Ashford Hospitality Trust, Inc.
Q4 2007 Earnings Call Transcript

Published: 29 Feb 2008

[Operator:]

Ladies and gentlemen, thank you very much for standing by, and welcome to the Ashford Hospitality Trust fourth quarter 2007 conference call. (Operator Instructions) As a remainder, this conference call is being recorded. I’d now like to turn the conference over to Tripp Sullivan with Corporate Communications.

[Harry M. Sullivan:]

Thank you, Michael. Welcome to this Ashford Hospitality Trust conference call to review the company’s results for the fourth quarter of 2007. On the call today will be Monty Bennett, President and Chief Executive Officer; Doug Kessler, Chief Operating Officer and Head of Acquisitions; and David Kimichik, Chief Financial Officer. The results as well as notice to the accessibility of this conference call on a listen-only basis over the internet were released yesterday afternoon in a press release that has been covered by the financial media. As we start, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information that are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous assumptions, uncertainties, and known or unknown risks which could cause actual results to differ materially from those anticipated. These risk factors are more fully discussed in the section entitled “Risk Factors” in Ashford’s Registration Statement on Form S-3 and other filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company’s earnings release and accompanying tables or schedules, which has been filed on Form 8-K with the SEC on February 27, 2008 and may also be accessed through the company’s website at www.ahtreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. I’ll now turn the call over to Monty Bennett.

[Montgomery J. Bennett:]

Good morning and thank you for joining us. On this call we will update you on our continued strong operating performance and highlight our current capital recycling sources and uses. We are very pleased with the fourth quarter results. For the hotels not under renovation, we reported a pro-forma RevPAR increase of 7.8%, and a 175 basis point improvement in operating margin. The continued improvement in RevPAR was related to the greater concentration of urban and larger hotels in the portfolio compared with the year ago, as well as the benefit from renovations. The margin expansion was a result of good departmental flow through and savings in energy, property tax and insurance that we’ve locked in. We expect these positive trends to continue in 2008. Our RevPAR yield index for the quarter increased from 116.1% to 121.2% for the hotels not under renovation and from 116.0% to 119.0% for all hotels. FFO per share for the quarter was $0.30 compared to last year’s $0.27. CAD per diluted share was $0.23, which resulted in a dividend coverage ratio of 120% and an AFFO dividend coverage ratio of 152% for 2007. Ashford is currently paying a dividend of 13.1% as of yesterday’s closing price and it exceeds peers by wide margin. We’ve consistently stated the importance of dividend growth and stability throughout our existence as a public company. As a result of our strategies, we’ve regularly paid one of the highest dividends which is covered by the cash flow from our operating business. Ashford’s platform provides comparative benefits over its peers in this period of economic uncertainty. These benefits are

[David J. Kimichik:]

Good morning. For the fourth quarter, we reported a net loss of $9,941,000; EBITDA of $89,707,000; and AFFO of $42,808,000 or $0.30 per diluted share. At quarter-end, Ashford had total assets of $4.4 billion including $145 million of cash. We had $2.7 billion of mortgage debt with a blended average interest rate of 5.9%, leaving net debt to total gross assets at 61.5% at year-end. With 19% of our debt LIBOR based, we have recently benefited from a reduction in overall interest cost. The company’s weighted average debt maturity, including extension options is seven years, and the company’s EBITDA to fixed charge ratio was 2.4 times for 2007. At year-end, our portfolio consisted of 110 hotels in continuing operations, containing 25,483 rooms. We owned a position in eight mezzanine loans with total principal outstanding of $94 million, with an average annual unleveraged yield of 12.4%. Subsequent to the end of 2007, we’ve placed an additional $58 million of mezzanine debt at a blended annual un-leveraged yield of 14.1%. For the quarter, pro forma RevPAR for all hotels was up 6.1% as compared to the fourth quarter 2006. For the hotels not under renovation, which is all but 11 hotels, the pro forma RevPAR was up 7.8%, driven by a 5% increase in ADR and 176 basis points increase in occupancy. Pro forma hotel operating profit for the entire portfolio was up by $7.3 million or 8.4% for the quarter. For the 99 hotels not under renovation, pro forma hotel operating profit increased 13.7%. Our pro forma hotel operating profit margin improved 175 basis points for the hotels not under renovation and 88 basis points for all hotels. As we typically do, I would like to remind you to consider the detailed information that we provide in our filing, particularly the pro forma seasonality table which adjusts each quarter as we sell assets. During the fourth quarter we purchased in the open market 2.4 million shares of our common stock at an average price of $7.67. We ended the quarter with 120.4 million common shares outstanding; 7.4 million Series B convertible preferred shares outstanding, 13.3 million OP units issued for total share count of 141.1 million. For the fourth quarter, we reported CAD of $32,557,000 or $0.23 per diluted share and announced to pay the dividend of $0.21 per share. Our dividend coverage ratio was 120% of CAD and 152% of AFFO for the full year 2007. I’d now like to turn it over to Doug to discuss our capital allocation strategies.

