Ashford Hospitality Trust's CEO Hosts Analyst/Investor Day (Transcript)

Ashford Hospitality Trust, Inc. (AHT)

Analyst/Investor Day Call

May 08, 2012 09:00 am ET


Rob Hayes - SVP – Corp. Finance & Strategy

Monty Bennett - CEO

Dave Kimichik - CFO & Treasurer

Douglas Kessler - President



Rob Hayes

Hi good morning everybody and welcome to Ashford Hospitality Trust 2012 Analyst Investor Day. My name is Rob Hays, I am Senior Vice President of Corporate Finance & Strategy. I oversee the overall company strategy working with Monty Bennett, our CEO. I also oversee our Investor Relations department. I also want to welcome those who are watching us via the web. The Investor Day will be recorded and will be available over the next year on our website Before I begin I would like to tell you these slides are Safe Harbor slides we put this in all of our presentations. Certain statements made during this presentation could be considered forward-looking statements. And these statements are subject to both known and unknown risks which should cause actual results to differ from those anticipated and I would also like to remind you that historical results are not necessarily indicative of future results and I would also like to note that certain non-GAAP measures will be used in this presentation such as EBITDA, FFO, AFFO reconciliations of which are provided in prior earnings releases and filings with the SEC and this overview is for informational purposes only and not an offer to sell, or solicit any securities affiliated with Ashford Hospitality Trust.

With us today, the management attending is Monty Bennett, our Chief Executive Officer; Douglas Kessler our President; David Brooks, our Chief Operating Officer and General Counsel; David Kimichik our Chief Financial Officer; Jeremy Welter, our Executive Vice President of Asset Management; myself and Deric Eubanks, who is Senior Vice President of Finance. Also I'd like to note that we have two additional members, [Taylor Montessy] who we met at the check in table, she is Monty’s executive Assistant and Andrea Welch who spearheads our Investor Relations department and hopefully you will have a chance to meet her. If not, please introduce yourself, she really is kind of the force behind our investors relations group.

To our timeline today I will walk you through briefly. Following me will be Monty who will be giving a 45 minute overview of the overall US economy, our state of the industry and a company overview. Following him, David Kimichik will give a capital structure and balance sheet overview and summary. And following that we will take a ten minute break to allow you all to catch up on your e-mails, grab a cup of coffee. We also have the ability to, we have some available slots still far one on ones. If you would like to meet with management either this afternoon or tomorrow, we will also be around. So you can see Taylor or Andrea to set those up. In addition during the coffee break as you hopefully saw when you came in we will be having a photo montage, screens of some of the assets that Ashford owns.

Following the coffee break, Douglas Kessler, our President will be giving a little bit perspective on leverage. We get some commentary and questions a lot about how does Ashford view its leverage and because we do tend to be little bit different way than our peers and we are going to kind of walk you through a little bit of how we approach it and why and give you some insight to how we think.

Following that Monty will give an update our Highland Hospitality acquisition and then kind of the next steps for Ashford and that will take us to 11 o'clock. Following that there will be a 30-minute question and answer session all this will be up here. At that time we will have Taylor and Andrea will have handheld mics, we ask that you do ask questions into the mics since this is been recorded and following that we’ll have an optional lunch with management. We also do have a gift for you all, we have a nice bottle of Silver Oak with the Ashford emblem, logo on it and it is under the $100 limit, so a retail value of $99.99.

So we will have those available and they will in the lunch room following the presentations for you to pick up. So now I will introduced Monty. Monty is our Chief Executive Officer, he’s a Founder and Director of Ashford which went public in August of 2003. Monty is a member of the American Hotel and Lodging Association's Real Estate Finance Advisory Counsel IREFAC. He's a member of the Urban Land Institutes Hotel Council, Marriott International's Owner Advisory Council and is a frequent speaker and panelist for various hotel development and investment conferences. Since 1997 Monty also been the Chief Executive Officer of Remington Lodging and Hospitality and its affiliates and an independent hotel management and development company also based in Dallas that has provided property project in asset management services for over 40 years.

He joined Remington in 1992 and prior to be named CEO served in various capacities in the company including Executive Vice President, Director of Information Systems, General Manager and Operations Director. Monty holds a Masters in Business Administration from Cornell's S.C. Johnson Graduate School of Management and receive a Bachelor of Science Degree with distinction from the hotel school at Cornell.

He is a life member of the Cornell Hotel Society. Ladies and gentlemen, Monty Bennett.

