated total revenue of approximately $18 million for the quarter ended September 30, 2009, an increase of 4.6% over the third quarter of 2008.

For the third quarter the Company reported a consolidated net loss of approximately $0.7 million or $0.10 per share. This compares to a consolidated net loss of approximately $0.5 million or $0.05 a share for the comparable period in 2008. We reported net operating income for the third quarter of approximately $0.9 million versus $0.8 million for the third quarter of 2008.

Funds from operation, or FFO, was approximately $1.3 million or $0.12 per share. This compares to approximately $1.1 million of FFO or $0.11 a share one year ago.

During the third quarter of 2008 the Company reported an unrealized gain on the value of the interest rate swap of approximately $0.3 million as compared to an unrealized gain on the value of its interest rate swap of approximately $0.1 million for the third quarter of 2008.

As of September 30, 2009 total assets were approximately $217.9 million versus $203.2 million for the same period in 2008. This includes approximately $189.8 million of net investment in hotel properties, plus approximately $9.8 million for the Company's joint venture investment in the Crowne Plaza Hollywood Beach.

As previously announced, the most recent amendment to the credit agreement entered into in May of 2009 permits the Company to pay in any given fiscal year a dividend in the amount minimally necessary in order to conserve cash while maintaining the Company's REIT status, provided that no dividend may be paid during the first three quarters of that fiscal year.

The Company anticipates that amount of the dividend will remain at 90% of taxable income. If certain liquidity thresholds and other conditions are met the Company may be able to declare and pay additional cash dividends in any given fiscal year. Any future changes to the Company's current dividend policy will need to be in compliance with the restrictions set forth in the referenced amendment to the credit agreement.

The Company has no debt with scheduled maturity before May 2011. As Drew mentioned earlier, the loans that come due at that time are a mix of variable and fixed rate debt. These were locked in before the market collapsed and all carry favorable terms.

At September 30th our total mortgage debt was approximately $72.9 million. The unit holder equity was $17.1 million with approximately $3.7 million limited partnership units outstanding.

At September 30th, 2009 the Company had approximately $5.3 million of available cash and cash equivalents, of which approximately $0.8 million is reserved for capital improvements and other expenses.

During the third quarter we also paid down our line of credit by $0.75 million.

The Company had approximately $78.7 million outstanding on our $80 million revolving line of credit. The outstanding balance was deployed primarily to fund the acquisition and renovation of the Company's newest assets, including the Sheraton Louisville Riverside, the Crowne Plaza Hampton Marina, and the Crowne Plaza Tampa Westshore, as well as the Company's equity contribution to its joint venture with the Carlyle Group for the purchase of the Crowne Plaza Hollywood Beach Resort, and junior participation in the repurchase of a portion of the mortgage debt.

At the end of the third quarter our interest bearing debt to total capitalization, which we define as the gross market value of our properties plus cash and other current assets, was 59.1%.

Finally, in terms of guidance, with the portfolio substantially repositioned and a number of assets in ramp up, we believe we will compete effectively over the long term. However, in light of challenging near-term macroeconomic conditions, which in turn will continue to impact our markets and our customer base in unpredictable ways, we are reaffirming the suspension of guidance for the time being.

With that, I'll turn the call over to Dave.

Thank you, Bill.

For everyone's reference, the summary of our individual property performance can be viewed on our website within the Investor Relations Section.

As we discussed last quarter, I want to first take the opportunity to discuss overall portfolio results, and then I will give additional color on some of the individual assets.

For the quarter our same-store portfolio of eight hotels increased room sales by approximately $50,000, from $12 million in the third quarter of last year to $12.1 million in the third quarter of 2009, a four-tenths of a percentage point increase.

Further, gross operating profit, or GOP, increased approximately $850,000 from $3.9 million last year to $4.7 million in Q3 of this year, a 22% increase. Same-store operating margins increased 500 basis points, from 22.8% to 27.8%.

Total portfolio rooms revenue, including our joint venture asset, increased approximately $900,000, from $13.8 million in the third quarter of last year to $14.7 million this year, an improvement of over 6%. GOP for the total portfolio was up 30%, from $4 million last year to $5.2 million in the third quarter of this year.

Total portfolio operating margins increased from 20.8% to 27.0%, an improvement of 620 basis points. For the total portfolio, RevPAR fell 3.5% compared to an average loss of 15% for our respective competitive sets.

