Sotherly Hotels Inc (SOHO) 2009 Q4 法說會逐字稿

Hello and welcome to the MHI Hospitality Corporation fourth-quarter 2009 earnings conference call. All participants will be in listen-only mode for this event. (Operator Instructions) 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 conference over to Ms. Victoria Baker. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining us for MHI Hospitality Corporation's fourth-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 to the most directly comparable GAAP measure in accordance with Reg G requirements. We are 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 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 statement.

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 Drew for his opening remarks.

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

In 2009 we crossed an important threshold in the execution of our business plan. With the opening of our Tampa hotel in March and the first-quarter completion of renovations at our Hampton, Virginia, and Savannah, Georgia, assets, we concluded three years of major portfolio renovations, relicensings, and rebranding.

To put that in context, in the fourth quarter of 2008, five of our 11 hotels were experiencing significant renovations. With the opening of the Crowne Plaza Tampa Westshore, we completed our portfolio repositioning and ended all construction risk to the Company.

Over the rest of the year we focused a great deal of attention on the ramp-up of our newly repositioned assets, and in particular, our Louisville, Hampton, Savannah, Wilmington, and Tampa assets. Our fresh new product, combined with a variety of innovative sales and marketing strategies, combined to drive fair share in each of our markets, separating us from our competitive set.

In the last quarter, funds from operations increased nearly 156% over one year ago. Total portfolio gross operating margins improved 210 basis points during the quarter from the previous year. Although RevPAR decreased 6.5% in the quarter, when compared to our peer set we outperformed by a wide margin.

For the year, portfolio gross operating profit margins increased 9.4% while improving 240 basis points over 2008. RevPAR decreased 11.6% for the year.

Our performance is significant when you consider that the hotel industry as a whole suffered its worst year-over-year revenue loss since Smith Travel Research began tracking data.

Our 2009 gains in portfolio operating margins, change in top-line sales, and change in FFO demonstrate our repositioning strategy is taking hold to unlock the value within our asset base. We are encouraged by these sequential improvements in performance and believe that this will continue to strengthen over the next several quarters.

I would like to take a moment to focus on our financial picture. With the major portfolio renovations now behind us, we have no serious capital needs for the next six to seven years. We have the lowest debt within our peer group, at slightly less than $70,000 per key.

I want to highlight two initiatives from 2009 that are enhancing our balance sheet. In December, we completed a rights offering. To recap, we offered rights to our existing shareholders to purchase additional shares of common stock at a price of $1.60 per share. The price was at a 30% discount to the closing price of the stock as of October 22, 2009.

As a result, we issued 2,132,680 new shares and received gross proceeds of approximately $3.4 million. This was a prudent move that was executed to raise operating capital to have in reserve and reduce short-term risk while minimizing dilution to our existing shareholder base.

In terms of further deleveraging the balance sheet, raising equity remains a viable option for us, particularly now that the market is beginning to recognize the benefits of our portfolio transformation efforts. Depending on future market conditions, we are considering the issuance of common and/or preferred stock, as well as refinancing individual properties as alternatives to lower our debt burden, increase our liquidity, and satisfy any debt compliance issues.

We continue to seek out asset management assignments and have qualified with several special servicers to increase our fee income and promote the Company's profitability. According to Risk Capital Analytics, there is over $30 billion of hotel assets on its troubled list. We believe this is a promising opportunity for several reasons.

Our experience in hotel turnarounds makes these asset management assignments a natural fit. And through our role as asset manager, we will have our ear to the ground with regard to potential acquisition opportunities.

Before turning the call over to Bill, I would like to provide some perspective on the hotel environment. The industry we believe hit bottom late fall in terms of performance, and we anticipate a very soft recovery in 2010. We think the industry will experience flat RevPAR in 2010.

In the first half of the year we will experience slightly negative results; and slightly positive results in the second half of the year. Most of the reduction in RevPAR will be rate driven. We believe occupancy is going to rebound slightly in 2010.

