MARYLAND | 001-35972 | 46-2488594 | ||
(State of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
14185 Dallas Parkway, Suite 1100 | ||
Dallas, Texas | 75254 | |
(Address of principal executive offices) | (Zip code) |
99.1 | Third Quarter 2014 Earnings Conference Call Q&A of the Company, dated October 31, 2014. |
Participant 1: | Hello, can you hear me? This is Ryan, can you - okay, great. Nice quarter guys. Thanks a lot. I just had a couple of quick questions. With regards to AHT, I was wondering if you could give us some color on, you know, what really drove Highland’s performance in the quarter? It was pretty stellar. Were those some properties coming off renovations more or is it just really seeing some things unfold? |
Jeremy Welter: | Hey Ryan, this is Jeremy. I'll take the first question on Highland. Highland did have an incredible quarter and if you look back at the history of the portfolio, when we took over the assets, you know, there was a lot of disruption in the sales force. A lot of those assets were capital deprived; there was a lot of issues with just the mechanical, the envelope of the building, just water penetration. And so, when we acquired the assets, we initially just cut costs to get to levels at the expense level and then put the right capital in the properties from a mechanical and systems perspective. |
Participant 1: | Great. Thanks Jeremy. |
Douglas Kessler: | Hey Ryan, it’s Douglas. So regarding the refinancing, I would say - we've adjusted our views internally, but not yet really made any decision. We’ve moved this initiative forward from previous calls where this question's been asked and then clearly the waiting has been the right thing to do as evidenced by the strong performance out of the portfolio. |
Monty Bennett: | This is Monty, Ryan. I think that, you know, on this financing we hate to drive a stake in the ground and say for sure. But clearly nothing's going to happen between now and the end of the year because we just haven't been in that process much. But we are starting the process. So that’s a change from the past. So I'd say there’s a very real possibility that it could occur in the first quarter. But again, we’re not saying that that’s anywhere close for sure because of all the items that Doug mentioned. But it’s certainly something we’re looking at. |
Participant 1: | That's helpful. Thanks Monty. And then I guess, you know, with regards to Prudential. I think we have a pretty good understanding of your Management Team's view of leverage and how you think about maximizing the value of your portfolio. Would Prudential be on similar views where they might be open to maximizing leverage when this comes up for refinancing? Or do you think that they’ll take a little bit more of a conservative approach and you guys are going to engage in that discussion going-forward? |
Douglas Kessler: | We're obviously in discussions with Prudential on this. I think they also see the attractive aspects of the markets today and the performance of this portfolio. It's an ongoing dialogue; obviously we would prefer to see us take advantage of the markets today, and we're going to continue to push that agenda. |
Participant 1: | That sounds good. It's kind of exciting. It looks like with that 8% yield, you guys might be able to get $400 million incremental cash back to your balance sheet on a refinancing, so that would be exciting to see. Second question I had - |
Deric Eubanks: | Hey Ryan, its Deric. I just wanted to clarify something on the - the debt yields that you’re looking at on our earnings schedule, that's an EBITDA debt yield. And the debt yields that we quote, in terms of |
Participant 1: | Got you. So, there’s a little bit of difference there. That’s helpful. |
Monty Bennett: | Also Ryan, just to let you know is that, three of those properties in the Highland portfolio would have a pretty healthy amount of defeasance associated with them. And so, those are less likely to be refinanced. They're in a pool on their own. So we haven’t made that decision yet, but there’s a very real chance that we'll finance all of them except for those three, or maybe those three as well. |
Participant 1: | Right. Okay. That makes sense and then the second question I had was, with regards to Ashford Prime. You guys announced the buyback on Monday and obviously the markets certainly like that. What we've seen this year, you know, I think I’ll use Starwood and Marriott as prime examples and so I'm curious your take in terms of how you’re going to use the buyback. Marriott's operated with a methodical approach where they’ve bought back stock, you know, at a similar pace throughout the course of the year. |
Monty Bennett: | I think what our plans are internally is to, you know, here two days after our announcement, to go ahead and to launch a programmatic program and then, later in this year or the first of next year, to sit |
Participant 1: | Got you. I am sure the markets will like that. All right, I’ll yield the floor to others. Thanks a lot and nice quarter guys. |
Monty Bennett: | Thank you. |
