Ashford Hospitality Trust, Inc.
Q1 2013 Earnings Call Transcript

Published: 9 May 2013

[Operator:]

Welcome to the Ashford Hospitality Trust First Quarter 2013 Conference Call. (Operator Instructions). I would now like to turn the conference over to Mr. Scott Eckstein. Please go ahead, sir.

[Scott Eckstein:]

Thank you, operator. Good day, everyone, and welcome to Ashford Hospitality Trust Conference Call to review the company’s results for the first quarter of 2013. On the call today will be Douglas Kessler, Ashford’s President; David Kimichik, Chief Financial Officer; and Jeremy Welter, Executive Vice President of Asset Management. The results as well as notice of the accessibility of this conference call on a listen only basis over the Internet were distributed yesterday afternoon in a press release that has been covered by the financial media. At this time, let me remind you that certain statements and assumptions in this conference call contain are based on forward-looking information, 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 titled Risk Factors in Ashford’s registration statement on Form F-3 and other filings with the Securities and Exchange Commission. Forward-looking statements included in this conference call are only made as of the day 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, in accompanying tables or schedules which have been filed on Form 8-K with the SEC on May 8, 2013 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 will now turn the call over to Doug Kessler. Please go ahead, sir.

[Doug Kessler:]

Thank you and good morning. Monty is not feeling well today and is unfortunately not able to participate on this call. Before I begin with the quarterly update I would like to remind you that we’ll be hosting our 2013 investor and analyst day on Tuesday, May 21 in New York at The Carlyle Hotel. If there are analysts or institutional investors that have not registered for this event and have an interest in attending, please contact our investor relations teams and we’ll be happy to assist you. We believe the long term total shareholder return is the single most important metric in evaluating a management team and its track record. As of the end of the first quarter our one year total shareholder return was 40.8% compared to our peer average of 22.2%. Our total shareholder return since our IPO in August of 2003 was 124.7% compared to our peer average of 66.6%. We’re very proud of these results and believe that they demonstrate both the skill and dedication of this management team. Our first quarter results demonstrate the considerable progress we have made with our Highland Hospitality portfolio. When we made this investment in March of 2011 we saw two distinct opportunities. First to improve the operating performance of the hotels and second to invest much needed CapEx dollars into the portfolio and bring the properties up to market standards. The strong performance we are now seeing is a direct result of our execution of these two objectives. Since the closing of the acquisition we’ve replaced the property managers at 21 of 28 hotels and along with our joint venture partner, we’ve invested approximately $68 million in capital expenditures. The performance of the investment has exceeded our initial underwriting and we continue to be very excited about the continued value creation opportunities in this portfolio. Historically, we’ve also strived to be one of the most transparent platforms in terms of information shared with the marketplace. We believe it is paramount that investors have enough information to make informed investment decisions. In the summer of last year based on analyst and investor feedback we even expanded that transparency with additional disclosures of hotel performance by debt pools and hotel performance by major market areas. Also, we recently stated including our EVP of asset management on our quarterly conference calls to provide investors and analysts with more detail on what is going on at our hotels. Our hope is that this additional information will equip our investors and analysts with more detail to help them build their valuation and financial models with even greater precision. I believe we have the most highly aligned, stable and effective management team in the hotel industry. The same people that IPOed the platform a decade ago are still here. We collectively have sold very little of our stock over the years and have made additional cash purchases of shares. Our insider ownership is now at 21% and is by far the highest in the hotel REIT industry and clearly sets us apart from our peers. The majority of our management team net worth is in Ashford stock and as a result we strive to be good stewards of the capital entrusted to us by our investors since our own personal capital is at risk with yours. Our management team has spent the majority of their entire careers working in the lodging industry in a variety of roles including acquisitions and dispositions, asset management, property management, finance, accounting, et cetera. If you look at just the top 10 most senior executives in our company we have well over 200 years of hotel and real estate experience. We are a team that has worked hard to achieve many success but we also realize that sometimes mistakes are made and we strive to learn from those. We believe that our industry and capital allocation expertise is most clearly reflected and demonstrated in the strong, consistent shareholder returns that I quoted earlier. I’m proud to say that we have one of the best teams in the business. For the first quarter of 2013 we reported AFFO per diluted share of $0.35 compared with $0.28 a year ago. Adjusted EBITDA increased $7.3 million or 10% to $82.3 million. This represents our eleventh consecutive quarter of at least 10% growth in adjusted EBITDA driven by continued RevPAR growth and improved operational efficiencies. During the first quarter we saw a continuation of last year’s favorable supply and demand trends driving the ongoing recovery in the US lodging sector. Demand continues to increase while new hotel room supply remains at historically low levels. Macro economic conditions also continue to steadily