Ashford Hospitality Trust (AHT)

[FUNMAN]

A great team and update.

Ashford's CEO Hosts Investor & Analyst Day Conference (Transcript)
May 22 2013,


Executives

Deric Eubanks - Senior Vice President, Finance

Monty Bennett - Chairman and CEO

Douglas Kessler - President

David Brooks - Chief Operating Officer and General Counsel

David Kimichik - Chief Financial Officer

Jeremy Welter - Executive Vice President, Asset Management

Rob Hays - Senior Vice President, Corporate Finance and Strategy

Elise Chittick - Investor Relations

[Kari Blanney] - Investor Relations

Analysts

Ashford Hospitality Trust Inc. (AHT) Investor & Analyst Day Conference Transcript May 21, 2013 9:00 AM ET

Deric Eubanks - Senior Vice President, Finance
Let’s go ahead and get started. Good morning. Welcome to the Ashford Hospitality Trust Investor and Analyst Day. I’m Deric Eubanks, Senior Vice President of Finance for Ashford, and I’d also like to welcome all those that are joining us online. The presentation is being video archived and will be available on our website at the conclusion of the presentation and our website is www.ahtreit.com.

Let me also point out our Safe Harbor slide, we include the slide in all of our presentations. Certain statements made in this presentation could be considered forward-looking statements. These statements are subject to both known and unknown risks which could cause actual results to differ materially from those anticipated. I would also like to remind you that historical results are not necessarily indicative of future results.

Finally, I’d like to note that certain non-GAAP measures will be use in this presentation. Reconciliations of which are provided in prior earnings releases and filings with the SEC. This overview is for informational purposes-only and is not an offer to sell, or solicitation an offer to buy or sell any securities of Ashford Hospitality Trust Incorporated, and may not be relied upon in connection with the purchase or sale of any such security.

Now let me introduce who he is present today from the Ashford management team. We have Monty Bennett, our Chairman and CEO; Douglas Kessler, our President and Chief, I’m sorry; David Brooks, our Chief Operating Officer and General Counsel; David Kimichik, our Chief Financial Officer; Jeremy Welter, our Executive Vice President of Asset Management; Rob Hays, our Senior Vice President of Corporate Finance and Strategy; and myself. We also have Elise Chittick, who heads up our Relations -- Investor Relations effort and [Kari Blanney] who is here assisting Elise and they remain in the registration table this morning.

Our timeline for today is as follows, Monty Bennett will provide an economy, industry and company overview. Then David Brooks will provide a management team overview. David Kimichik will provide a capital structure and balance sheet update, followed by a 10 minute coffee break.

The management team will be available for one-on-one meetings this afternoon and will be taking sign-ups during the coffee break. Please find either Elise or Kari who manage the registration table to sign-up for one on ones.

After the coffee break, Rob Hays will provide an overview of how we view risks and return, Jeremy Welter will provide an asset management overview and Doug Kessler will provide a recent acquisitions and Highland Portfolio update. We’ll then have a 30-minute Q&A session, followed by lunch with management. And we have slots available for lunch, if any of you would like to join us that have not already signed up, again please get with Elise or Kari to sign up for lunch.

As I mentioned we’ll have a Q&A session at the end of the presentation, so please hold all of your questions until the end, and if you're viewing this on the web, there should be a place for you to submit questions for the Q&A portion of the presentation on your screen and we’ll compile the questions and try to get to as many of them as possible.

Finally, I’d like to point out the gifts that we have for those in attendance. At the conclusion of the presentation, please get with Elise or Kari, and your iPad mini will be shipped to you, or if you selected the bottle of wine, they will have those for you at the registration table and we also have some Ashford gear for you to take with you as you leave.

Now I’d like to introduce Monty Bennett. Monty serves as Founder, Chairman and Chief Executive Officer of Ashford, which went public in August of 2003. Monty is a member of the American Hotel and Lodging Associations Industry Real Estate Finance Advisory Council, IREFAC, the Urban Land Institute Council, Marriott International’s Owner Advisory Council, and he is a frequent speaker and panelist for various hotel development and investment conferences.