Participant 2: | Hi guys, its Austin Wurschmidt here with Jordan. I was just curious, the operating strength this quarter was relatively broad-based, and I was wondering if there were any of your top markets where you don’t expect the momentum to continue? You know, you mentioned DC, as being a top performer and just some color on the general outlook for that market would be helpful. |
Monty Bennett: | Well, in DC we had some, you know, great group dynamics here in the third quarter, and that really, really helped us. At the same time, we are seeing a return of government business. We do think that we've reached a bottom in that government business a quarter or two ago. And it's coming back, not in a wave necessarily but it’s rebuilding. You know, as far as any markets that we see necessarily weakness going-forward, Jeremy you might want to comment on that. |
Jeremy Welter: | Yes, sure. Well, one of the markets is Philadelphia; it's got a weaker citywide and convention calendar outlook. DC, it's really kind of difficult to predict how it’s going to respond. For the quarter, the government business was up 15% in DC, and so we’re seeing some strength and of course in the fourth quarter, you will not have the recurrence of the government shutdown that occurred in October of 2013. Towards the other markets, Nashville still looks to be strong in '15 and '16. The convention calendar's still strong relative to historical trends and. |
Monty Bennett: | Really we don’t see much in any of the other markets to think that they would be materially off. I mean, you know, again a little bit here and there but nothing newsworthy. |
Participant 2: | That’s helpful. And then just, in terms of the revenue management initiatives. You know, you guys are starting to see some of the market share benefit of that. I'm just curious when you look across the portfolio, how much additional market share upside do you think that you guys have left? |
Monty Bennett: | That's hard to say. I mean, a market share is a very difficult item - we’re pushing to get 100 or 200 basis points, you know, whether we get that increase every quarter, and how long we can get that it’s hard to say. Of course, you can’t get that forever because then you'd just be climbing to the sky, but that is what we’re internally trying to achieve. But there’s just so many variables that go into it. |
Participant 2: | And then, just one last one for me. I was just curious, how should we be thinking about the ROFO properties as we head into 2015? |
Monty Bennett: | I think that you should think of those ROFO properties as being on the back burner. We’re more focused on our stock price in Ashford Prime. And you know, it needs to get into a trading zone where those purchases from Trust would be accretive for Prime, as well as of course, attractive for Trust. |
Participant 2: | Great. Thanks for the time today. |
Participant 3: | Hi guys. A recent theme has been around new soft brand launches by the bigger brands. You know, your Ashford Trust portfolio has a relatively small mix of independent hotels. How are you thinking about that going-forward as things change? Thank you. |
Monty Bennett: | We're always looking at branding options. You know, our property down in Key West is unbranded right now, the Pier House, and it just runs such high occupancies that it's hard to see how a brand could add any occupancy to it. Now maybe through the additional pressure that could increase rate even more, although we're gaining share and continuing to do well. So, it’s just hard to see how that could help us, maybe if it was a fairly inexpensive soft branding option. But, so far, while we review all that constantly, we just don’t see any changes at this point in time. |
Participant 3: | Okay, thank you, and then just on the Chicago Sofitel. It seems like trends improved a bit in the third quarter, how is that performing versus your expectations? Thanks. |
Monty Bennett: | Well, at first it performed under our expectations. Right when we bought it, we had that tough Chicago winter, and that was unexpected for us. We did know that the convention calendar for Chicago would be a little weak this year than normal and we put that into our underwriting, and into our formulas, but it was that the, you know, initial few months of performance which has caught us a little bit by surprise. |
Participant 3: | Great. Thank you. |
Participant 4: | Hey, good morning everyone. Just had a question on the buyback at Prime, I guess - my question is, how do you balance the buyback with wanting to de-lever Prime? I guess, based on our calculations while potentially it’s certainly accretive, selling the Courtyard to buy back stock isn’t necessarily de-levering. At this point in the cycle, are you willing to maybe keep a little bit higher leverage for kind of on longer time period than you originally thought or how do you think about that? Thanks. |
Monty Bennett: | Thank you. That's a good question. We're still committed to our deleveraging plan and we’re committed to moving towards a net debt to EBITDA of about 5.0x by the end of 2015. So, we want to keep on track with that. So, we will obviously balance any buyback in accordance with that goal. We don’t want to come off that goal. |
Participant 4: | I guess a follow up to that, what are the steps that you guys are going to follow in order to try to get that leverage level down? |