We also believe demand will return in earnest in 2011. The consensus of Smith Travel Research, TWC, and PKF all project similar beliefs.

On the supply side, the industry has run through most of the projects that were started pre-2008. For the full-service upscale and upper upscale segments, the pipeline is nearly empty.

On the supply side, we believe the industry will experience a favorable outlook for the next several years. Supply metrics represent a huge positive for the industry, and we believe we will start getting some pricing power back in 2011.

Since the lodging industry is consumer-driven business, US unemployment levels are among the greatest challenge we face. In addition, political issues and uncertainty regarding government regulations and mandates are creating a lack of confidence in the corporate community, which is hindering corporate growth and therefore project demand.

I will now turn the call over to Bill.

Thank you, Drew. Reviewing the performance of the Company, the Company reported consolidated total revenue of approximately $17.5 million for the quarter ended December 31, 2009, a decrease of 0.6% over the fourth quarter of 2008.

For the fourth quarter, the Company reported a consolidated net loss of approximately $0.8 million or $0.10 per share. This compares to a consolidated net loss of approximately $0.9 million or $0.13 per share for a comparable period in 2008.

We reported net operating income for the fourth quarter of approximately $0.3 million versus $1.3 million for the fourth quarter of 2008.

Funds from operations, or FFO, was approximately $1.2 million or $0.11 per share. This compares to approximately $0.5 million of FFO or $0.04 a share one year ago.

During the fourth quarter of 2009, the Company reported an unrealized gain on the value of its interest rate swap of approximately $0.4 million, as compared to an unrealized loss from the value of its interest rate swap of approximately $0.8 million for the fourth quarter of 2008.

As of December 31, 2009, total assets were approximately $214 million versus $211.2 million for the same period in 2008. This includes approximately $188.6 million of investment in hotel properties plus approximately $9.7 million for the Company's joint venture investment in the Crowne Plaza Hollywood Beach Resort.

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 the amount of that 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 reference amendment to the credit agreement.

The Company has no debt with a scheduled maturity before May 2011 other than the mortgage on the Jacksonville property, which matures in July 2010 but may be extended for one year, subject to certain conditions.

The loans coming due to 2011 are a mixture of variable and fixed rate debt. These are locked in before the market collapse and all carry favorable terms.

Pursuant to the terms of the Company's credit facility, the methodology used to determine the value of several hotel assets that were renovated over the last two years and the percentage of the aggregate value of the Company's hotel properties in the borrowing base, used to determine the level of borrowing available under the line, will change commencing April 1, 2010.

The loan-to-valuation under the current credit facility will be reduced from 70% to 65%; and certain hotels will be valued on the basis of their net operating income over a trailing 12-month period, rather than on the basis of acquisition cost or appraised value.

As a result of these changes, the aggregate loan amount available to the Company likely will be reduced below anticipated borrowing levels as of April 1, 2010, and the Company may be required to repay an amount between $20 million and $25.5 million on its line, based on current projections. The Company currently is considering a number of alternatives to address this issue and has commenced discussions with the lenders under its credit facility, with respect to amending the facility, and is evaluating potential sources of additional capital.

At December 31, our total mortgage debt was approximately $72.7 million. Unitholder equity was $15.7 million, with approximately 3.7 million Limited Partnership units outstanding. At December 31, 2009, the Company had approximately $4.2 million of available cash and cash equivalents, of which approximately $0.7 million is reserved for capital improvements and other expenses.

During the quarter, we also paid down our line of credit by $3.2 million. The Company has approximately $75.5 million outstanding on our $80 million revolving line of credit.

The outstanding balance was deployed primarily to fund acquisitions and renovations 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 fourth 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 59.4% or approximately $70,000 per room.

In light of current economic conditions, we are reaffirming the suspension of guidance for the time being. With that, I will turn the call over to Dave.