improve despite mixed headlines at times driving solid momentum in RevPAR growth. Overall, the industry reported nearly 3% demand growth for the fourth quarter, which was particularly impressive given a difficult Easter comparable and generally challenging demand comparables. We expect further upside given that forecast for new hotel room supply remains well below historical levels for the next several years with PKF Hospitality Research forecasting new supply growth of only 0.8% for 2013. At the same time, RevPAR growth projections remained strong for US hotels with PKF projecting RevPAR growth of 6.1% in 2013, more than double the long term average of 2.9%. These forecasts anticipate the steady economic growth we’re presently seeing, so in our view there remains potential upside in the event of an accelerated economic recovery. We think this provides a compelling investment opportunity for hotel REITs in general and in particular for our company given our track record of strong EBITDA growth performance. Turning to our portfolio RevPAR increased 3.4% in our legacy portfolio to $99.48 for all hotels in the legacy portfolio driven by a 3.3% increase in ADR. Hotel EBITDA margin increased 48 basis points and hotel EBITDA flow through was 53% for all hotels in the legacy portfolio. For legacy hotels not under renovation, hotel EBITDA margin increased 77 basis points and hotel EBITDA flow through was 57%. For the quarter group rooms’ consumption was down in the legacy portfolio. Approximately half of this was due to one-time special events from the prior year. We continue to experience significant improvement in our Highland Hospitality portfolio, which achieved RevPAR growth of 7.7% for all hotels. Hotel EBITDA margin increased 185 basis points and hotel EBITDA flow through was 53%. Hotel EBITDA increased 15.1% to $18.9 million in the first quarter for all hotels in the Highland Hospitality portfolio and for hotels not under renovation, hotel EBITDA increased 18.5% to $13.6 million. For Highland Hotels not under renovation RevPAR growth was 8.7% during the quarter. Hotel EBITDA margin increased 221 basis points and hotel EBITDA flow through was 52%. We’re very pleased with the results that we have achieved and the Highland portfolio continues to exceed our original underwriting expectations. As previously announced, our board of directors declared a dividend of $0.12 per share for the first quarter of 2013, which represents an annual rate of $0.48 per share. This cover dividend is well above our peer average. Based upon yesterday’s closing price, the dividend yield is 3.6%, which is among the highest of our peer group. Lastly, I’d like to revisit a topic I touched on last quarter. At present we believe there is a gap between public and private market valuations, as well as with our EBITDA multiple compared to our peers. Looking at public REIT values versus where hotels are trading in the private market, the data shows that on both a per key and EBITDA multiple basis, many public REITs are trading below current private market transactions. Potential reasons may include that macroeconomic factors are influencing public REIT valuations to a considerable degree given uncertainties in today’s investment markets. The other item to keep in mind is how small increases in per key valuations and EBITDA multiples can have a large impact on public company share prices. For companies that are more leveraged such as ours, this impact could be magnified to a considerable degree. Looking at our stock price performance, while we have seen significant out performance during the past few months, today we are trading at an even larger EBITDA multiple discount to our peers than we were six months ago. With that, I will now turn the call over to Kimo to review our financial performance for the quarter.

[David Kimichik:]

Thanks, Doug. For the first quarter, we reported a net loss to common shareholders of $23.176 million, adjusted EBITDA of $82.280 million and AFFO of $29.614 million for $0.35 per diluted share. At quarter’s end, Ashford had total assets of $3.5 billion in continuing operations and $4.4 billion overall, including the Highland portfolio, which is not consolidated. We had $2.4 billion of mortgage debt in continuing operations and $3.2 billion overall including Highland. Our total combined debt currently has a blended average interest rate of 5.3%. We currently have 57% fixed rate debt and 43% floating rate debt. It is important to note that all of our LIBOR based floating rate debt have interest rate caps in place. The weighted average maturity is 3.6 years. On March 13, 2013, our five-year interest rate swap ended. The swap and associated flooridors worked exactly like we had planned, hedging our cash flows during the recent recession. Altogether, these interest rate derivatives earned Ashford approximately $234 million over the five-year period. For the quarter, our last non-cash entry that will affect our net income will be added back for purposes of calculating our AFFO, was a loss of $7.1 million. In 2013, Marriott Hotels and Resorts converted to a monthly reporting calendar from their traditional 13-period reporting calendar. Marriott is a large manager for us, currently managing 46 hotels for Ashford. We’ve historically recorded three of their accounting periods in each of the first, second and third quarters, and four of their accounting periods in the fourth. In order to have more comparable numbers for the Marriott managed hotels this year, Ashford has converted their 2012 numbers on a pro forma basis to calendar months. This change will affect all of the pro forma hotel operating tables in our earnings release. At quarter’s end, our legacy portfolio consisted of 94 hotels in continuing operations. Additionally, we own 71.74% of the 28 Highland Hospitality Hotels in a joint venture. All combined, we currently own a total of 25,573 net rooms. Our share count currently stands at 87.2 million fully diluted shares outstanding, which are comprised of 68.3 million common shares and 18.9 million operating partnership units. I’d now like to turn the call over to Jeremy to discuss our asset management accomplishments for the quarter.

