Ashford Hospitality Trust's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Ashford Hospitality Trust, Inc. ( AHT)

Q3 2011 Results Earnings Call

November 10, 2011 11:00 AM ET


Scott Eckstein – IR

Monty Bennett – CEO

David Kimichik – CFO and Treasurer

Douglas Kessler – President


Patrick Scholes – FBR Capital Markets

Ryan Meliker – Morgan Stanley

Will Marks – JMP Securities



Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Ashford Hospitality Trust Third Quarter 2011 Conference Call. At time, all participants are in a listen-only mode. Following the presentation, there will be a question-and-answer session and instructions will be given at that time. (Operator Instructions) And as a reminder, this call is being recorded today, November 10, 2011.

I would now like to turn the call over to Scott Eckstein with MWW Group. Please go ahead.

Scott Eckstein

Thank you, operator. Good day, everyone, and welcome to Ashford Hospitality Trust conference call to review the company’s results for the third quarter of 2011. On the call today will be Monty Bennett, Chief Executive Officer; Douglas 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 released yesterday afternoon in the 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 or are based upon forward-looking information and 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. Those 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. 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 had been filed on Form 8-K with the SEC on November 9, 2011, and may also be accessed through the company’s website at 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, sir.

Monty Bennett

Thank you, and good morning. Our third quarter results demonstrated the continued success of our operational strategies to enhance bottom line performance and our capital market capabilities to mitigate risk. Our AFFO per share of $0.39 exceeded by more than 18%, the $0.33 per share we achieved a year ago. We accomplished this with healthy RevPAR increases of 5.8% across our entire portfolio along with stronger operating margins with an increase of 151 basis points.

From a macro perspective, we have observed that the global economic uncertainties have caused investors to pay less attention to the solid performance of lodging fundamentals. As a result, many hotel REITs are trading well below the 52-week highs. Our share price has declined significantly compared to the level obtained earlier in the year. This has occurred despite our record trailing 12-month AFFO per share, strong ongoing operating performance, increased cash position, lack of recourse debt and continued growth prospects with the recent Highland Hospitality acquisition. A look back in history would suggest that this is the right time in the cycle to be considering overweighting allocations to hotel stocks.

Real RevPAR remains well below prior peak levels. For those investors that are concerned about inflation, hotels historically have been a great hedge against inflation, given the ability to adjust rates daily.

Smith Travel Research expect the continuation of year-to-date trends for the rest of 2011 and project full year industry RevPAR growth of approximately 7.5%. Other industry sources agree, expecting continued improvement in lodging market fundamentals and strong RevPAR growth for the remainder of the year and into 2012.

In its August lodging industry update, PricewaterhouseCoopers revised its forecast expecting RevPAR growth of 7.5% and 6.2% in 2011 and 2012 respectively. While 2012 outlooks have been reined in somewhat due to the global uncertainties as compared to earlier in the year, they are still well below the industry’s 1988 to 2010 average RevPAR growth of 2.5%.

There are several explanations for the lodging sector’s robust performance in the midst of a sluggish economy. First, unlike prior periods of an early economic recovery, this was one was not preceded by an oversupply of new hotel rooms. Consequently, demand growth has a more immediate impact on the ability to accelerate ADR.

Furthermore, the forecast for new supply over the next several years is expected to be well below historical levels given the widespread lack of available debt. Another reason for the solid performance in the lodging sector is that corporations are now much more inclined to encourage travel to spur new business, given their strong earnings and cash positions despite the recently announced cutback in government travel. While unemployment is unfortunately at 9%, the majority of these people employed appear not to be regular business travelers.

Transient travel which accounts for approximately 75% of our EBITDA is already at prior peak demand levels. Our business mix is not highly dependent upon group travel which is having a weaker recovery relative to transient. As the industry improves, our view is that corporate transient rates should continue to increase. Therefore, we will continue to focus our efforts here as we believe this customer segment provides the greatest upside.

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