Thanks, Bill. For everyone's reference, a summary of individual property performance can be viewed on our website within the Investor Relations section at www.mhihospitality.com.

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

Total portfolio rooms revenue, including our JV asset in Hollywood, increased approximately $225,000, from $13.8 million in the fourth quarter of '08 to $14.1 million in the fourth quarter of '09, a 1.6% improvement. Total portfolio GOP was up 3.9% for the quarter, from $5.05 million last year to $5.24 million for the fourth quarter of '09. Finally, total portfolio operating margins increased from 24.6% in the fourth quarter of '08 to 26.7% last year, an improvement of 210 basis points.

For the total year, our total portfolio rooms revenues increased $440,000 over the last year, a 1.0% increase. GOP increased by approximately $1.3 million from the previous year, a nearly 6% increase, while GOP margins increased 240 basis points over 2008.

For the total portfolio, including our JV asset in Hollywood, RevPAR fell 7.7% compared to an average 12.1% loss for our competitive set properties in the quarter. For the total year, our annual RevPAR for the total portfolio decreased 11.6% over 2008, while our comp set properties decreased on average 16.6% over the same period.

These 2009 performance statistics continue to emanate from managerial attention to the following. Our ongoing expense controls and changes to cost structure at our hotels, demonstrating that guest service scores and standards can be maintained with a lower cost structure. The ramp-up of approximately half of our portfolio, resulting in some cases in dramatic year-over-year operating improvements.

And finally, our continued focus on establishing a solid base of business by changing our customer mix in order to capitalize on more Internet-based sales, third-party integrators, opaque providers, contract business, and on the distressed traveler segment until more profitable conventional segments, namely group business, returns to the market.

Turning to some select individual asset highlights, at our Crowne Plaza Hollywood Beach Resort, our JV process with property with The Carlyle Group, RevPAR was $88.67 for the quarter and $86.13 for the year. We achieved 104% of fair share during the quarter and 85% of fair share for the year, marking the second full year of operations for the hotel.

The market was down 11% for the quarter and 15% for the year, while our hotel was up 4.2% for the quarter and down only 3.8% for the year. We continue to see very solid improvements at this hotel as it currently exceeds its fair share. We expect rate losses to abate on a year-over-year basis in the MSA during 2010.

Turning to our Sheraton Louisville Riverside Hotel, RevPAR was $50.13 for the quarter and $56.72 for the year. We achieved 68% of fair share during the quarter and 67% of share for the year. Market RevPAR was up 1% for the quarter, and our Sheraton increased RevPAR 54% over the same period from 2008.

For the year, the market was off 17% while our hotel was up 31%. 2009 marked the first full calendar year of operations for the hotel. It remains the only Starwood product in the market, and we expect continued share penetration as the hotel ramps up and the overall market improves.

At our Hilton in Wilmington, North Carolina, the hotel was relaunched into the market in June of 2008 after an $11 million renovation. RevPAR was $57.16 for the quarter and $87.21 for the year. We achieved 189% of fair share during the quarter, and for the year our index was 162%.

The market was off 16% for the quarter while our hotel was down just 5.6%. For the year, market RevPAR was off 20%, while our hotel saw only a 2.3% reduction in year-over-year RevPAR. In Wilmington, this hotel remains the market leader and is, in our opinion, the dominant full-service hotel in all of eastern North Carolina.

At our Savannah, Georgia, hotel, at the DeSoto Hilton, at the beginning of this past year in 2009 we completed the renovations of the hotel. We are seeing the results of the renovation reflected in the operating results. The hotel finished the year at 80% of fair share, but achieved 86% of share in the quarter.

The market suffered a quarterly loss of 16% in RevPAR over the fourth quarter of '08 while our Hilton was down only 4.7%. For the year, the market was off 16% in RevPAR while our hotel was down only 6.5%.