These operating and financial statistics remain compelling and are due to two factors. First, managerial attention to expense controls has not only preserved but increased operating margins and cash flow. Second, as we mentioned last quarter, all of our renovation efforts are now behind us. For the past three years up to half of our asset base has been in a state of flux, as we have been involved in numerous shallow and deep turn renovation projects commensurate with our overall Corporate strategy. These assets are now in various stages of ramp up and stabilization and are, in some cases, showing dramatic year-over-year improvements in such metrics as total revenues, RevPAR, GOP, and margins.

Turning to select individual asset highlights, at our Crowne Plaza Hampton Marina Hotel in Hampton, Virginia our third quarter RevPAR was $68.73, which was a 93.2% fair share penetration. The comp set was down 3.7% for the quarter. Our current fair share represents an approximate 50% share increase from last year.

At the Crowne Plaza Hollywood Beach Resort, our joint venture asset, our RevPAR at that hotel was $68.53. We achieved 86% of fair share during the quarter. The market was off 15.1%, while our hotel was up 8.8% for the quarter.

At the Sheraton Louisville Riverside Hotel RevPAR was $62.46. We achieved 76.8% of fair share during the quarter. The market was off 27.1%, while our hotel was up 14.7% for the quarter.

At the Hilton Wilmington Riverside Hotel in North Carolina our RevPAR was $95.19. We achieved 147% of fair share during the quarter. The market was off 14.5%, while our hotel was down just 4%.

In summary, in all but one case our hotels have improved market share against our comp sets, while in the aggregate the portfolio increased operating margins.

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

Thank you, Dave.

Before opening up the call for questions, I want to review our primary objectives going forward. Our mandated principal focus right now is the effective ramp up of our repositioned assets. Within our stabilized portfolio we're also working to maintain and, or increase share. The fruits of these efforts are reflected in the positive performance delivered over the last two quarters. Looking ahead we should continue to build upon that record.

In addition to the rights offering, we will pursue other prudent capital raising strategies in order to enhance liquidity and strengthen our financial position. We intend to implement a judicious growth plan for the Company. We will seek acquisition opportunities that meet our criterion of strategic markets, low basis, and immediate shareholder accretion. MHI Asset Recovery, the Asset Management Group that we recently formed, will enhance our accessibility to these growth opportunities.

This year we will complete 53 years of business and five years as a public Company. When we went public in 2004 we had six assets and 1,300 rooms. In the last five years we have doubled that platform. This time last year one-half of our assets were undergoing significant renovation. Today, we are the beneficiary of that asset turnaround strategy, and we expect this positive trend to continue.

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

(Operator instructions.)

Our first question comes from Dan Donlan of Janney Montgomery Scott.

Morning, guys.

Hello, Dan.

Just a couple questions here. What is the -- what's your schedule looking like for the asset renovation program in Raleigh? I mean when do you guys -- when are you guys going to deploy capital?

Well, right now we've just completed -- we've already put a fair amount of capital into it. We did a rooms redo over the summer and kind of freshened up the product. And to comply with the re-launch requirements we had a [mini pip] that we had to comply with, and we did that over the summer. And so now we've moved on to the next step which is to do all the brand hallmarks. We have to install those. It's a relatively small number, Dan. It's probably $50,000 to $75,000 that we'll spend between now and the end of the year. Subsequent to that, we won't start any significant renovation activity. At the earliest would be the second half of next year.

How much do you think that would be?

In 2010, let's say a million dollars, and in 2011 probably another million, a million five, something like that.

Okay, all right. And then going to your -- the new asset management company that you guys are kind of setting up, I think you guys had said in your last conference call that you expected to possibly gain an asset, not obviously on your balance sheet, but to gain an asset maybe to be managing by the fourth quarter of this year. Is that something you still see likely? And then, further, are you guys willing to provide any type of fee guidance for 2010 from this new Company?

We're not going to provide guidance at this moment. We may do that on the next call. But I would say that we are now, we've got a portfolio of four hotels that are being considered for -- by a special servicer, and my hope is that we're going to be awarded that. We'll find out this week. We'll make sure that we do a press release the moment it happens so that you're aware of it.

And we're pretty positive. We've spent a lot of time in the last quarter becoming qualified and getting on the good list of several of the major special servicers, and they've all got product coming, and pretty much they're looking for other service providers because a lot of the folks that they're using are getting to full capacity. And so we were well received when we went out into the field, and I think that we will see some product between now and the end of the year.

Okay, well, moving to the balance sheet, is there any type of discussions you guys have had with your lenders recently where they might have eased on some of your covenants? Notably, the collateral covenant, referring to the leverage and how assets in that pool are valued based upon costs or NOI? Has anything kind of come up there?

Lots of discussions, no conclusion yet.