[Douglas A. Kessler:]

Thanks, David. Our capital allocation strategy remains straight forward

[Operator:]

(Operator Instructions) First question comes from the line of Celeste Brown - Morgan Stanley.

[Celeste Brown:]

Great to see you taking advantage of the yields in the mezz market. My question is, how do you consider sort of this shorter term, in terms of years, nature of the mezz yields versus the permanent, if you decide to keep it, hotel ownership? So, if you sell a hotel and lend out at 17% yield at some points that comes to an end, how do you balance that out near-term versus longer-term?

[Montgomery Bennett:]

I’ll take a stab at it, and Doug, you may want to take a stab at it as well. It’s something we evaluate as we go forward. Clearly we are trying to make money for our shareholders. And since we think that the growth in hotel assets at least at this point in time, hotel asset value is moderating, we don’t see hotel assets throwing off those kinds of returns for the foreseeable future. So it makes sense for us to migrate more towards the mezz business. At some point in time, if I have to guess, let’s say it’s three to four years from now, I think that will start to reverse. And at that point in time we will start migrating the other way. But, really what’s fortunate for us and our strategy is we don’t have to be right about what the long-term is, just as the market moves we move. So, it’s hard to know when it will move, but we’ll be able to move when it does.

[Douglas Kessler:]

Celeste, we also have been very disciplined about being in market and out of markets depending upon what we see happening. And as you’ll recall, we were out of the mezz market when we didn’t like the returns, and we’re into it now. To your question, I think, what’s important to recognize is that we calibrate a portion of our portfolio to be investing in this segment and we need to discover the healthy blend of assets that are in direct hotel investments as well as in our mezzanine platform, and we think that, as we make investments that we strike that balance along the way. I would also suggest that by our ability to access external capital, I think we discovered that we can find ways to enhance returns depending upon where mezz yields are at a given point in time and our view is at least for the near term that relative to prior markets that the existing mezz paper that we are lending will probably have a longer maturity to it in term of how long it will stay within our portfolio relative to the heyday of when hotel owners are regularly refinancing their portfolios. I think that will be a more challenging environment going forward which should continue to foster healthy environment for us to make mezz loans over the next few years.

[Montgomery Bennett:]

One more comment on that, Celeste, is that in the short-term we see the mezz business to be a growing segment within our portfolio. And, we think they will continue as long as we have this credit market disruption and unless and until the CDO market comes back. And it’s just hard to say, the CDO market spring up and pricing got driven down on mezz loans, and we couldn’t compete anymore. Something that really no one knows is will that CDO market for hospitality mezz loans come back ever, or is that going to be a market that’s relegated to companies like ours. We hope the latter is true, but that’s something we just don’t know.

[Celeste Brown:]

It sounds like your first use of a free dollar would be to lend it out in the mezz market rather than to pay down debt, is that right?

[Montgomery Bennett:]

We want to pay down our debt to get below 60% net debt to gross assets. So, that needs to happen, and that’s the goal that we want to hit by the end of the year. So, as far as the order, hard to say, but at the end of the year, that’s where we are going to be and plan to be. Now, after we get below 60%, then we could either pay down more debt or make mezz loans, and our inclination is probably not to run the net debt to gross debt, that’s down too much below 60% because it’s dilutive, and we can get such great returns on mezz that we would probably rather do that. I hope that answers your question.

[Douglas Kessler:]

Also keep in mind, Celeste, that with each asset sale, there is typically associated debt that’s either going to be to assumed by the new buyer or paid off. So, essentially unless we are selling some unencumbered assets, and there are a couple in our portfolio that we’re looking to sell, the first impact is actually the pay down of debt.