Monty Bennett: | We’re going to let the EBITDA continue to grow and just that its growth levels will be able to, we believe, achieve that target by the end of 2015. |
Participant 4: | All right, that's all I had. Thanks. |
Participant 5: | Hey, good morning guys. Want to ask you on the plan to sell the Philadelphia Courtyard at Prime. Have you guys already kind of begun that process? And you know, without kind of getting into specifics on pricing, maybe some directional guidance on where it might price relative to where your whole portfolio is trading? |
Monty Bennett: | Well, we picked that asset because it's a - one of our lower RevPAR assets and we're trying to have Prime focused at the higher end. And so that’s why we picked that one. We’ve just begun the process. |
Douglas Kessler: | The only thing I’d add to that is, obviously with the announcement, it's a very desirable asset, urban select service in a solid market and it's no surprise that we would get some inbound inquiries from groups that this would fit their strategic purpose, and would want to try to do a deal with us and kind of cut off a marketing process. |
Participant 5: | Okay. Great, and then, when you launched the buyback earlier this week or when you announced it anyway, I think you mentioned that it’s possible you’d sell other hotels in the future presumably for additional share repurchase. Is that exclusively kind of the lowest - maybe the lowest RevPAR assets? Or is it more of a market-based decision? And, you know, I guess how do you think about potentially taking more liquidity out of the stock with incremental buybacks beyond this initial round? |
Monty Bennett: | Taking liquidity out is very - a very important issue to us. So, we’re going to look at that very, very carefully. That’s very important. And to answer to your questions, it's just hard to say. That's just out in the future and you know, even if we’re able to buy the amount that was authorized based upon our volumes and the limitations set out there, it’s going to be over a year. |
Participant 5: | Okay. Got you and just finally, maybe a question for Jeremy, trying to understand directionally the seasonality of both Sofitel and Pier House, but probably a little bit more on Sofitel? Obviously, first quarter is always very slow, but I mean, is there a big drop-off from third quarter or fourth quarter, knowing that October is pretty strong? |
Jeremy Welter: | Yes, I don’t think the seasonality is necessarily going to change for either asset. But definitely the fourth quarter and the first quarter for Chicago is much weaker, relative to the second and third quarter. And for Pier House, actually the season is much stronger at the first of the year; Key West in January is in season. So, they’re almost counter seasonal to each of the respective assets. |
Participant 5: | Okay. Great, thanks guys. |
Participant 6: | Hi, thank you for taking the question. This is actually ((inaudible)) for Robin. I actually had a two-part question. Regarding group pace for 2015, as of now and what it was in Q2, if as you look across your portfolio, if you could give some color there? And then obviously, you don’t give guidance for '15, but as you look at group pace for '15 and transient demand drivers today, do you expect acceleration in '15, growth from 2014, not just year-over-year improvement? |
Monty Bennett: | This is Monty. We try to avoid giving too much guidance on all of that for the reasons that we've talked about in the past because then we'd find ourselves, you know, spending a lot of time on those forecasts and the like. But, we see the economy to continue to grow and we see the desire for transients and group production to continue to be pretty strong. So, you know, we - it’s hard to say what that translates into RevPAR for the industry or for us. But we’re still pretty optimistic about where we are at this point in the cycle for the industry and for ourselves. |
Participant 6: | Okay, great, and then a follow up. Occupancies are obviously at peak and valuations expected to be obviously higher in '15 at this point in the cycle. And you just commented that buying back stock for the Ashford Prime portfolio is perhaps a better alternative right now versus buying hotels. As you look ahead, do you expect to be a net buyer or seller next year? Thank you. |
Monty Bennett: | I think that - of course it all depends, but generally in Trust, we see some opportunities to buy, but in Prime, considering where the stock price is, I see that as unlikely. |
Participant 6: | All right. Thank you very much. |
Participant 7: | Yes. Hi, good morning Monty. The first question I have is on margins for both the portfolios, Prime and Trust. You know I think they both had headwinds from higher incentive fees, again, in the third quarter, very similar to what we saw in the second quarter. Could you just give us some sense on what that may look like in terms of trend, going-forward? |
Monty Bennett: | Sure. I think that, you know, first as you compare our margins to some of the other platforms out there, we’re running pretty high margins already, especially compared to some of our peers. And so, while margin's important to look like, maybe even EBITDA year-over-year growth is maybe even better. But I think that your question, you know, affects both, and Jeremy, why don’t you comment a little bit on those incentive fees. |