Okay.

But we're, again, we will announce a modification as soon as we have one in our pocket.

Okay. And then, lastly, on the operations of the hotels, I was just kind of curious I mean since you guys have acquired so many hotels and then renovated them, could you maybe talk about the seasonality quarter to quarter maybe from an occupancy and ADR standpoint? And when you think your best quarters will be versus your worst quarters? Just some kind of color there, please?

Bill, can you -- could you take this question and look at our 2010 numbers and give him some sort of percentages for sales quarter to quarter?

I don't have the sales per quarter with me, but I can give you a general feel for it.

Sure.

And if you want to follow-up I can get something. Generally, our second quarter and our fourth quarter are our two strongest.

Okay.

The second quarter is usually the best, and the third quarter, particularly the months of October and the first half of November are strong.

Okay.

They're followed by the third quarter, and again the third quarter can be impacted a little bit by weather, and read that as hurricanes.

Right.

As long as we don't have them the third quarter can be reasonably good, especially toward -- in September, for example. Then our weakest quarter is the first quarter, however, with the addition of the Tampa asset and the Hollywood asset they do soften that up a bit.

Okay.

Well, we can probably provide you some sort of percentage.

I can, I just don't have it with me, in my hands at the second.

But, Dan, we can double back with you and say this percentage of room sales, and we expect this percentage of room sales to occur in this quarter, and this percentage in this quarter.

Right.

And get that to you to help you with your forecast.

Yes, I was just looking for just some general color. And then it looks like last year as a percentage of, for the fourth quarter of last year, as a percentage of room revenues you guys had quite a bit of [FMBs]. Is that something -- it looks actually it was like something like 45% of your room revenues last year was FMB in terms of percentage rates. Is that something you guys, a type of margin you think you guys can hold? I mean I think you did like $5.1 million last year, you know, so I mean I was just kind of curious.

Yes, no, we don't see any real change, and it should -- if there's any change it should be a positive change.

Okay, and then I guess, lastly, it looks like your room expenses actually increased sequentially quarter over quarter, is there anything going on there that is in that number? I just, I guess I thought it would have come down a little bit given that revenues declined quarter over quarter, or sequentially, excuse me?

Well, I mean quarter over quarter we have -- the Tampa asset is going to have an affect on that.

Okay, okay, yes.

And so that's where you're seeing the increase in cost.

Okay, perfect. Perfectly understand. Thanks.

Our next question comes from Andrew Whitman of Baird.

Morning, guys.

Hi, Andrew.

I just wanted a little bit more color on the asset management platform. In conjunction with that, do you expect to take any risk? Is the balance sheet going to require any capital or is this really just your know-how, your manpower, and a little bit of management time if you get some deals done there?

It's the latter. No capital, whatsoever.

Okay, so this -- and when you talk about providing services, you mentioned construction services is kind of asset management stuff, so it's much more on the real estate side than on the hotel management side, so you're not really talking about your management company providing fees to the REIT?

What we're actually doing, Andrew, is we're going to be a one-stop shop for the special servicers. They're going to hire us via an asset management agreement, and we're going to subcontract out the hotel management portion of that to our management company.

Got it, okay, great. Thanks. And then just in terms of the internet strategy that you referenced, Drew, it sounded like it's starting to deliver some results. Can you just give us a little bit of color about kind of what's different this quarter versus maybe what you were doing a year ago there? And do you see that internet strategy is kind of an interim strategy here as some of these hotels continue to ramp and build the base of business which might over time become a secondary strategy?

Yes, I mean I think we recognized a little over a year ago, actually, that it was a point of weakness for us. And what we did was we hired a specialist and have him on staff, that's working at the management company, but is co-payed by both MDH and the management company. And all he does is monitor our channels every day, all day, for each hotel.

And we're repositioning ourselves five to 10 times a day. And so he has a computer and he goes to bed with it and he wakes up with it, and he just monitors our channels. And I think we've done a great job of taking share. In fact, I know we have because we get all kinds of reports to show us that, so we've just, we've become much more efficient, much more competitive, and it's paying dividends for us.

Okay, so it sounds like you said that's been happening now for a little over a quarter, so there's kind of another two quarters maybe that we'll continue to see maybe more significant results from that strategy, and then you'll wind-up in tougher comps? Is that kind of the way we should think about it?

Well, he came onboard in January.

Okay.