[Celeste Brown:]

Right. And then, just finally in terms of housekeeping, you have an unconsolidated JV line for your 25% stake of the $400 million JV, but your promote would be reported on a consolidated basis?

[David Kimichik:]

I think all of it will actually come through the JV line.

[Celeste Brown:]

Okay. Thank you.

[Operator:]

The next question comes from the line of Amanda Bryant - Merrill Lynch.

[Amanda Bryant:]

Great, thank you. With respect to the $60 million of CapEx spend that could be deferred, what specifically do you have to see happen to prompt a decision to defer that?

[Montgomery Bennett:]

There is a number of factors that could affect that. I think operating performance of the hotels is one factor, and do we want to preserve a bit more cash. Another factor is our desire to raise capital through asset sales. If we are not happy with the pricing that we are getting through asset sales, then we will be more likely to sell less assets and therefore be more inclined to dial back on the CapEx. I would say those will be the number one and number two factors that will affect that.

[Amanda Bryant:]

And in terms of operating performance on the hotels, do you think of that in terms of an ongoing portfolio RevPAR level? Meaning, at what point, if RevPAR growth decelerates, do you pull the trigger and then dial back on the CapEx?

[Montgomery Bennett:]

No, not on a RevPAR basis. It’s more our internal outlook on the EBITDA performance from the assets themselves.

[Amanda Bryant:]

Okay. And then in terms of the assets that you’re currently marketing, could you put them into buckets if you would like what types of assets comprise that pool? And what percentage of those assets are from the CNL acquisition? Thanks.

[Montgomery Bennett:]

I will try to hit some of those and Doug, you might think about that CNL question. We’ve put primarily management encumbered assets in the market, and the reason for that is that we still think pricing is strong for those kinds of assets, but also as time goes on, those with independent managers are going to be better at controlling costs during downturns. But we do have some management unencumbered on the market. But generally that’s what we are focusing on. As far as which ones we’re likely to sell or not, probably the number one and two and three factor is going to be the pricing we get on those assets versus what we think the value is. And in this choppy market, you can have people jump out of the woodwork that like one asset for one special reason, maybe it rounds out a portfolio, maybe they want to be in a certain market not willing to jump up a little higher and give us the price. While some very good assets, because of market conditions, we just don’t get the pricing that we want. So it’s really that pricing that’s going to drive what assets we decide to sell within a certain dollar amount. And the dollar amount we decide to sell is going to depend upon the alternative uses that we see out there, and therefore how much capital we want to raise.

[Douglas Kessler:]

The only other comment I would add is obviously we selected these assets based upon a handful of criteria in terms of what we saw the future growth to be, the required CapEx, the associated debt, which we thought would be assumable and be very attractive to certain buyers today. So, I think we’ve looked at this, Amanda, from really all angles. In terms of your question specifically on the percentage of the assets that came from the CNL transaction, I think that there is a healthy blend of assets that we’ve either held for a while within our portfolio; single assets as well as portfolios. I think the majority of the assets are from the CNL transaction that we have currently listed in the market. But the reason why I’d say that by number, not necessarily by value is that, as you recall, we acquired a large number of select service hotels from the CNL transaction and we layered in some very, very attractive low fixed rate debt that’s assumable. And so, we thought that that would be a good portfolio to bring to the market, the opportunity to acquire these is pretty deep in terms of the number of buyers that are looking for these types of assets. Keeping track of what we see in the capital markets, we want to be able to capitalize on trends that we see in the market, and that’s one that we think might be an interesting exit strategy for us with respect to those types of assets given the financing in place.

[Montgomery Bennett:]

When Doug said low debt, what he means is low cost debt, but high LTV, which we think is attractive to buyers.

[Amanda Bryant:]

Okay. Thank you very much.

[Operator:]

The next question comes from the line of David Loeb - Robert W. Baird.

[David Loeb:]

I hate to beat a dead horse, but to help us model, not that I expect guidance, but can you give us some idea about what your expectations are about the timing of when these asset sales might hit, and how closely you think that will match with your reinvestment opportunities?