Monty Bennett

Thank you Rob and good morning. We have got some folks here that I have known for a decade or more and that are very involved in the hotel industry and very knowledgeable about it. We also have some investors here that I haven’t met and are very new to the industry. So we will try to strike a balance between some very hotel specific terms but also trying to explain it and for those that are involved in the industry I hope I don’t bore with you with covering some territory you already know.

Last year when we had our first Investor Day the positive feedback we received was around the idea of not only the presentation but giving investors and analysts an idea of how we think about the world, how we think about our investments, how we think about our management and that’s what we will try to do with our presentation today as much as delivering information is to try to show you guys how we think about problems and problem solving and so that is one our purposes.

Also as I go through the presentation what I could be doing is talk about the replacement cost of our assets in the industry, valuations that have been achieved on hotel companies and past cycles and along the way I am to be doing the math of that is that if that same valuation occurred, our stock price would we X and I just wanted to mention that because you know sometimes some of them get the wrong idea and think that someone up here saying that our stock price will be X but I am just doing the math along the way and so please keep that in mind when I talk about some potential stock prices that might occur to our stock that is just. It's just extending if what happens in past cycles and the like happens this time around.

So let's get started here. Here's a few main points that I would like you to walk away from this presentation. First is that there's a still a significant upside in this lodging cycle. The lodging cycle goes through very long phases of five to seven to 10 years at a time and we are about a third of the way through this up cycle which means that there is a lot of room left in the cycle for an improvement in the fundamentals and likewise usually an increase in stock prices and valuations as well. So we think that the fundamentals for the industry are very strong and will remain strong for some time.

Our platform has a strong cover dividend. We pay about 5% plus dividend. We think that's very competitive when the highest of our peers and it is covered and we think in this environment there's more and more attention paid to so called hard assets, investing in real estate which of course this is and in assets that produce income. What's the expression SIRP, I think it's Safety Income at a Reasonable Price and we think that Ashford qualifies that and so that's an advantage in this marketplace and has great inflation hedge for those of you that are concerned about inflation and what the Fed might do with this constant easing.

We have the ability to raise prices daily. So it’s a great asset class to be in during inflationary times. We think that we have got the right capital structure for this part of the cycle. Our capital structure is about 55% debt to assets. We are very comfortable with that as a private company before we were public, we routinely ran at 70% to 75% with no problems, most of private equity funds ran much higher than that. We are higher levered than our peers in the public arena, but lower levered than almost anybody else in the industry. But we think that that level is fine. We just went through the financial crisis and came out of it as good or better than all of our peers.

I think everyone of our peers issued massive amounts of equity. We bought back half our stock. So while there's concern about leverage by some people we think our level is perfectly appropriate. In this part of the cycle we think it's great advantage because as EBITDA increases then you get the benefits of that leverage. Another point that I think is very important that we want you to walk away with and it's that all of our debt is non-recourse debt and it's in a variety of pools secured by different pockets of assets and the way to look at is to look at our portfolio as we call it portfolio A and portfolio B.

And portfolio A has about $1.4 billion of non-recourse debt in it and when you buy a share of our stock at say 9 buck where and that where is trading now, about 90% of that value is attributable to this portfolio A. It's lower levered, it's safer, it's good quality assets et cetera. Portfolio B has about $1.7 billion worth of debt on it. When you pay $9 for a share of stock about 10% of that is attributed to this value in this portfolio. All non-recourse debt and the idea is that since when you have non-recourse debt on asset, you can't have negative equity. You have the ability to just hand properties back if times go tough which we did during the great recession. We handed a couple back and you really have to look at our company with these two pools, so the first pool is safer, it's lower leveraged. It's where most of our value is.

The second pool is higher leveraged, but it is non-recourse and it has a small amount of equity value in it. So if we get into tough times we can take that portfolio be so called and push it off and get rid of it and we are lower leveraged. But right now since portfolio be as cash-flow positive, it makes all the sense in the world to hang on to it for its optionality and it has got great optionality and great upside and it has all the benefits of being higher leveraged.

So the point I am trying to make is that we have a unique situation where we had the benefits of all the upside in a higher leverage platform, but also if downside happens in the industry, we can just shove off some of these assets and still be in great shape. So it’s an optionality that I want to emphasize and I think it is important.

And lastly we are going to focus a little bit about our stock price performance over the longer term and/or asset management team and what we have been able to achieve. We have got industry-leading metrics on what our team accomplishes and we are very proud of it and we want you guys to see that and to appreciate what Jeremy Walter and his crew does because they really do just a fantastic job.

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