In summary, in all but one case our hotels improved market share against our comp sets during the year, while in the aggregate the entire portfolio increased rooms revenues, GOP, and GOP margins, a significant achievement given the operating environment we witnessed last year.

As we enter 2010, our portfolio of well-located upscale and upper upscale hotels is in the best physical condition since inception of our ownership. We remain in good standing with our franchise partners, and we believe we're poised to capture significant value and profitability as the lodging markets recover.

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

Thank you, Dave. As Dave said, today we are better positioned than at any time in our last five years as a public company. As the lodging market and the greater economy recover, we expect our performance to continue to strengthen.

Looking ahead, we have established the following objectives for the year. First, we will continue to focus on the ramp-up of newly repositioned hotels. We will work to improve fair share in each of our markets. We will work to extend debt maturities beyond a three-year window.

We will continue to deleverage to balance sheet and, when the timing is right, consider prudent capital-raising strategies with an eye on protecting the interest of our current shareholder base.

Late in the year and subject to a capital-raising event, we will pursue acquisition opportunities that are in line with a conservative growth strategy. These investments must meet our mandated strategy focused on CBD markets, [flow] basis, and immediate shareholder accretion. Subject to raising capital and extending debt maturities, it is our stated goal to restart the payment of dividends in the latter part of the year.

We are focused on improving the stock price to a level more in keeping with the value of the Company's hotel assets. Presently, we are valued at approximately $81,000 per unit, which is inconsistent with the quality of the assets in the portfolio. In short, we believe there is a disconnect between what our assets are worth and our stock price.

We are proud of the significant progress we have made in the execution of our business plan in 2009 and over the last five years. We plan to build upon that record and continue to position the Company for meaningful growth. With that, we will open the call up for questions.

(Operator Instructions) Carol Kemple, Hilliard Lyons.

Good morning. Bill talked about that you all may have to raise between $20 million to $25.5 million to deal with the credit line in April. What ideals are you exploring to get that done?

Thanks, Carol. This is Drew. We are working -- we really have a three-pronged strategy here. First and foremost, we are in discussions with the lender group to amend our credit facility so that a paydown would not have to occur.

The reason that we're having this issue is because our Tampa asset is going to be based upon a value that is directly related to its trailing 12 net operating income. And because of the market conditions that were existing in Tampa over the last year, and the fact that this was a brand-new hotel, even though we have about $38 million invested in the hotel it's going to be valued near zero. That is really the crux of the problem.

So what we are trying to do is get the lender group to assign a fair value to that asset. We think we're making significant progress in that regard. So that's our first strategy.

The second strategy is to raise additional capital, which we need to do anyway, but we have been trying to time it properly so that it wouldn't be dilutive. That could either be through a preferred stock offering or it could be through a common stock offering.

Additionally, we've made significant progress with regard to some preferred placements, private placements, and we are working on that diligently. Hopefully we will have some good news here in the next few weeks.

Then as a backup plan, we've gone on and started our attorneys working on an S-11 to that in the event that none of these things happened we would raise the minimal amount of capital to satisfy the lender burden. So that's our strategy. Dave, do you want to add anything to that?

I think that captures it.

Okay. I know on previous cause you talked about you would try to get individual mortgages on the properties in your credit lines, so that you would have fixed-rate debt. Is there any progress there?

I think the credit -- this is Dave speaking. The credit markets seem to be thawing a little bit. So whereas nine months ago the phones were pretty much not being answered by lenders, now we are getting some interest.

I think that's a viable strategy for some of our hotels, and I think we will probably see something happen this year.

Carol, the reason that's a viable strategy is that we are not way out over our skis in terms of leverage. We have not overleveraged our portfolio. We are at $69,800 a key in terms of our leveraged total portfolio.

As a consequence, that's why the lenders are willing to work with us. That's why we think that refinancing single assets is a viable strategy. And we we're not upside down on the value of our assets with regard to our debt.