[Montgomery Bennett:]

I don’t think we will be able to give too much guidance on that, because it depends upon how the markets develop and what opportunities are out there. But I can give you some; as we mentioned in our script, we’re looking to unload about $600 million worth. That is something that we would like to do, and would like to do probably within the first six months of the year, no promises, but probably within that timeframe, maybe it goes over to the third quarter, but we would like to, again assuming pricing. As far as beyond that, it just depends upon the opportunities that we see. We would like to match-fund as best we can. We wouldn’t want to sell a lot of hotels, and then go for a while before we can redeploy that capital because that’s short-term dilutive, but we know that practically it’s tough just to match everything perfectly. And again, it’s going to depend upon the opportunities to redeploy that capital, and that’s something, David, that we will just have to see as the market develops. We see right now and believe there is growing demand for mezz and that may continue or may not.

[David Loeb:]

Is it possible, just given the timing of the asset sale process, that you’ll actually close them in the first quarter or are you saying that the bulk would be the second quarter?

[Montgomery Bennett:]

I don’t see anything going on in the first quarter. Right now, we’re in the market to follow these assets. So practically, it’d just be tough to get anything done in the first quarter. So maybe second quarter, even that is tough because some of these we are going to be selling with the fixed rate debt and we got to go through rating agencies if the buyer is going to assume that debt, which we think buyers would want to and that’s anytime a 90-day process. It will take a little bit of time. I would say may be even more towards the third quarter for that first slide.

[David Loeb:]

And if you are talking about second and third quarter sales, you are beyond a year from the CNL acquisition. Does that mean there could be gains on sale of assets that were purchased as part of the CNL transaction?

[Montgomery Bennett:]

There could be because we have to set that number I think this quarter and we are going to try to calibrate those allocations as closely as we can to what we think the market is. But there may be some gains or losses on some of those, but again just because we didn’t calibrate it exactly right. But, hopefully, there won’t be too much one way or the other on those CNL assets.

[David Loeb:]

But to the degree that you sell stuff that you owned before CNL, you could see some gains on those?

[Montgomery Bennett:]

Yes. We definitely could. And that was going to be one of the factors we consider as we decided which assets to sell because dealing with those gains is something that we’ve got to consider in regards to how much we pay out in dividends, et cetera.

[David Loeb:]

Exactly where I was going. So, it seems like that minimally supports your need to continue the distribution at the current level, but it sounds like, conceivably depending on the level of asset sales and which specific sales, you might have some upward pressure on your dividend, is that fair?

[Montgomery Bennett:]

We’ve given dividend guidance this year about $0.21 per quarter. We would like to stick to that. But what you said is theoretically possible. If some of the assets we turn out selling had gains beyond what we think we could absorb in our current dividend pay-out, and we elect to sell those, then we could retain it and pay tax on it. But we generally think the smart thing to do is to then distribute out additional proceeds. We’d like not to do that; we’d like to stay consistent with our guidance. But that is a possibility.

[David Loeb:]

And in terms of the buyback, you’ve been blacked out most of this quarter or all of this quarter?

[Montgomery Bennett:]

Yes, we’ve been blacked out since December 20 until the present.

[David Loeb:]

Okay. And given the level of asset sales that you are talking about, might you go back to the Board and increase the authorization or you think that the remainder of the $50 million is sufficient for what you are talking about?

[Montgomery Bennett:]

We think we are fine now. We don’t know what the future holds, but we think we are good now.

[David Loeb:]

Okay. And, then, one more timing question. In terms of the CapEx, how do you think that will break out by quarter given that some projects are underway and that you might push off some others or do some ROI work?

[Montgomery Bennett:]

It’s loaded, even as we speak, towards the back half of the year. And, we did all that because of the economic uncertainty just naturally. So, you are going to see most of the CapEx happening to the extent it does happen in the third and fourth quarters.

[David Loeb:]

Terrific. Thanks.

[Operator:]

The next question comes from the line of Jeffrey Donnelly - Wachovia .

[Jeffrey Donnelly:]

Just wanted to clarify actually to start-off just a response you just gave, I think, to a previous question. Are you seeing pricing on the CNL assets you are looking to sell generally at or below what you paid a year ago or could you see gains on some of the CNL assets in specific?

[Montgomery Bennett:]

We see pricing in the marketplace − and, again, this is based on what we’ve seen to this point − generally at or slightly above what we paid a year ago, maybe at 5% above. Now, that’s generally. For individual assets, based upon how good we are at allocating the purchase price on a select asset that we sell, there may be a gain or may be a loss. But that’s just because of the allocations.

[Jeffrey Donnelly:]

And I am sticking with asset sales, to facilitate those transactions, to the extent that you don’t have financing that’s may be assumable on some of those or it’s not sufficient for your prospective buyer, are you able with the (inaudible) companies provide mezzanine financing on those transactions?