So he's been onboard with us now for nine months, and it's working out pretty well. In terms of comps, fourth quarter for us is a pretty tough comp. October last year, surprisingly enough, was one of the best months we've ever had in the history of the Company. But, so we had a pretty tough comp this month, and then they get easier. November, December, January and February were all terrible last year, so we expect to see some improvement, especially given the fact that our Hampton asset was still under renovation during that period of time, our Louisville asset was still getting its feet on the ground, and we've seen significant increases there.

And the Tampa asset wasn't open. So, you know, the Tampa asset, their high season starts third week of January, all the way through the end of April, that's the highest season in that market, so we expect for them to contribute significantly to our FFO.

Okay, just one other I guess question then on kind of what you're seeing in trends? And if you could give us any sense about kind of group pace for next year? Just want to -- I know it's been very challenging, it's been across the industry a shift towards leisure, towards the internet customer, particularly, but any color that you can give us on group pace in the next year I think would be kind of helpful?

It's a little curious, I mean it's really property by property, Andrew. There's no -- there doesn't seem to be any channel trend. One property is doing really well and one property is doing terrible. So it just depends on the market, and we've got -- it's a mixed bag is all I can tell you.

And you're exactly right, we have shifted our customer mix, and we've gone away from group and focused more on the internet and the leisure traveler. And those folks are still out there spending money, and in most instances in the markets where we are they can move-up in product and still pay the same price, they're more than willing to do that. And I think that's why we've been successful.

Interesting. Okay. Last question then, if I might? Sorry. Did I just hear that you're concerned about kind of intermediate term interest rates and that as you look at your variable rate desk that you're thinking about maybe locking that down? Would that -- did I hear that correctly, and is that something that you'd do before the anticipated maturity of some of that variable rate debt?

Well, I think what we think is, you know, we've got a line of credit that has five assets in it as collateral, and what we're trying to work out with our lender is that they would give us the ability to start doing one-off refinancing, where we could lock-in some rates today.

We believe beginning in January that there's going to be some opportunities to do some fixed rate financing, and the rates won't be great but they're better than what we think they'll be three years from now. So if we can get an opportunity to lock-in rates in the 7 range we might take that opportunity.

Okay. I lied, I'm going to ask you one more. Just in terms of proceeds, I mean what are you hearing from lenders in terms of loan amounts as you're considering terming some of that debt out? We've been kind of hearing maybe five or six times EBITDA, is that different from kind of what you're thinking at this time?

Well, you'd have to recognize what our situation is. Our situation is our five assets that are in our borrowing base, the syndicate managers, BB&T, they're a very conservative bank, and we're -- the assets that are in there are in there at about 55% or 50% of cost.

And so we don't -- we're not way out over our skis in terms of leverage within that framework, so we believe there's -- the hotel that's in the borrowing base, there's a value assigned to each hotel in the borrowing base, and as long as we provide payment that's consistent with that, that's our goal, not necessarily to lock-in the highest leverage that we could possibly get. So it's a different set of goals, if you understand?

I'm with you.

If I could add, Andy, that the -- what I'm hearing from the lenders is they want 45%, 55% loan to values, and they'll go higher than that if there's some sort of legitimate recourse available to them. The problem is for all the lenders is what's the V, what's the value? And that -- what cap rates are they using, what multiples to EBITDA are they using, that seems to be the wide variance between the lenders, borrowers, and I guess the lending community, itself.

Yes, that makes sense. You mentioned they wanted some recourse. When you're looking at these debts, you're talking about -- when you're talking recourse you're talking recourse only to the asset, not to the corporate entity? Is that the kind of terms that you're looking at?

Yes, I mean the mortgage is recourse, has the recourse against the collateral. Most of the stuff that I'm seeing and when I'm talking to lenders is they're looking for some sort of corporate guarantee as a backstop.

And I don't think that's -- I think that's going to be a trend going forward. I think the days of the nonrecourse CMBS debt and the balance sheet lenders not asking for that, that's over. I haven't had one lender approach me without questioning the availability and value of some sort of recourse.

So we have to weigh all of those factors before we make a decision, and we haven't -- we're not to the point of making that decision yet. We're probably at least a quarter away from doing anything, so we can update you on the next quarterly call.

No, that's all very good color. And, clearly, very timely with what you're thinking right now. So thank you very much for that. I'm done, promise.

Thank you.

Our next question comes from Amin Visram of Zama Realty Holdings.

Hi, guys. Amin Visram here. I'm sitting here with some of my people from my office. A quick question, what is the credit line secured by?

It's secured by five hotels, which -- you want me to name them for you? It's the Philadelphia Hotel, the Laurel, Maryland Hotel, the [Wylie] Hotel, the Louisville Hotel, and the Tampa Hotel.