[Jeremy Welter:]

Thank you, Kimo. To begin, I would like to highlight a recent transaction that our team worked tirelessly to complete. In early April, we announced that along with our joint venture partner in the City of Nashville, we converted our ground leasehold interest in the 673-room Renaissance Nashville Hotel to fee-simple ownership, saving approximately $500,000 annually. In addition, we signed a 30-year lease, at no cost to Ashford that more than triples our existing meeting and pre-function space, going from 30,000 square feet to 110,000 square feet. The new meeting space lease will also allow us to capture incremental F&B and space rental revenue. As part of the deal, we agreed to undertake a transformative $20 million renovation that is entirely funded through existing capital reserves. Before I discuss the quarter, I’d like to address the recent tragic events at the Boston Marathon. We have two hotels

[Doug Kessler:]

Thanks, Jeremy. During the first quarter, we continued to concentrate on proactively managing upcoming debt maturities. This includes the successful refinancing of our sole remaining 2013 debt maturity, which were set to mature in August of 2013. New loan now matures in February of 2018. The previous $141 million loan was refinanced with a new $200 million loan that has a floating interest rate of LIBOR plus 3.5% with no LIBOR floor. The loan remains secured by the Capital Hilton in Washington, DC and The Hilton La Jolla Torrey Pines in La Jolla, California. Ashford has a 75% ownership in the properties with Hilton holding the remaining 25%. The excess loan proceeds above closing cost and reserves were distributed to the partners pro rata. Our share of the excess loan proceeds was approximately $40.5 million, which was added to our unrestricted cash balance. More importantly, our capital market strategies have essentially addressed all of our near-term debt maturities. Now our nearest significant debt maturity is not until November of 2014. At the same time, our initiatives have successfully put us in a much more stronger position from both a cash and liquidity perspective. Looking forward in 2014 and 2015 our non-extendable debt maturities total only $110 million and $423 million, respectively. It’s also important to note that all of our debt is currently non-recourse. At the end of the quarter we had cash, cash equivalents and marketable securities of $234 million. Touching on our investment strategy, we recently announced the planned acquisition of the 142-room Pier House Resort in Key West, Florida for $90 million. We’re excited to add this high quality, high RevPAR hotel to our portfolio. There are several features to this investment opportunity. First, Key West has perhaps the highest barrier to entry in the US for new hotel development. This market has seen no significant new competitive supply in the last 17 years. Given the local Rate-of-Growth Ordinance, or ROGO, it is very difficult to add rooms in that market and this hotel has the best location in the market. Second, Remington, our affiliated management company already manages three other hotels in Key West and will take over management of Pier House at the closing of the acquisition. We expect there would be significant revenue enhancement opportunities and cost savings through synergies with Remington’s existing presence in the market. Finally, the acquisition is both short-term and long-term accretive to our corporate model. We’re buying this hotel at a forward EBITDA multiple of approximately 11.8 times while we are currently trading at a forward EBITDA multiple of around 12.3 times based on 2013 consensus EBITDA. With Pier House RevPAR in 2012 of $275, we have upgraded our overall portfolio in terms of asset quality. And with the recent $12 million renovation, the hotel has minimal capital needs. With the excess cash balance we have grown over time and our deep market experience, we were able to move very quickly on this acquisition. We have not acquired a hotel in over two years, and while we have continued to scour the market for accretive investment opportunities, we believe our patience has paid off with this transaction. We believe it remains an attractive time in the cycle to be buying hotels, and we continue to actively seek investment opportunities, but again any potential hotel acquisition must be accretive to future anticipated share prices and our corporate model. Overall lodging fundamentals remain solid as the industry recovery continues while supply growth remains at historically low levels. We believe that any positive acceleration in market conditions or alternatively a reduction in global market risk could lead to even more robust lodging sector and REIT recovery. We anticipate there to be a strong pent-up demand for capital inflows into both private and public lodging investments due to the growth prospects in our industry as well as the continued improvement we are seeing in the debt capital markets. While we have seen a positive recovery so far in this lodging cycle, with all these factors we believe the best could be yet to come. That concludes our prepared remarks and we will now open it up for your questions.