[Montgomery Bennett:]

Yes.

[Jeffrey Donnelly:]

And, then, lastly, you mentioned I think in your comments that you are implementing cost savings initiatives at Remington. Is there anything specific that you are doing with the hotels that you have that are not managed by Remington to push them on cost savings?

[Montgomery Bennett:]

We gave the laundry list in the script. So, we are pushing them on all those items in the script. We’ve had some pretty good response from the brand managers and each one has got their own specific contingency plan at different trigger points depending upon the manager, depending upon the hotel, to start reigning in costs in one or all of those areas. It just depends upon the property, the brand, the general manager’s preferences. But they fall into that laundry list we gave in the script.

[Jeffrey Donnelly:]

I am curious, as you look through the assets that you do have out there for sale, how is it that the PIPs that are outstanding factor into your thinking on your decision to sell? Do have a preference to sell out of some of those assets to avoid the expenditures? How does that weigh on your thinking?

[Montgomery Bennett:]

That’s absolutely one of the considerations as far as capital. When we look at selling an asset, not only would we say, we could receive $100 million, say, on these assets, but it would save us $20 million in CapEx we’ve got to put in. So, that is one of the factors that we consider. Absolutely.

[Jeffrey Donnelly:]

Thanks.

[Operator:]

Next question comes from the line of Dennis Forst - KeyBanc.

[Dennis Forst:]

I wanted to just get one little clarification on the buyback and then ask a question about selling assets. Is there a sunset on that $50 million authorization?

[Montgomery Bennett:]

No. There is no sunset.

[Dennis Forst:]

Okay. And, then, secondly on it, you could be in the market 48 hours after this call, does that sound about right?

[Montgomery Bennett:]

That’s a possibility, yes.

[Dennis Forst:]

Okay, good. And then looking at asset sales as a likelihood, Doug had said something about the sales are dependant on what kind of offers you get. Can you give us a primer on what offers look like today in terms of who is looking to buy assets and what kind of cap rates are being negotiated? I know there has not been a lot of activity but you did say that you had a fair number of lookers. I am wondering just who the lookers are and what kind of prices they are talking about.

[Douglas Kessler:]

The market is not quite as active as it was this time last year. Probably, half the number of transactions this time last year are currently in the market, which actually for those that are selling, I think, can be an attractive opportunity, and that’s why we are trying to capitalize on it. We believe that the array of buyers is really no different. Recall that many of the funds raised significant amounts of equity. This is a market that is clearly being more affected by the debt illiquidity, not at all affected by the equity circumstances. There is just an abundance of equity capital and the types of buyers are inclusive of groups that are opportunity funds, offshore buyers, broker-dealer network buyers in terms of where they source their capital, local owner operators, groups that have raised funds from pension capital. So, it is about as diverse a group as it has ever been. Our view in terms of pricing in the market and the recon that we are getting through our communications with brokers is that hotels that are in the top 15 urban markets may be priced at 25 basis points or so wider than last year at this time. Not a very material move. We consider that the majority of our EBITDA comes from the top 25 or so markets. We feel pretty good about certainly where we are in terms of selling assets in those markets. When you then go to the suburban locations, we think that what we are hearing from the brokerage community is that cap rates may be 25 to 50 bps wider than where they were this time last year. And, then, obviously, the more secondary or tertiary markets where we really don’t have much exposure at all, cap rates could be 75 to 100 bps wider. The relative difference between full service hotels and select service hotels is somewhere between 50 and 75 basis points. So, that relative difference continues to hold true. Now, having said all that, a lot of this is anecdotal. I don’t think there has been adequate data points in the market to confirm the accuracy of these ranges. But our survey indicates that that’s what we are hearing. The one thing that I’ll share with you that I think again puts us at a bit of a competitive advantage is that many of the assets that we have listed have debt that either through discussions with the loan servicers could be assumed or have the opportunity to actually be assumed and some of them have the contractual rights for us to layer in mezzanine. We think that that will facilitate some stagnant qualities of maintaining the cap rates as they were this time a year ago. So, we think that that’s an advantage for us.

[Dennis Forst:]

Doug, thanks. That’s a great answer. Just lastly, did Monty say that the pool of sales, one of the major criteria is management encumbered or management unencumbered?

[Douglas Kessler:]

We would rather sell those hotels that are management encumbered.