One thing, Carol, to remember is -- going back to the question about the strategy on the line -- is we have already amended the line a couple of times with the lender group. And we have a very long, very good relationship with our lead lender BB&T, extending back when the Company was private.

So we have had good results in the past and we don't think that there is going to be any reason to think that good results won't emanate from this current technical matter in the credit agreement.

Okay. Then just do you have any expectations for where you expect food and beverage income to be this year?

Boy, can we get back to you on that one? I don't know that we have the budget here handy. But we certainly have an expectation, and we have seen some growth in that regard in the first couple of months. Scott will get back to you on that one, Carol.

Okay, great. Thank you.

Dan Donlan, Janney Montgomery Scott.

Good morning. Just a quick question on the Jacksonville property. It said that -- I think you guys said it was subject to certain conditions to be able to extend that. Could you maybe elaborate on those conditions? Or is it pretty much just a given that you will be able to extend to 2011?

No, I think there are some significant conditions there. We're going to have to go through an appraisal process which we've begun on and actually received the appraisal. There is going to have to be some negotiation with the lender in terms of not only -- we would like to see the rate come down a little bit if possible, the interest rate. And of course, they would like to see the note paid down a little bit. That is the trade-out.

So as part of our capital-raising strategy if we -- when I say a little bit, I mean maybe $1 million or $1.5 million. It's not a lot of money. But they would like to see some minor paydown on that; in exchange we would get some benefit from our side.

And we would like to extend that out three to five years is what we're talking about. So it's almost like a blend and extend note. And we're working that right now.

That's the second thing on our list. We're working with the line of credit and also this facility to try to extend that out.

Okay. Then just going to the line of credit, did the lenders realize the irony behind the asset being valued at zero when you have put $38 million into the asset?

I think so. But, you know lenders in today's world; they have a little different view of thinking than they did two years ago. So we have to work the process.

They certainly see the value. We have had all the lenders down to the hotel to do an inspection and walk it, and everyone is impressed. The hotel looks great.

And it's capturing share in its market, so it's doing everything we expect it to do. It's just a technical matter in the lines.

Dan, you know we had negative cash flow at that hotel from an operating perspective pre-debt for all the way through October. Then we got positive in November. It grew in December. It grew substantially in January.

And we're seeing it -- we are having a pretty good month this month, so it's going to grow again. We're finally seeing things kick in, and that's good.

So we've seen significant improvement. I think that is what they were kind of waiting to see. You know, is the market going to come around? Is that hotel going to be profitable? And the answer is yes. So I think we will get this worked out for them.

Okay. Can you maybe give us a time frame? If there is an amendment would it be sometime maybe April, May?

I think it's going to have to be before the end of March.

Before the end of March? Okay.

I think that that's an absolute. And as I said we're looking at some other capital-raising strategies as well. We hope to have some good news here shortly.

Okay, okay. Then, Drew, moving on to the fundamentals, you said that you thought RevPAR would be flat for the year. Given that your -- that is the industry I would imagine.

I guess given that your portfolio is still ramping, wouldn't you expect your portfolio to outperform that flat RevPAR expectation for the industry?

We do. We fully expect that we will outperform that number. I was speaking of the industry being flat.

But we are taking share. We've taken share every month.

Every asset.

Every asset every month for the last three months.

We had a really tough comparable in October, Dan. October 2008 was actually the best month we had ever had in our portfolio, which is kind of curious given what was going on in the world. But it was really, really strong.

This October we were down a little bit to 2008. But then November and December have been -- we outperformed by a pretty wide margin the previous year. Then January we've also outperformed previous year by a wide margin.

So the trends are very strong for us. We're pretty excited about the direction we're going here.

Okay, and are there any type of one-time expenses in the first-quarter 2009 with opening the Tampa asset? Is there anything like that that we need to be mindful of?

As a comparable?

Yes.