[Operator:]

Thank you, sir. (Operator Instructions). Our first question is from the line of Ryan Meliker with MLV & Company. Please go ahead.

[Ryan Meliker:]

Hey. Good morning, guys. Just a couple quick ones here; and first of all, Jeremy, thanks for the color on Las Vegas, Indianapolis. It’s helpful understanding where RevPAR came out. Just with regards to DC, you know I think over the past couple of months you guys have been relatively positive on DC, citing the PKF RevPAR growth expectation of 5%. Obviously the first quarter came in lower than that. We’re hearing talks about sequester having an impact in DC along with the rest of the country. Can you just give us some color on where you stand on DC right now? And if you’re seeing any signs of negative impact from the government sequester?

[Doug Kessler:]

Hey, Ron, its Doug. How are you doing?

[Ryan Meliker:]

Good.

[Doug Kessler:]

It’s a great question. It’s a question that pertains to those who have concentrations in the DC market. Our strategic answer would be long-term we remain very bullish on this market, and are very pleased with the assets we have in the city, around the city and the capital that we’ve put into the markets. Obviously, we’re seeing also some minor impact in terms of the forecasts that were provided and so there is potentially some near-term softening from the sequester. But I think long-term we remain still bullish on this. And you know quarter-to-quarter is obviously judged, but long-term is where we’re aiming for the accretion, and that’s where we believe these investments will still have a material role in our platform.

[Ryan Meliker:]

That makes all the sense in the world. Obviously you guys are focused long term. I’m just trying to understand near term how things could play out. So have you seen any signs from the sequester yet? Have you seen cancellations? And are you seeing any bigger impact in DC relative to your other major markets?

[Jeremy Welter:]

I would say that we’re seeing more impact to DC than our other markets, that’s definitely true. But you know with sequestration most of the cuts that the government’s been making in 2011, 2012 had a bigger impact than sequestration itself. The 2013 cuts may be a little bit bigger or is actually a little bit less than the 2014 and beyond. There’s $85 billion worth of cuts in 2013 versus $109 billion going forward. But the big impact in 2013 is that because of the timing of the enactment of the sequestration cuts was spread over seven months instead of 12 months for next year. So sequestration’s going to have a bigger impact all the way through September of 2013. And then on a monthly basis of the government cuts in October 2013 and beyond we should have less of an impact of sequestration. So it’s just something that we’re having to deal with right now. There’s a lot of focus within all of our DC hotels of segmenting out of government business, going after association business, to minimize some of the impact from the government cuts.

[Doug Kessler:]

And across the board, Ryan, you know our portfolio doesn’t derive a substantial amount of business from government demand. So we’re primarily a transient house with business and leisure. And we’re smaller on groups and even smaller on the government side.

[Ryan Meliker:]

Sure. Are you guys able to quantify what your total business mix is from government?

[Jeremy Welter:]

For the portfolio it’s between 6% to 8%. And then in certain markets and certain assets it’s quite a bit higher than that, particularly DC obviously. Hey, Ryan, one thing is a little bit of positives, you know with the BRAC relocation that we’ve been dealing with in Crystal City and that you’re all familiar with, about 95% of the move-outs have already taken place. So we think that 2013 is the bottoming out for office occupancy rates in Crystal City. We see it improving in 2014 with some meaningful momentum in 2015 and beyond.

[Ryan Meliker:]

That is a silver lining. That’s helpful. Thanks. And then just one other quick question with regards to Pier House; can you give us some color on the growth ordinance? What will it take for a developer to try to break ground on a new asset in that market? Have you seen – as far as you know, have there been any new developments in that market since the growth ordinance was put in place?