Since 1997, Monty has also been the Chief Executive Officer of Remington Lodging & Hospitality and its affiliates, an independent hotel management and development company based in Dallas that has provided property, project and asset management services for over 40 years. He joined Remington in 1992 and prior to being named CEO served in various capacities, 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 received a Bachelor of Science Degree with distinction from the School of Hotel Administration also at Cornell. He is a life member of the Cornell Hotel Society. Ladies and gentlemen, Monty Bennett.

Monty Bennett - Chairman and CEO
Thank you, Deric, and good morning. This morning what we are going to share with you is a little bit about our company, about the superior returns that we have delivered for our shareholders over the past decade or so, since our IPO.

About where we are in the lodging cycle and the fact that we think that significant upsides still exist in the lodging cycle, particulars about our platform, about our dividend and the fact that we've got a strong cover dividend as compared to our peers.

We are going to talk about our capital markets expertise and what we’ve accomplished there over time and we are going to talk about our management teams, specifics about our management teams and what we've accomplished.

This slide is what we are most proud of, this is our total shareholder return over the past one-year, two years, three years, all the way back to nine years. We went public about nine and half years ago, in August of 2003. And you can see the total shareholder return we’ve been able to generate as compared to our peers.

We have materially outperformed our peer average and total shareholder returns over any group of years since that period of time, even compared to two years ago, when our stock had run up briefly, we’ve outperformed our peers albeit just little bit slightly -- albeit just a little bit.

We are very proud of these returns and despite this significant outperformance, we believe that there is a great opportunity in our stock in our company today as well. Some people have said that our outperformance is due to higher leverage and therefore a riskier type of platform and this is just not the case, you can have higher leverage without higher risk and the market usually measures risks by looking at the stock's volatility.

And if you look at our stock volatility in this slide compared to our peers, you'll see that we are over the long-term slightly below our peer average in volatility but usually about right on. So we have above average returns, materially above-average returns compared to our peer set and then we've got slightly lower volatility compared to our peer set and the details of all these calculations are in the appendix that you have with you.

So higher returns, same level of risk. All right. Some of you have asked when we give these presentations, not only to go over the numbers, the specifics which we will but also to give you an idea about how we think about the economy, the industry, our company to give you an insight to how we think and that gives you a better sense of whether you want to invest in our company and at what time do you want to invest in our company.

So this first section is going to attempt to do something like that. This is a slide that's outlines the debt to GDP ratio of the United States. We've got a long-term debt cycle in this country as most countries have and what you can see is that debt-to-GDP ratio hit a peaked in 1933. Then we went through a deleveraging phase subsequent to that and we went through quarter number of years of what we call productivity driven growth. This is where the debt-to-GDP ratio in the country was pretty flat.

And then in 1980s, we went through a period of what we called debt-fueled GDP growth. And as your debt balances increase in the economy, you’re essentially borrowing GDP growth from the future. Remember GDP is just a measure of spending. And so you’re spending more than you have by taking on more debt.

Then at the end stages of the cycle, the amount of debt increase in the economy that’s required to keep growth going starts to materially accelerate. And you can see how the debt-to-GDP ratio has really started to move up dramatically between 2000 and 2007. And then after that, you hit a wall, where you can't keep growing debt enough to keep the economy on track and the debt service required for all of that debt, it is just too much. And there is not enough money, there is not enough liquidity in the economy in earnings in order to accommodate all that debt growth.

And that’s when you hit the wall and you have a liquidity crisis, much like we did in 1929 and like we did in 2008. Now, we’re starting to repeat the cycle of the 1930s, where we’re going through a deleveraging where our debt-to-GDP balances are coming down. This is what's putting us into this sluggish growth period that we’ve been in for the past number of years. And I believe will be the case for a number of years going forward as we get our debt-to-GDP figures down.

What’s important to realize is that productivity in the United States grows at about 2% per year. On top of that, our working age population grows at about 0.7%. So without the movement in this debt balance, our economy would naturally grow to about 2.5% to 3% per year. But as we’re getting our debt balances down, this is a ratio here of debt to GDP but if our nominal debt balance starts to come down then that’s actually sucking GDP out.

And with the austerity and increase in tax that’s going on this year, that's going to subtract from GDP. So our growth will be a little bit lower than that over the next three years. But when we start -- stop reducing our debts overall than that growth should be in the 2.5%, 3% range. Remember that every recession that we've had since the 1930s has been caused by the Fed on purpose in a way.