Well, we had a charge-off. When we opened the doors we had a charge-off, I think it was about $90,000. Does that sound right, Bill? That we charged off?

I don't have the exact number here, but I think we probably had several hundred thousand of preopening expenses.

That were charged off to current operations, so --

Right.

I mean the change will be very, very significant in terms year-over-year comparable.

Okay, okay. Then maybe CapEx guidance for the year, what are you looking at maintenance versus -- I think it said in the press release that everything had been completed at Raleigh. I thought there was going to be more expenses to be completed at Raleigh.

There are more at Raleigh. What we completed was the Holiday Inn relaunch.

Okay.

It was a mini-PIP, which is freshening up the guestrooms, and doing soft goods, and complying with all the new brand hallmarks. So we did all that, and that has all been paid for.

But what we have is we are coming to the end of our license there about March, the end of March 2011. So at this point we have done model rooms and we're talking to -- we're either going to be a Doubletree, a Crowne Plaza, or extend the Holiday Inn franchise. We just haven't decided what we are going to do.

What we put in the budget for this year, Dan, is to get all the rooms done; and then the first half of next year we will put in the budget to do the public spaces.

Okay. So could you, I guess maybe -- what are you expecting on an improvement basis? Just a one-time CapEx?

Well, what we're doing, we are just paying it out of our regular CapEx reserve. Because the other hotels are in really good shape. So we're not -- we have very little to spend on most of our hotels. And we're going to spend -- I think it's around $1 million on Raleigh this year.

Okay.

We're budgeted approximately $1.2 million for Raleigh.

Okay. Then as a percent total revenues, maybe 2% of that for maintenance?

Yes -- no, not even that high. It's -- I think our total budget was -- is it 2.3%, Bill, or 2.5%?

Well, we have an additional CapEx in it, beyond the Raleigh, of $1.6 million budgeted. So a total of $2.8 million.

Okay. Perfect.

So nonrecurring, we should be zero; and the recurrent CapEx for the year is going to be 2.7-ish.

Yes, and that has a reserve in it as well.

That's got about $300,000 contingency in it.

Okay. All right. That's it for me.

Amin Visram, Zayma Realty Holdings.

Good morning, gentlemen. Amin Visram. Can you hear me? I have a few questions. The first one I will start with is somebody made a comment -- and we're all in this business who understand this business, what's going on right now -- that there is $30 billion of troubled loans. What have you guys done to restructure your debt?

Well, we've got long-term mortgages on several hotels, so we don't need to restructure that debt. That's pretty much square. We locked in the terms and that's about 50% of our total debt. So that's square; we don't really need to do anything with that.

The other half of the debt relates mostly to the line of credit, which we were just discussing previous; Carol had the question. Which is -- we've got another 15 months to run on that, and we are going to be out of balance on that because of the Tampa asset valuation. So we are presently working with them on a modification to bring that back in line.

In terms of extending that beyond the May 2011 deadline, they are going to require some sort of paydown on that to get an extension. So we're also working to raise the capital that we are going to need to effect that paydown and extend that out for three to four years.

I guess the reason I am asking is your per-key valuation is at $81,000 a key right now.

Right.

Leveraging is at $69,000 a key. So you are basically levered at 86%.

Well, yes, but we don't--

That's based on the stock price.

If I may finish, please.

Yes, that would assume that the stock price reflects the value of our assets, which we obviously don't believe is the case.

But you know, I've been holding your shares and I'm a pretty significant shareholder now for about a year and a half. And all I see is, when rights offerings are made, a dilution of existing shareholders.

Why would you not do something that Sunstone Hotel Investors has done? Something to the effect that if the debt is -- if your leveraging is so high either you work it out with the lender, so that you bring the valuations back, mark-to-market, or you give back the asset to the bank in the expectation that the bank is going to work it out.

Well, those folks were leveraged up to $150,000 to $175,000 a key. We're not. We are at $70,000 a key. Our assets are worth substantially more than the debt, so we would be foolish to do that.