[Doug Kessler:]

Sure. I’ll turn that over to Kimo in just a second, but I just want to make a general comment on that market. That is clearly one of the toughest markets to build hotel rooms in. It is a market that we found to be very attractive. As you know, we already own a hotel there within the portfolio, and Remington manages a couple of others in addition. And that is a market also that has, because of I think the tight restrictions on growth, it has the second highest RevPAR; it’s just behind New York City. And so it is a market that – it’s an incredible little jewel in the US and it benefits from really demand all seasons. And interestingly enough, what other aspect attracted us to this market is we looked at the performance historically, and even in the worst of times, when the US market might have been down 16%, 17% RevPAR, this market was only down about 6% or so RevPAR. So it is a very resilient, very robust market and in part, because of this ROGO limited growth ordinance that is what is obviously keeping supply constrained with really an increasing demand, both by all means of transportation, air, land, sea, to get there. So it’s a great market for us and we know this was a competitive process for this asset, but we think that because of our cash that we had on balance sheet, the knowledge that we have in the market and our belief that we can improve revenues and reduce expenses that the bottom line of this asset will even be better over time.

[David Kimichik:]

Hey, Ryan. This is Kimo.

[Ryan Meliker:]

Hey, Kimo.

[David Kimichik:]

The Rate of Growth Ordinance deals with the density of transient units in Key West that’s permitted in Key West, and it’s currently – it’s capped and it’s been fully allocated. So you can’t build a new hotel in Key West. So in order for a developer to build a hotel, he’d have to actually go in front of the state legislature and get new law passed, essentially. So there’s been no new development in Key West for 17 years, and we currently don’t see that changing.

[Ryan Meliker:]

And I’m assuming the ordinance has no expiration?

[David Kimichik:]

No.

[Doug Kessler:]

We’re not aware of. And when we say there’s been no new development, obviously there’s been a couple rooms added here or there, maybe to an existing hotel where they had already pre-allocation for that type of growth. But we’re talking about, given, if you look at the numbers as to how well this market runs in terms of occupancy and ADR, I think if this were any other city, you would expect to see growth but you’ve got limited land, you’ve got government restrictions, we’re very excited to be in this market with another property.

[Ryan Meliker:]

No, it sounds like a great market and a great asset. One last question on it; is the forward 7.6% cap rate that you guys indicated in your acquisition press release, is that assuming any type of material impact from Remington taking over as management or is that basically a relatively conservative estimate building in just the market level growth and how that would flow to the bottom line?

[Doug Kessler:]

It’s the combination of factors. There’s market growth. There are some revenue enhancement ideas that we have, as well as we believe some operational efficiencies on both the variables as well as some of the fixed expenses. So again, when we look at an asset like this, and we can see all these various opportunities, we don’t have to just hit on one to make it successful. We think there are lots of tools in this tool box for us to add value.

[Ryan Meliker:]

And then are you, am I correct in assuming that adding another hotel to Key West you’re going to complex some of the back office operations that will help some of the margins at your other assets?

[Doug Kessler:]

Yes. We believe there will be some synergies there and some efficiencies.

[Ryan Meliker:]

Wonderful. I’ll jump back in queue. Thanks a lot.

[Operator:]

Our next question is from the line of Robin Farley with UBS. Please go ahead.

[Arpine Kocharyan:]

Hi. Good morning. This is actually Arpine on behalf of Robin. Could you talk a little bit about the Highland margins? Obviously after you bring those properties to market standards and we start lapping the strong margin improvements, even what we saw second half – in second half of 2012, could you tell us what would be more of a normalized margins in that portfolio? Thank you.

[Doug Kessler:]

So you’re talking about the margin growth, I believe.

[Arpine Kocharyan:]

Yep.

[Doug Kessler:]

I think what we have demonstrated in our portfolio is some exceptional growth relative to our peers and I think we’ve been consistently doing that. I think when you look at this part of the cycle where the expectation is for greater ADR growth above occupancy increases that continues to keep the opportunity available for stronger flow-through performance. As you know, we don’t provide guidance, but we remain bullish on the opportunities ahead.

[Arpine Kocharyan:]

Thank you.

[Operator:]

Our next question is from the line of Will Marks with JMP Securities. Please go ahead.

[Will Marks:]

Thank you. Good morning, everyone. I wanted to first just ask about – I know you don’t give guidance, as you just said, but any thoughts on the next three quarters? Which have the toughest comps and the easiest comps?

[Doug Kessler:]

I’m sorry...

[Will Marks:]

Well I guess from a, let’s say from a RevPAR standpoint, was there a particular strength in the second or third or fourth quarters last year? I’m just wondering which are most likely to have stronger RevPAR growth versus weaker?