Our economy has heated up. It's growing too fast and so they wanted to slow it down. So that we wouldn't have inflation. Well, slowing it down, unfortunately cause us to go into recession where they slowed it down too much. Right now, we’re in an environment where the Fed is doing absolutely everything it can to make sure that we don't go into a recession because there is so much slack in the economy especially in the labor market.

So we have a very accommodative Fed with interest rates at zero and a substantial amount of money printing going on right now. So you’ve got the Fed doing everything they can to keep the economy growing and keep GDP growing.

So I believe and we believe that GDP will grow over the next number of years between 2.5% and 3% less whatever, austerity we’re going through which this year maybe about a point. And that should last for a while except if we hit some air pocket if there's a major event in Europe or majored event in Japan that could throw us off for just a little bit. So we see this sluggish growth happening for quite some time.

The Fed is buying up about $85 billion worth of securities and financial assets every month. As these financial assets have taken off the balance sheets of banks and financial intermediaries and private individuals, they’re instead replaced with cash and that cash then in turn goes somewhere.

Over the past number of years, investors have been shellshocked with what happened in the marketplace. And so they've been very, very risk averse and have kept their moneys in their financial instruments that are very, very safe. But after a while, investor start to tire of that and they’re tired of getting 0% returns and they are slowly edging out on the risk curve.

While as they edge it on the risk curve, what you’re finding is that they’re starting to push-up the pricing of riskier and riskier type of assets. So first it was government bonds, then it was AAA corporate bonds, then high-yield bonds and then some of the more blue-chip stocks and now it’s out on the curve to hotel, real estate which is, I believe, to be viewed as a more risky stock in our platform. Right or wrong, our platform is viewed to be riskier and so the money start coming out our way. So as long as the Fed is continuing to pump in this $85 billion a month, we believe that it is going to have a very positive strong impact on stocks especially the farther out you go onto the risk curve.

Looking at our industry specifically, this is a graph of real RevPAR, real revenue per available room. For the uninitiated, this is average daily rates for the industry times occupancy. You can see it's a very predictive -- predictable type of up cycle and we hit a peak in 2007 and 2008. We’ve dropped off very dramatically.

If you look at it on a nominal basis, the drop-off is bigger. This is on a real basis. And we’re about halfway through the cycle. So we've got a long way to go before we hit a new high in the cycle and the results so far have been very positive for the industry and we see quite a bit more positive real RevPAR growth over the next number of years.

Hotel demand is driven in large part GDP growth. GDP growth is measure of spending as aggregate spending increases so does hotel room night consumption. And then that will start to push-up rates. It’s predicted that the hotel room night line will continue to grow because GDP will continue to grow albeit modestly in 2% to 3% range but that’s what we see for the foreseeable future until the Fed takes a poster of wanting to slow down the economy and they’re not going to take that posture until the labor slack is taken out which is going to be a number of years away in our view.

So with demand growing for our industry you’ve to turn around and look at supply, net new supply growth bottomed out and it’s slowly starting to take up just a little bit but it’s still materially below it’s a long-run average of about 2.2%. So with a positive demand growth and just barely positive supply growth this is going to continue to create a positive supply demand imbalance in the industry and this positive supply demand imbalance is can then turn around and push up average daily rates even more so as we go further into the cycle.

This is an interesting chart. This tracks hotel stock performance at this point in the site compared to the last cycles. You can see that we’ve tracked along pretty well the purplish color is this cycle and the last two cycles are the red line and the green line and stock performance has really started to run up about this point in the cycle and in the performance and you’ve seen that in the hotel stocks over the past a number of months, especially as the other REIT sectors start to get it to bid up to sky-high levels. Multifamily has been sky high for some time as far as multiples office retail all this have started to move up and typically hotel REITs are one of the last sectors to move up dramatically and that’s what’s happening as new capital is starting to move into this sector because the other sectors have been bid up so aggressively already.