[Dennis Forst:]

But, isn’t there a smaller pool of buyers that would be willing to take a management encumbered?

[Douglas Kessler:]

I think that when you consider the smaller owner operators, you are right. The smaller owner operator would typically like to buy an asset that they can get in and put in their management. When you look at the abundance of capital and how it’s allocated in terms of those groups that typically buy management encumbered versus unencumbered, I think there is a significant difference there. And, so, we don’t feel like there is any disadvantage. Those assets, encumbered or unencumbered, trade freely in good times and in bad times. And, so, it’s a non-event. I think what we are looking at is more about the opportunity with respect to how those assets would perform if we kept them in our portfolio. We’ve looked at them on a relative performance basis. And, it just so happens that the majority of them are assets that are encumbered with management. Now, also, keep in mind that we view that, as we said in our script, the assets that we have that are unencumbered or essentially assets that are managed by an affiliate, we believe that we can have a more significant impact on the performance in this period of economic uncertainty. As Monty said in the call, we have already implemented many of those strategies. And, so, we can continue to benefit, our shareholders can continue to benefit by implementing those changes and driving the performance to maintain our operating returns even if RevPAR moves around.

[Dennis Forst:]

Okay. Great. Thank you very much.

[Operator:]

The next question comes from the line of Will Marks - JMP Securities.

[Will Marks:]

Good morning. Just one quick question. In your dividend and share repurchase thoughts, considering the 13% yield, you are obviously not considering cutting the dividend, but how do you think about that high dividend relative to opportunity to buy back stock?

[Montgomery Bennett:]

The guidance we have given this year is of $0.21 per share per quarter. Our dividend this past year was covered from our operating business and we are not looking in the past or in the future for it to be covered by special one-time events or asset sales. So, having it covered by our operating business is important to us. It’s clearly attractively priced for third-party buyers or for us and it’s accretive. So, we’ve got $50 million worth of authorization, we’ve used $18 million of it; it is one of the top three uses of capital for us going forward.

[Will Marks:]

All right. Thank you.

[Operator:]

The next question comes from the line of Nap Overton - Morgan Keegan.

[Nap Overton:]

Good morning. Most of my questions have been addressed, but did have one about the income tax provision in the fourth quarter. It was pretty substantial and just tell me what promoted that and what that was because it was out of line with what I had modeled.

[David Kimichik:]

What’s on the face of the P&L, the large provision isn’t 100% of the taxes. There are income taxes that are in continued operations as well. And, so, you have to look at the total of the sum of the parts. And, I think the best way to point you in a direction is on the EBITDA table, if you look at the add-back for the provision, it’s only $500,000 of expense, and that’s the true provision of the entire company. It’s just that it’s made up in different places on the face of the P&L.

[Nap Overton:]

Okay. I might call you about that. And, then, second, what would you estimate your annual maintenance CapEx requirements for your portfolio as it stands now, the 110 hotels at year-end stand now?

[Montgomery Bennett:]

We traditionally used the greater of 4% of gross revenues or what’s contractually obligated by management contracts that we’ve got. I think our average is something like 4.5% and that’s the figure that we use for CAD. Other people in the industry over the long-term use a higher number than that. And we think that a higher number probably over the long-term is appropriate. However, on many of these assets we purchased, we’ve dumped a lot of money in right after we bought them. So, after you do that, then the 4.5% will last for quite a number of years. Are you looking for a specific dollar amount?

[Nap Overton:]

No. So, the $60 million that you are talking about of the $190 million in total CapEx or potential CapEx for 2008 that is deferrable, that’s essentially maintenance CapEx on the hotels you are not required to do PIPs on? Is that correct?

[Montgomery Bennett:]

Let’s see. Of the $80 million in that first category, some of that’s PIP-related, some of it is not and it’s just already underway. The $60 million − I haven’t really looked at it that way, Nap. But, I’d say some of it may be maintenance CapEx and some of it maybe value-add. I just haven’t broken it down that way, but again, we’d see it as deferral and not as abatement.

[Nap Overton:]

Okay. I really don’t think displacement from rooms under the heavy renovation has been that big an issue for you, but just displacement in 2008 versus 2007 based on your expectations?