[Doug Kessler:]

Will, you know, we don’t provide guidance on RevPAR, nor on any of the company’s stats. I think you can look at the industry forecasts for RevPAR growth, whether it’s coming from PKF or any of the other experts out there, and I think the calibrations still show a fairly healthy growth ahead. And we’ve obviously demonstrated in our portfolio, with the Highland assets, high RevPAR growth. Within the legacy assets, it’s clearly a renewed focus for us, so we remain optimistic with the industry forecast.

[Will Marks:]

Okay. Fair enough. Thank you. Just one other question on – there’s so much discussion with you guys and others on group, whether it really is weak or not. Maybe can you dissect group a little bit and talk about maybe bigger groups versus smaller corporate association a little bit? And how you’re particularly exposed?

[Doug Kessler:]

Sure. let me just give you the headline, which is that group as a percentage of our portfolio, is smaller than several others of our peers and as we’ve said, it’s circa 25% or so. And Jeremy can give you some particulars as to what we may be seeing with respect to small and large groups. Bear in mind that very few of our hotels, I would consider to be big group houses. So typically our group business is smaller associations, smaller groups where you’re seeing I think generally more of a more resilience in the recovery of those, relative to some of the larger groups where the attendants are still trying to gain some traction and momentum. But Jeremy, you want to add any comment to that?

[Jeremy Welter:]

Sure. I can add some color. Legacy group was down for the quarter. A lot of that is what we explained for Embassy Suites Las Vegas and Sheraton Indianapolis. Highland was up quite a bit for the quarter, so on a net basis, we were essentially flat. But we were able to grow our group rate 4.5% for the quarter on a combined basis. And as relates to what we’re seeing in group it really varies by market. And as it relates to like DC government group is obviously down, government related group is down and as I mentioned what we’re really focused on is going after new types of business, particularly for Marriott Crystal City, association business, share shifting out of government to try to get other group business in. In certain markets, up on at Nashville which we own the Renaissance, that hotel has 673 rooms and it happens to be 11% of the rooms’ revenue for Highland. It was up 14.5% approximately for the quarter and that was because there was strong group demand in Nashville. And we see that, we’ve seen that and we look at the convention calendars in Nashville and going forward it’s still pretty strong despite some of the new supply as well. So it really varies by market. DC is going to be one that is maybe a little bit more challenging.

[Will Marks:]

Okay. That’s great. I really appreciate the color.

[Jeremy Welter:]

Okay.

[Operator:]

Our next question is from the line of Jordan Sadler with KeyBanc Capital Markets. Please go ahead.

[Austin Wurschmidt:]

Hi, guys. It’s Austin Wurschmidt here with Jordan. I recognize it’s still a little bit early to talk about debt maturities for next year, but really how are you thinking about March 2014 maturity in both the legacy and the Highland portfolio?

[Doug Kessler:]

The – we’re obviously very proactive on our debt maturities. We have a clear track record of being ahead of the curve with respect to timing and capitalizing on where we see trends in the market with respect to where pricing is and appetite among lenders. We – you should expect us to be ahead of the game with respect to that as well. We’re obviously in a market today where liquidity seems to be improving, loans that are being provided to really good sponsors like our platform and other public REITs have had very little difficulty in obtaining financing. So the – all the chatter that existed months ago in terms of was there liquidity, we have yet to see any challenge with any of our assets in terms of finding capital. And we appreciate all the lenders who have worked with us. We also believe that the debt yields on these assets looking ahead are in a range of refinanceability, and so even today based upon operating performance, we feel very good about the prospects for refinancing those assets. But again, we’re going to be very smart about timing and execution as you’ve seen us in the past.

[David Kimichik:]

And I’ll just add some color to that. The Highland debt, while the maturity says March 2014, we do have two one-year extension options that are essentially at no cost to us. So it really matures in our mind March of 2016. So we have plenty of time to deal with that. So our next major maturity is really December of 2014, we have $100 million loan coming due then.

[Austin Wurschmidt:]

No, I appreciate the color. Would you guys anticipate breaking up the Highland debt? I think that’s encumbering kind of the entire pool of assets. Or how would you think about that?