So if the past is in the indicator it looks like this industry could do very well from a stock performance standpoint over the next number of months. This is a forecast by PKF one of the firms that forecasts its RevPAR growth in the United States. The particular issue will have about 6.1% RevPAR growth a big jump next year and then starting to come down. They believe next year will be very strong because that's when we start to get to the magical occupancy level of around 60% to 63% where we can really start to push average daily rate that typically means that hotel is filling up on Tuesday and Wednesday nights, corporate hotels where we can really start to push the average daily rates on those nights. And then according to their prediction, new supply starts to catch up and moderate that RevPAR growth but it’s a very strong prediction of growth over the next number of years.

This is a chart that we find very interesting. PKF separately estimates that EBITDA from hotels and hotel companies over next couple years will grow about 25% which is material growth. We came about it in a separate way. We’ve put together this grid here and if you assume that RevPAR grows at around 6% on average over the next couple of years and you look at the flow-throughs that we in the industry has been able to achieve, we typically actually have something close to 60% flow-through but assuming something like a 50% flow-through we got the exact same number 24.7% or 25% EBIT growth over the next couple of years if those numbers hold up. That growth in our platform is material.

That’s about $85 million growth in our EBITDA from something like $330 million in 2012 to $85 million on top of it over the long term our multiple has been at about 12 times EBITDA and so that value creation of 12 times and $85 million increase in EBITDA is quite substantial and if you workout the math that’s about a $12 change in the incremental stock price, again repeating if that all occurs but the potential we see as is quite substantial.

Looking at the industry from a different measure, these are HBS's predictions on private market hotel room values on average and the red is history where it's dropped off of about 50% from the high in 2006-2007 to low in 2009 and is called back since then we’re almost back to the same values on a nominal basis and HBS continues to project that this will continue to grow over the next number of years and their projections in this matter have been spot on. They did a very nice job of predicting what these values will grow to. So over the next number of years, they see and we see private market hotel values continue to increase.

For those of you that are less involved in and just REIT investing we want to emphasize that REIT have great advantages, especially hotel REITs, they pay dividends which is very attractive to many yield seeking investors. You’ve got tax benefits of flowing through the income to the shareholders not being taxed at the corporate level. The great inflation hedges in our platform we can raise our rates literally every single day for those that are concerned about all the quantitative easing ultimately driving up inflation REITs can be a great tax and just especially hotel REITs.

We've got a high-quality real estate in our portfolio which will retain its values, the hard assets and not financial assets which can be very valuable for those that are looking for a safety in this environment, and you can see the other bullet points here about transparency, the amount of liquidity that we’ve got. We’re very excited about where we position as a platform and where we are in the industry as far as attracting this to investors.

A few company highlights. This chart shows our makeup. You can see that most of our properties are in the upper-upscale segments in the upscale segment, upper upscale are properties like Weston, Hyatt, Marriott, Hilton and upscale are properties like a Hilton Garden Inn, Courtyard is by Marriott and like we’ve got a few luxury and a couple of mid-scale but that’s predominantly where we’re focused.

About 75% of our properties in the top 25 MSA’s around the country nice geographic diversification our brand family has mostly Hilton and Marriott, although we like some of the other brand families as well but that just happens to be how our portfolio has turned out where we’ve seen the opportunity over the past number of years that we like assembled our portfolio. But I’d say that probably Hilton and Marriott are the top two or certainly among the top two or three of the brand families out in industry are very happy to be partners with them.

From segmentations standpoint you can see that about half of our business is corporate transient which has been one of the largest growing segments over the past number of years, leisure is about a quarter and then group has been about a quarter. Group has not grown in this recovery as much as ourselves or a lot of other people have liked. It seems to be a more, I don’t know what the right term is, austerity driven recovery and that corporate transient has been strong, leisure transient has been strong, but the group component has just not done as well over the past number of years.

That being said is that the overall number of hotel room nights consumed in our economy is substantially higher than it was at the peak back in 2007-2008. So we’ve seen good growth.

Many of you are aware of our relationship with Remington; Remington is an affiliated property manager, owned by myself and my father. When we went public back in 2003 and would serve detrimental to the shareholders interest. And for those of you that followed us for long time, you’ve seen that this has actually been the reverse. It’s been a great benefit to our company. And the reason is, is that we've got tremendous alignment.

