Ashford Hospitality Trust, Inc. Q1 2010 Earnings Call Transcript

Ashford Hospitality Trust, Inc. Q1 2010 Earnings Call Transcript
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Ashford Hospitality Trust, Inc. (AHT)

Q1 2010 Earnings Call Transcript

May 6, 2010 12:00 pm ET

Executives

Tripp Sullivan – IR, Corporate Communications

Monty Bennett – CEO

David Kimichik – CFO and Treasurer

Doug Kessler – President

Analysts

Will Marks – JMP Securities

Smedes Rose – KBW

Andy Wittman – Robert W. Baird

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Ashford Hospitality first quarter 2010 earnings conference call.

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During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded Thursday, May 06, 2010.

I would now like to turn the conference over to Tripp Sullivan, Corporate Communications. Please go ahead, sir.

Tripp Sullivan

Thank you Sarah. Welcome to the Ashford Hospitality Trust conference call to review the company's results for the first quarter of 2010. On the call today will be Monty Bennett, Chief Executive Officer; Doug Kessler, President; and David Kimichik, Chief Financial Officer.

The results as well as notice of 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 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 May 05, 2010 and may also be accessed through the company's Web site 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 Monty Bennett. Please go ahead.

Monty Bennett

Thank you. The most recent quarter continues to demonstrate the benefits of our strategies to maximize operating performance, manage our debt, and enhance shareholder value. Our AFFO per diluted share for the quarter of $0.33 compared to 0.31 a year ago exceeded consensus estimates by 33%. We believe this increase over last year’s AFFO is a significant accomplishment given the intervening market turbulence. This consistency of earnings validates our investments, operational, and capital markets strategies.

Over the last three months, we have seen a significant improvement in the lodging industry. For instance, in our portfolio we experienced a RevPAR decline of 11% in January, a decline of 5% in February, and an increase of almost 3% in March. This is a fairly rapid recovery and a very positive trend. For the entire quarter, pro forma RevPAR for the hotels not under renovation was down 2.6% compared to the prior year, and down 4.1% for all hotels. ADR was down 9.4% while occupancy was up 371 basis points for all hotels. We believe the industry has moved beyond the inflection point in the cycle, but is still cautious about the trend.

Regarding operations, our asset management team continued to focus on bottom line results. Our hotel EBIT to margins dropped year over year by 145 basis points for hotels not under renovation, and 200 basis points for all hotels. Our affiliated manager Remington contributed consistently to these results.

Turning to capital expenditures, we completed $18.2 million of projects for the quarter of which $3.1 million was owner funded. We remain on track for our targeted spend of $87 million for 2010 as we continue to selectively upgrade hotels to improve their competitive positions in the market. The diversity of our assets in major markets, the strength of our brands, and the amount of capital we spend to maintain the competitiveness of our hotels have positioned our portfolio to benefit from the market recovery. We also expect to benefit from very limited new supply in our markets, which should be a positive catalyst for years to come.

We also made progress on our debt strategies by extending maturities and restructuring loans. Our goal is to push up loan maturities to better coincide with the recovery in market values to facilitate future refinancing of sales. Our interest rate strategy implemented in March 2008 to swap to floating-rate debt continued to have a significant positive impact on our results as interest rates remained near historic lows, and recent comments by the Fed have indicated the possibility of lower rates for some time to come. This strategy sets us apart from our peers and has contributed to our positive cash flow.

During the quarter we repurchased 5.1 million shares of our common stock. We suspended preferred shares repurchases several quarters ago. Our fully diluted share count, as of the end of the quarter, is 52.7% of our peak share count. This reduction is substantial and we believe compares very favorably to our peers, most of whom raise equity at significantly lower share prices in current trading levels, and have been challenged to deploy capital for hard to find hotel transactions. Given our average repurchase price of $3.15 per share for the common, and $6.47 per share for preferred since inception compared to yesterday’s closing prices, we have created almost $0.5 billion of shareholder value assuming we were to reissue like amounts of the bought back shares today.

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