I respectfully agree with you. But I also disagree with you, because you have heard of the [lodging] portfolio that just sold, and that was at $46,000 a key. Some of these assets in the lodging portfolio are similar to what MHI owns.

You know, the Denver Marriott. You've got jewels of assets in Hilton head. You have got the Melbourne Cocoa Beach Crowne Plaza. Very similar; and those came in at about $50,000, $55,000 a key.

So I'm not going to argue here. But what I am saying is, when I look at your revenues of 2009 versus 2008, I see an increase in the total global revenue picture at $71.518 million. But I see that that operating income is $3.874 million in relation to $5.606 million which was 2008.

But I don't see corporate, general, and administrative getting reduced. I see that going up in relation to it. Now everybody in the hospitality sector, myself included, has nurtured expenses quite significantly last year so that we, A, try to figure out what we're going to do going forward.

We're all in the same boat. Trust me. We all have a situation where mark-to-market values have comes down. I'm just trying to wonder -- what is scaring me is that when comments are made that we're doing a private placement, we are looking for more offerings, etc., my question is simply -- at what? At the cost of diluting existing shareholders?

Because it just keeps -- the share count keeps increasing from 6 to 9 million. And now the question I have is -- what is going to be done for the existing shareholders not to discount those valuations significantly to do a new offering?

That is really my main in a nutshell. So that is my second point.

My third point is we talked about distributions or dividends, and I can understand that will be in the second half of the year.

The fourth one really -- and that's something going back to the second one -- is the sale of the assets or sale of the Company. Which I think sale of the assets is not even to be looked at this year because of mark-to-market values. But I think perhaps potential strategic review of the Company.

Well, I mean -- number one, we disagree with the premise that we would want to sell the Company at the bottom of the market. That makes very little sense to us. Why we would want to do that -- we certainly wouldn't want to. We wouldn't even entertain that at this point.

We are obviously not going to get the best price for the shareholders if we sell the hotels and essentially the whole Company at the bottom of the market. So we would disagree with that strategy.

Number two, in terms of diluting shareholders. I'm the largest shareholder. If you had elected to participate in the rights offering you would not have been diluted. You elected not to do that.

As you said, we needed to raise capital. The existing shareholder base who participated in the rights offering in most instances increased their shareholder count. The folks that are running this Company stepped up and provided a significant amount of capital to the Company to ensure that it was going to be in good financial stead.

And through those efforts we increased our share count and we increased the ownership interest. So I mean, that was a personal choice that you had, not to participate.

I agree. I had that personal choice. But at the same time, when share rights offerings are being offered at 30% below somebody's cost basis, obviously that month the share has reduced itself down to $1.60, $1.65 just particularly to meet the rights offerings.

We were all watching it very closely on a day by day basis. The shares went straight from $2.40, $2.35, to $1.65. That was -- now I understand that the insiders may have purchased these shares.

But where I find that there might be a difference in thought process here is that your corporate and general administrative costs are still at $3.170 million versus $2.940 million in 2008, which was a banner year.

Well, I can tell you that we have just gone through a due diligence process with the The Carlyle Group, who was looking to make an investment in our Company. And they looked really strongly at our G&A and came to the conclusion that we were probably underfunded in that regard. We only have seven employees, so there is not that many opportunities to cut.

In terms of what we've done on the property level, we've cut over 600 people out of our hotels. So to make the point that somehow we haven't cut expenses is simply inaccurate.

No, no. I didn't make that point. I'm just looking at the corporate, general, and administrative. That's all.

Right.

No, I just wanted to put my thoughts out there, and I have no more questions.

Okay. Thank you.

(Operator Instructions) Gentlemen, at this time we show no further questions. I would like to turn the conference back to Mr. Sims for any closing remarks.

Well, we would just like to thank you all for participating in our call, and we look forward to the next quarter's call. Thank you.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.