Remington manages a couple of properties besides Ashford properties, but really does very few. Remington consistently will turn down other management top of opportunities. I serve as CEO at Remington and I turned them down. And the reason is, is because there's not enough money that Remington can make from managing this are the property that compares to management investment into Ashford.

We own 22% of Ashford, management does, that is a lot of money and I don't want Remington. We don't want Remington to be distracted by being pulled off in one direction or another managing for their clients. It's just not worthwhile. The numbers just don't add up.

And that focus has helped us, because while a number of managers out in the marketplace are good quality managers, such as Marriott Sager or Hilton, or other third parties. Those managers despite incentive fees are structured into their management agreements, just do not care about the performance of the assets the way that Remington does, because we own Remington.

And they’ve got other growth plans. They are interested in growing their brand and growing the management business, while Remington is not. Remington is interested in servicing this platform as best as can and you can see the results. This chart up here shows how Remington has performed against all of our other managers in our platform over the past number of years. And it shows that for the past five years there is 354 basis points improvement in total revenues. RevPAR Index 400 basis point improvement compared to non-Remington managers and the GOP flow through has been substantially, substantially higher among Remington managed properties compare to other managers that Ashford has.

So when we get a new property, we’re excited if Remington's going to be able to manage it, some properties we don't think Remington is the perfect fit for that property and so Remington steps aside and let someone else manage it. But by and large Remington's involvement has been a great boom to the performance of our company’s hotels. Then on top of the fact that Remington fees are in average lower than the management fees of these other third parties.

So if you look at this slide, this is our comparison of our flow throughs, EBITDA flow throughs compared to our peers and every year we substantially outperform our peers in flow throughs. This is very important to our long-term results.

If you look at that total shareholder return chart, there's a reason why we substantially outperformed our peers and that’s because we have consistently put up numbers like this. These numbers of ours, the red are Ashford's average portfolio. If you pulled out Remington from non-Remington managers, Remington's numbers are higher than these and the brands by and large are lower than these. So Remington brings up the averaged compared to our peers.

Again if we have a management company that is diabolically interested and just crazed over making sure that these properties perform well, because it means so much to us personally, and that heavy alignment of interest shows an outstanding asset management results.

The flip side of the same coin is our margins and you can see that our margins outperform our peers. This is a little harder and tougher comparison because since our margins on average are higher than our peers, it’s tougher to increase those margins. But we’ve still been able to do that compared to our peers set as well. So, even though the compared set -- for the comparison we disadvantaged, we’re able to exceed the margin growth of our peers.

CapEx spend, our peers spend about 10% to 12% per year of their total revenues on CapEx overtime. Our spent has been closer to 9% over the past number of years. So we’re able to save just a little bit on that metric compared to our peers. We want to put CapEx into our properties. We want to keep them up but we don’t want to spend more money than we have to. It looks like this year we’ll spend about 10%. This chart shows how we dial it back during the tough times and I imagine will be in that 9% to 12% range here over the next number of years. It's -- that's largely driven on the kind of assets that we might buy, if we go buy big a portfolio, there is a lot of CapEx required and that can be a bump in our overall CapEx spend.

For those looking for yield, Ashford has a nice dividend compared to the peers. It's about to 3.6% and the coverage is favorable compared to the peer average. So both the overall dividend and the coverage is attractive.

This slide tells a lot regarding our outperformance. Insiders own about 22% of our platform, if you look at our peers that is a substantial difference about 10 times of the difference. Our compensation comes much more from the increased in our share price as compared to additional share grants given to us or salaries that we've earned. So we have a very strong ownership type culture.

Also our affiliates Remington all the senior executives over there are compensated in part with Ashford stock. So you have further alignment of interests, if we have Marriott managing some of our properties, which we do. Marriott does not compensate their executives in Ashford stock. They compensate in Marriott stock. But Remington is compensated in Ashford stock, again further enhancing the alignment and you can see the performance as a result.

A few interesting slides here, if you look at replacement cost, we went through a very detailed analysis about replacement cost on our portfolio and we looked at our full-service hotels. We think that replacement cost is about $300,000 per key and select service it’s about $150,000 per key and we’ve got some of the methodology about how we've done that in the appendix. And this is a pretty conservative methodology since I think people look at these numbers somewhat skeptically and understandably so.