Jeremy Welter: | Yes sure. If you look at the third quarter, both Trust and Prime had incredible flow-throughs to the operating line, which we call gross operating profit, and there’s no question that we were impacted by incentive fees. About 60% of both Trust and Prime properties are accruing for incentive fees for the third quarter. And when you look at the year-over-year basis, if you recall the Trust, our revenues somewhat lagged the broader industry. |
Participant 7: | Okay. So, just going forward, I think what your comment is suggesting is that on the Prime side because fewer properties there are managed by Remington, we may still continue to see incentive fees ramp up over the next several quarters? |
Jeremy Welter: | They’re definitely going to be there and - but it’s not going to be - it should not be as significant just because we have that anomaly, as I mentioned, on a year-over-year basis and we’ll anniversary out of that at the end of the year. But we will still be having incentive fees partly because the properties are performing so well. The only way to lower those incentive fees is to owner-fund cap ex, and as we mentioned, the properties are great from a capital standpoint or for property performance to go down. |
Participant 7: | Okay. Thank you. And then I have a follow up question for you again, Monty. You know, when you think about the Ashford portfolio and the termination fees associated with it, you know, if there’s a change of control for the external advisor. Yes, I know that there’s some investors who've calculated that termination fee excessively high, you know, somewhere in the $4 to $5 per share range. Would you be able to kind of comment on that? On how we should think about that if there's any way to book-end the economics on the termination fee as the portfolio stands today and where the economics of the portfolio stand today? |
Monty Bennett: | Sure. I just think that some folks are making a mountain out of a molehill on all that. First of all, we think that those calculations are high. And secondly is that, you know, that presumes that any portfolio of assets have got to be managed or overseen, right. I mean no matter who buys some assets or what they do, they’ve got to have some Asset Management overhead. And, we think that if these assets were ever sold, one of the buyers could potentially be someone that would avail themselves of Ashford Inc.'s management expertise and the overhead associated with it, in which case, they’ll be no impact on price whatsoever. So, I think it’s just because the external management structure is a little bit unusual in the equity side of REIT world, of course they're everywhere on the mortgage REIT side, that there’s extra focus on it, and there just doesn’t need to be because it’s just not significant. |
Participant 7: | Okay. So, just based on where the portfolio stands today in terms of its trailing 12 month EBITDA and things like that and management fees that we can calculate out of that. Is there a way to get a sense of what the termination fee could look like as a dollar per share value versus what people are thinking from, you know, maybe a $4 or $5 per share number that I think some of us have heard? |
Monty Bennett: | Yes. Yes, you can pull up the docs and go through the calculations. And you know, rather than sit here and give specific numbers, I think it’s a calculation that people should do for themselves. But, it’s a pretty straightforward process that we can walk you through. |
Participant 7: | Okay. All right, thank you very much. |
Participant 1: | Hey guys. Just one quick follow up. We've seen this summer a flurry of select service portfolios trade hands, usually going to Private Equity bidders or North Star which is essentially a Private Equity buyer. You guys have talked about Ashford Trust being interested in acquiring a select service portfolio and Ashford Inc., you know, overseeing a select service REIT at some point, if the stars align. I'm curious; can you give us some color in terms of why you guys haven’t been the acquirer of any of these portfolios? Is it because pricing’s been too high or because you had been too focused on getting the Ashford Inc. spin-off completed or something else, you know that I am not even thinking of? |
Monty Bennett: | I think the answer is that we've just had to get this Ashford Inc. spun out. There's just been a lot of moving parts and trying to couple that with doing a large transaction would just add, not only add the complexities, but also push the whole process back because we’ve had to value what Ashford Inc would be worth. And then with large portfolio that value would change because the TEV of Ashford Trust would change and therefore the fees would - it’s just too much. But, we’re almost done with that process and so we’ll be out and about. |
Participant 1: | So, it sounds like, you know, after the spin-off's completed, you guys might be a little bit more aggressive if some more of these portfolios hit the market? |
Monty Bennett: | I would expect so. |
Participant 1: | Great. That’s all from me. Thanks a lot. |