[Montgomery Bennett:]

Sure. Since our IPO, we’ve had pretty consistently about 13% to 14% of our hotels under renovation in any given time. And, if you look at our CapEx schedule on the last page of our release, what you’ll find is that for 2008 we find that number to hold true. I think it all calculates out to be 12.2%. But that moves around just a little bit. The amount of disruption that we see in 2008 is going to be similar on a percentage basis to past years. And, to look at the performance of all assets compared to those assets not under renovation, there has been a pretty consistent variance on what the RevPAR has been and what the EBITDA margins growth has been. In fact, David, if you want to relay those, you can share those with him.

[David Kimichik:]

The numbers that we will be comparing to on a period-over-period basis will have a similar amount of disruption to it. So, we don’t really see a lot of disruption this year versus what we experienced last year. But, generally, what we’ve experienced over the last three years has been about a 150 to 170 basis point swing in RevPAR as a result of the renovations we have been doing and about 100 to a 120 bps in EBITDA margin. And, so, that’s been the magnitude of the renovation disruption we’ve experienced and would expect to continue on this year.

[Nap Overton:]

Okay. And then just one other question on the Hilton exchange and the joint venture interest, is it two or four, how may hotels do you have consolidated on your balance sheet in which minority partners still own an equity interest?

[David Kimichik:]

There’s two Hilton assets that are consolidated, and then there are four others in other joint ventures with Interstate and one with Marriott.

[Nap Overton:]

Okay. Thanks.

[Operator:]

The next question comes from the line of Smedes Rose - KBW.

[Smedes Rose:]

Hi, good morning. Given you have been so proactive in your expense reductions and also developing plans to reduce expenses, could you just talk a little bit about where you think RevPAR could go, how low it could go to in order for you to maintain your margins looking across your portfolio on a pro forma basis?

[Montgomery Bennett:]

We’ve done a little bit of that analysis, Smedes, and so, we’re going to talk very generally, but realize that’s not something that we’ve done a whole lot of analysis on. David, why don’t you relay that?

[David Kimichik:]

In terms of macro view, I think it is our opinion that we could hold the line in terms of our EBITDA dollars with between a 2% and a 3% annual revenue growth, that the EBITDA line would be unchanged from a dollar perspective. The margins would probably be reduced 50 to 70 bps in that scenario, but the net dollar change would be about the same.

[Smedes Rose:]

Okay. And then, for your bigger hotels, because you have several 400 to 500 room hotels in core markets, what are you seeing in terms of the visibility on your group outlook? And I ask because you say in your press release, you think there is a real disconnect or misconception about the strength of the lodging industry, which makes me think you have may have further visibility than maybe we have credited you with. Because I think of 2 or 3 weeks of the booking window or visibility, and is it significantly longer than that and what can you share about what are you seeing on the group side that would maybe have the longer lead time?

[Montgomery Bennett:]

Sure. The group booking window is longer, it’s in the month’s period. And even though you book it, it doesn’t mean anybody is going to show up. So pick up is a factor. But generally what we see is group booking pace is clicking right along, according to plan, what everybody thought, all the managers report to us that it seems to be on track and no big surprises there.

[Smedes Rose:]

Okay. And then just one last one, on your total proceeds from asset sales of $155 million, about $161 million in mortgage pay down, so total proceeds were less than the mortgage production or was there some refinancing of other assets or I am just wondering why it’s not more one for one?

[David Kimichik:]

Some of the assets that we sold have been in debt pools, and the lenders typically don’t like you to cherry pick assets out to sell to decrease their collateral. So they require a pay down of like a 125% or some number that’s in excess of what the price value would be of the asset. So to get a release in a pool of debt you typically have to pay a little bit more.

[Smedes Rose:]

Okay. Thanks.

[Operator:]

The next question comes from the line of Michael Salinsky - RBC Capital Markets.

[Michael Salinsky:]

Good morning. Real quickly in terms of the performance of the portfolio overall, can you touch upon the performance of the CNL portfolio in both 4Q 2007 and fiscal year 2007 relative to your initial underwriting?

[Montgomery Bennett:]

We are sitting here thinking about how much we want to break out one portfolio versus the other, but we’ll go ahead and say that for the CNL portfolio so far we’ve exceeded our original underwriting.

[Michael Salinsky:]

Okay. Fair enough. Secondly, having acquired a significant amount of the assets in your portfolio over the past couple of years, I know you don’t give guidance in terms of expenses or revenues, but can you touch upon what’s your outlook is for real estate taxes, whether we should expect that line item to be up pretty significantly in fiscal year 2008?