[Doug Kessler:]

The opportunity that we have with Highland is I think on lots of different levels. There are opportunities in that portfolio to finance when the time comes in many different ways, clusters of assets that we may decide at one point to, with our partner, trade assets that we may want to have shorter-term debt, assets that we know might be long-term keepers, that could be advantaged by having long-term fixed-rate debt at very attractive rates. There might be pools of assets. There might be single asset financings. It’s a very desired pool, and we frequently get unsolicited inquiries about lenders seeking to refinance that, because it’s rare to have a portfolio of that size with that quality of assets with a public REIT sponsor. So it’s an attractive opportunity and we’re going to run a very competitive commercial process when the time comes.

[Austin Wurschmidt:]

Great. I appreciate the color. That’s all I have. Thank you.

[Operator:]

Our next question is from the line of Nikhil Bhalla with FBR. Please go ahead.

[Nikhil Bhalla:]

Yeah, hi. Good morning, everyone. Just wanted to get a sense of how much did strength in the New Jersey and New York market contribute to your Highland portfolio performance overall? And how do you see that market shaping up over the next maybe two to three quarters? Thanks.

[Jeremy Welter:]

Sure. I can take that. What I mentioned in my prepared remarks is that the growth in Highland was broad based, it was across the portfolio. We had great growth in most of all the major markets. New York/New Jersey market was up I think around 11%, 11.3%, but there were some other markets in Highland that performed really well as well. So I don’t think that that is what driven up disproportionately the RevPAR. But some of the benefits from the Sandy related business we certainly anticipate to continue to dissipate. And as far as forward-looking guidance, I can’t really comment on what we see in that market going forward.

[Nikhil Bhalla:]

Got it. I do recall that in the fourth quarter I think the New York, New Jersey market did contribute disproportionately. So you’re saying the contribution this time around was comparatively much lower?

[Jeremy Welter:]

Yeah, I think so. I mean, I think that when you look at the portfolio, we had growth across the entire portfolio, not just New York, New Jersey.

[Nikhil Bhalla:]

Great. Thank you.

[Operator:]

(Operator Instructions). Our next question is from the line of Bryan Maher with Craig-Hallum Capital Group. Please go ahead.

[Bryan Maher:]

Good morning, guys. A couple of quick questions related to acquisitions. Since you just made one it seems like maybe you’re out there sniffing around. Can you elaborate a little bit on what you’re seeing in the market, where you might be looking and what you believe your capacity would be to make more acquisitions? Thanks.

[Doug Kessler:]

Sure. We’ve actually been looking for two years, even though it’s been two years since we acquired something, since the Highland hospitality portfolio. It’s just that we’re very disciplined, Bryan. We all own so much of the company collectively that we want transactions to be accretive. And based upon, at the time, where we were trading and based upon the going in multiples that some of these assets were trading for, it really just didn’t make economic sense for us to pursue anything. And so even though we looked and we made some bids on some deals that we were in many ways happy to lose, because if we didn’t get it at the price that we thought would make it work for our platform, we weren’t going to buy it. So the market is still below what we believe to be a normal pace of transactions. And it probably won’t get back to the heyday of 2007 when there was circa $35 billion to $40 billion of hotel trades. But at the level that it’s running at right now of around $15 billion to $20 billion, it still feels to me below where it should be at this part of the cycle. And I think it’s really a testament to the fact that buyers are out there looking, because they believe it’s the sweet spot of the cycle, given the number of years ahead that have the opportunity for increased RevPAR growth. But similarly, sellers are reluctant to sell because they also see the same thing. And given the liquidity in the market today, there just doesn’t seem to be the pressure to move assets. So you’ve got this demand, but you’ve got just a little bit unwillingness to sell. I think going forward typically you see a few more transactions coming into the market as you get further and further into the cycle. But you know based on industry pundits there could be three, four, five years still in the cycle. So we’re going to be selective. We’re going to be very disciplined. Now with respect to the capital, obviously we commented that at the end of the quarter we had $234 million of cash, cash equivalents and marketable securities, along with an undrawn line of $165 million. We just bought a $90 million transaction so you know, relatively small in the scheme of things given our cash balance. And we may consider refinancing that asset. So I think from an opportunity to continue to search for transactions that opportunity still exists.

[Bryan Maher:]

And what parts of the market, or what types of the asset class have you been most looking for? Clearly you’re not looking for you know Hamptons Inns or Motel 6. What are you looking for and where in particular do you feel like there’s a void in your portfolio that you need to fill?