And these credit lines that you have, are these CMBS lenders or are they balance sheet lenders?

They're balance sheet lenders.

Okay, all right. And has anybody approached them as to determining mark-to-market ratios right now as to what's going on in the industry?

Yes, we're in discussions with them daily.

And is there any -- because we've heard out there that there's a significant amount of balance sheet loans available to be bought in the marketplace at a 10%, 15%, 20%, 30% discount. Have you guys explored that option?

They're not interested in any sort of discount. They feel like they're more than fully secured and they're very comfortable with their position.

At $72,000 a key secured, is that what they feel?

Yes.

Okay, okay. One quick question, what's your overall averaged out NOI margin on these hotels across the board?

NOI margin, Bill, do we even have that number? Is that a GAAP term?

I don't -- I have GOP margins right here. I do not have NOI margins with -- I don't have that data right in front of me, again.

We can get back to you with that. We can send that to you.

What's the GOP margin, then is it 30%?

Hang on one second, I mean you would want to leave out Tampa because we just opened it and we don't have a GOP yet, so.

You --

What would be the eight stabilized in the last quarter, Bill? We have that number I think.

Yes, the eight stabilized same-store GOP margin was 27.8%.

27.8%, that's before insurance and taxes, and I assume before an [FF] any reserve, right?

That's correct.

So, okay, so we're looking at maybe about a 15% NOI, 12% to 15% potentially, depending on the taxes.

All right, well, one quick question, and obviously this is a public forum so I'll just -- you mentioned something about you are going to explore other capital enhancement opportunities, and you mentioned something about preferred shares. I didn't catch that, can you sort of dwell on that?

Well, I mean there's three options for us in terms of raising additional capital to pay down our debt. We have a goal to rebalance our loan by -- our line of credit loan by the end of the first quarter next year, and there's really three things available to us.

One would be the refinancing of the assets that we talked about, where we would just do on-off refinancings and just pay them off and lock-in fixed rates. And that could be -- it doesn't mean we have to do all five assets. It may be we do one or two assets, and significantly pay down the line of credit, which would make the lenders happy.

We can also do a preferred piece for whatever pay down we decide is the right number to rebalance the loan, then we could do a preferred piece. And right now the cost of that is pretty expensive, but we expect that hopefully that'll go down over time. So we've been waiting and watching to see what that number is going to be. It'll probably be somewhere between 10% and 14%, depending on who the buyer is.

And then, finally, we could do a secondary offering, a common share offering.

I see, I see, okay. And then -- sorry, I've got two minor questions. What is this increase in working capital as a result of the rights offering, is it being done for general Corporate purposes or is it being done and we were toying with this idea and trying to figure it out -- or is it being done to meet the covenants of the lenders?

Well, we're going to -- we're paying down the loan to balance the loan out, so that it stays in compliance.

Okay, okay, that's it. And then, finally, just a last simple question is based on what your budgets are for next year, assuming everything pans out, do you see any distributions to the shareholders or the unit holders at that point?

Our goal, one of the major goals of rebalancing this loan is to put us in a position to restart the payment of dividends. And I mean that's one of the main reasons that we're looking at trying to rebalance the loan. So if we can rebalance the loan, stay in compliance, than we can, you know, our hope and goal is to restart dividend payments in the third quarter next year.

Got you. Okay, I have nothing, unless my people have anything? Patrick, do you have anything?

Is that -- is the loan covenant the driving, this ratio discussion and so forth these technical's, is that a public document? Is that available to shareholders or no?

Yes, it's all filed with the SEC.

Okay. Thank you.

Thank you. And (inaudible) do you have anything? We have nothing. Thank you so much, gentlemen. Appreciate it.

Okay, thanks.

Hey, if I can just make a quick statement here. We've just been notified by the SEC that our Form S-3 for the rights offering has been declared effective as of 9:00 a.m. this morning.

Well, that's good.

Our next question comes from Dan Donlan of Janney Montgomery Scott.

Hey, just a quick follow-up, could you guys maybe provide some guidance on G&A for 2010?

We haven't yet, we will, Dan. We'll get back to you on that, if you don't mind.

Okay.

We haven't finalized our budgets for next year, and so that's why we haven't really published anything yet.

Okay.

(Operator instructions.)

We show no further questions at this time. I would like to turn the conference back over to Mr. Sims for any closing remarks.

Well, I'd just like to thank you for participating in today's call and for your interest in the Company. Have a good morning, and we look forward to talking to you next quarter. Thanks.

That does conclude today's teleconference. Thank you for participating. You may now disconnect.