[Montgomery Bennett:]

We originally thought it would be, and when we underwrote these purchases over the past year or two, we thought it would be up pretty substantially based upon new valuations, but with the softening of the economy, we’ve grown more optimistic that those increases would be much more moderate. I don’t have a figure here about what we specifically anticipate those to be and if I did, I probably wouldn’t feel comfortable releasing it anyway. But we are optimistic that some of those increases will be more moderate than we originally underwrote.

[Michael Salinsky:]

Okay. And then just finally coming up on the dispositions you have targeted for 2008 there, maybe a little differently. Is there any particular regions or brands that we should be looking at for you to reduce the concentration in or do you feel pretty comfortable with the composition of the portfolio as is?

[Montgomery Bennett:]

We feel comfortable with the composition of portfolio. Our decisions could be primarily based upon the offering prices we receive versus what we think the values are.

[Michael Salinsky:]

Okay. Thanks.

[Operator:]

The next question comes from the line of Patrick Scholes - JP Morgan.

[Patrick Scholes:]

Hi, good morning. In the past, you’ve provided quarterly percentage expectations for EBITDA seasonality. Is there any way you can give us an update on those percentages for hotel portfolio that you currently have today?

[David Kimichik:]

Yes, that’s actually in the release.

[Patrick Scholes:]

Okay.

[David Kimichik:]

That is updated for the 110 hotels in continuing operations, there’s a T-12 revenue and EBITDA and margin for that portfolio.

[Patrick Scholes:]

Okay. Does that include expectations for renovation disruptions in those percentages?

[David Kimichik:]

This is historicals. So this is the actual last 12 months and so, it does contain disruption from renovations over the past 12 months for those hotels that have undergone renovation.

[Montgomery Bennett:]

And as we mentioned earlier, the amount of renovations that we’ve got going forward on a percentage of the portfolio basis is pretty close to what went on last year. And so, we would assume that therefore this should still be pretty close although we haven’t gone on a property-by-property basis, but we think that this table is going to be as good as any measure as far as our predictive ability.

[Patrick Scholes:]

Perfect, thanks.

[Operator:]

(Operator Instructions). The next question comes from the line of Jeffrey Donnelly - Wachovia.

[Jeffrey Donnelly:]

Just a follow up question. I know you like to express your displacement and disruption activity as a percentage of your hotels that have renovations. But it’s probably more meaningful to look at it in terms of room out of service or common and meetings spaces just physically out of service. Do you have a sense of how your 2008 and 2009 innovation plans compare in that regard versus your history?

[Montgomery Bennett:]

No, we don’t track it that way and frankly, we just find that it’s an impossible measure of sorts about rooms out of service because renovations never work out the way you want to as far as timing. I don’t know how some of our competitors do it, but as far as maybe room nights out of service and that’s just always the number that moves around so much. So, we don’t know how accurate that would be anyway. So I wish we could help more in that regard, but we just can’t.

[Jeffrey Donnelly:]

That’s my second question; isn’t there a risk that your displacement then this year may be greater than your historical experience? Just because generally speaking, construction costs have continued to outpace RevPAR the last few years and many of your peers are not only seeing cost overruns, but just construction delays, really the issue, prolonging displacement. Are you concerned that there could be more significant impact than you would have originally budgeted?

[Montgomery Bennett:]

No, we don’t see those factors as being any more significant this year than last year, or the year before. We just don’t see them. There is always a potential for delays. A project never accelerates, it always has a potential for delay because something that’s not showing up on time. The best way to do it is not to start your renovation until all of your materials are on site. And then at least the renovation may be delayed, the total amount of time your rooms or public areas are out of service has not changed and moved back a little bit. But yes, there is always a risk that displacement effects could be more or less than it was last year. But our gut tells you that it won’t be much more, much less, but it will be pretty close.

[Jeffrey Donnelly:]

Okay. Thanks.

[Operator:]

At this time I’d like to turn the call back over to management.

[Montgomery J. Bennett:]

Thank you for joining us on our conference call today. And we look forward to speaking to you on our next call. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude the Ashford Hospitality Trust fourth quarter 2007 conference call. If you like to listen to the replay of today’s conference please dial toll-fee 1-800-405-2236 or toll 303-590-3000. The passcode for the conference will be 11105973 followed by the pound sign. Thanks for your participation. You may now disconnect.