[Doug Kessler:]

I don’t know if we feel like there’s a void necessarily because our footprint is so geographically dispersed as well as by product type it’s dispersed and as well as by brand. So you know we couldn’t be happier with our portfolio. I think obviously it performs well in up and down cycles. But you’re right I mean we haven’t really spent much time focusing on the select service or the secondary market areas. We’ve really been focused on more urban, you know upper upscale assets that we think can contribute to the quality of the portfolio. But you know at the end of the day, Bryan, you’ve noticed for 10 years we’re opportunistic. And if it can make money for the shareholders, it’s certainly something that we would at least consider and determine whether or not there is a way to provide additional accretion to the shareholders. But generally our leanings is what I previously just mentioned.

[Bryan Maher:]

And just lastly, are you seeing that the mezzanine opportunities just totally disappeared at this point or is there stuff out there to look at?

[Doug Kessler:]

No, there’s definitely mezzanine opportunities out there to look at, it’s just that we’re not looking at any of them. It’s just not at an attractive yield point for us, nor strategically, given where we believe we are in this cycle that we should spend much time at all on that aspect of what has been a business of ours. We still obviously have one mez loan that is outstanding on The Ritz Key Biscayne that is performing. It’s a small mez loan of only $4 million. But we have not actively been pursuing it. But there is an active mezzanine market, given the liquidity that we’re seeing in the debt capital markets. And groups are definitely layering in mez pieces, but at lower yields than what we had seen when we were actively engaged in the business.

[Bryan Maher:]

Okay. Thanks a lot, guys.

[Operator:]

Our next question is from the line of David Auerbach with Esposito Securities. Please, go ahead.

[David Auerbach:]

Hey, guys. Thanks, for taking my call. I’m looking forward to seeing you in a couple of weeks. Just some quick question about the preferred stock, I’m noticing here 8.5%, 9% where we’re at right now, seeing a lot of the competition coming in around 5% and 6% and change. I’m curious about your thoughts on where the preferred stocks at right now.

[Doug Kessler:]

I think that the preferred market is an active market. We’ve seen the coupons come down on newly-issued securities. We have three preferreds in the market, our A, D, and E. The E is non-callable. The A and the D are callable. It’s interesting when we look at the yields relative to where some of the peer yields are. So I think what you’re seeing is also a curiosity to you as it is to us with respect to where the strip yields are. But bear in mind that because two of those securities are callable, there is that coupon question with respect to investors as to the longevity of that. It’s an interesting market at this time. It’s been interesting for several quarters. Historically, we haven’t engaged in any activity. So that’s all I can really comment I think at this point.

[David Auerbach:]

Because you just brought up that good point there, like you said, with it being callable here in a couple of weeks obviously I think you guys are doing your numbers, running the math on it to figure if you’re going to do that or not?

[Doug Kessler:]

We don’t comment on any of our capital markets activities until we can comment on anything. So there’s really nothing to comment on at this point.

[David Auerbach:]

Understood. Thank you very much.

[Operator:]

Our next question is from the line of Robin Farley with UBS. Please go ahead.

[Arpine Kocharyan:]

Hi. A follow-up question actually on DC, I know the question was asked earlier, but the market I think grew in the 4%, 5% range in Q1. Could you just tell me what was the – and I think you said you came in about 2.6% for the quarter. Was the discrepancy pretty much driven by the inauguration calendar or was there anything else in DC? Thanks.

[Jeremy Welter:]

Yeah. When you look at our DC portfolio, you’ve really got to look at in kind of three segments. You’ve got inside the district, which performed very well for the first quarter, had a great impact from the inauguration. Then you have Crystal City which is a great submarket, just right outside the district, in close proximity to the Pentagon and to all the government demand and Reagan Airport. That has its own challenges because there’s been a lot of new supply that’s come in and the government is relocating out of the city or actually has – had relocated out of the city. And so, there’s a lot of repositioning in that market going on. And then the third market that we have is everything else. And everything else is what really under-performed the most within the portfolio because the inauguration, while it was great for the District, there was a little bit of a pick-up in Crystal City. There really wasn’t meaningful compression felt outside to positively impact RevPAR.

[Arpine Kocharyan:]

Thanks much.

[Operator:]

I’m showing no further questions at this time. Right now I’d like to turn the call back over to management for closing remarks.

[Doug Kessler:]

Well, thank you all for your participation today. We look forward to seeing many of you at our Investor and Analyst Day and speaking with you again on our next call.

[Operator:]

Ladies and gentlemen, this concludes the Ashford Hospitality Trust First Quarter 2013 Conference Call. Thank you for your participation. You may now disconnect.