Analyst in the industry put our replacement cost much higher at about $288,000 per key and we think that that’s something that is another good data point, again ours are much more conservative, just to prove a point. And the point is that if we traded at our replacement cost of $233,000 a key, compared to what we’re trading it now. Right now we’re trading at something materially less at about $178,000 per key. That would mean that our stock price instead of trading where it is today between $30 per share, again that’s if they were trading at its replacement value.

This is another interesting slide, back in the fall of last year, some of you commented that, we were trading at a modest EBITDA multiple discount compared to our peers and we were. Typically we trade right and about the middle of our peers, and we think that's about the right spot considering the type of properties we have. But even then we were trading about half a turn discount compared to our peers, and we talked about what we could do to increase that multiple without a time that our level of debt was -- well, was keeping that multiple down a little bit.

Since that time our peers have rallied and so have we. However, because of the leverage in our platform and our stock price has moved up 70% in the past year. The difference in the EBITDA multiple between ourselves and our peers has expanded, and now it's about one and half turns. So the discount, the difference between us and our peers is even greater than it was.

Maybe the amount of the leverage is also part of that discount. I think and also maybe due to the fact that we moved up so much so fast. Investors are just taking it all in as they, as hope the stock would continue to move up to be in line with our peers. But you could see we are trading at a discount to our peers. We don’t see any reason why that should be the case.

Looking at it another way. Right now we’re trading at about 12.2 times for EBITDA. We believe and taking a very granular view in looking at our portfolio on asset by asset basis that the private market value of our hotels would be something close to 13.5 times, compared to our public markets valuation, and that's pretty close to where our peers are trading right now.

So we think that the public market valuation of hotels have started to get close to parity for a while, the private market valuations was higher, now the public market valuations has come up pretty close, except for our company and maybe some others, I haven't looked at some of the others. We are still trading below. If we traded at this private market multiple, our stock would be $17 today instead of $13 and changed again that's on year.

All right, in concluding my segment here, I’m going to reemphasis the returned we’ve been able to deliver for our shareholders. Despite those impressive returns, we believe that we’re positioned well for the future to deliver more returns, better returns in the future.

You saw how they are still significant upside in this cycle and that we believe that with the accommodative Fed policy the demand will continue to grow while new supply is fairly muted. We’ve got strong covered dividend that invests in hard assets very attractive for those that are concerned about the effects of [QE] long-term.

We demonstrated capital markets skills overtime and we have what I believe is the best management team in the industry and over the course of the next few minutes, you guys will get to hear from most of them and decided for yourself, but we’ve got a very strong team.

In moving forward, I’d like to introduce David Brooks. David Brooks started doing work for my father in the 1980s back when my father's business was located in Houston. I met David Brooks when I graduated from college in 1989, and then in 1992 he joined Remington Hotel Corporation our predecessor to Remington Lodging, an affiliate and predecessor to Ashford as General Counsel.

And he oversaw along with David Kimichik, our expansive efforts to buy hotel assets from the RTC. This team bought more hotel assets from the RTC than any other group in the country Goldman’s Whitehall Group was the second buyer, largest buyer of hotel assets from the RTC during that time.

Among David's many value-added roles, he is responsible for the negotiations and closing of all company acquisitions, dispositions, financings, capital transactions and offerings, loan originations, as well as oversight of the legal department.

David earned his Bachelor of Business Administration Accounting from the University of North Texas and his Juris Doctorate from the University of Houston Law Center in Houston. Ladies and gentlemen, please welcome David Brooks.

David Brooks - Chief Operating Officer and General Counsel
Thank you, Monty. Good morning. Great seeing you here and the management team really appreciates your participation today. We are excited about what we can share with you about our company, our outperformance compared to our peers and then unfortunately for me, I have the easy section, talking about the management team in particular those collections of talent, which I think is comparable to none other.

Specifically, I can say and of course, I am somewhat biased, but with 30 years of experience in the legal field, in the real estate industry, the lodging space, 10 years with a major law firm, six of those years as a partner, interaction with hundreds of various management teams in various scenarios together with even a couple years, if you all remember the big eight accounting firms and interaction with management teams in that role together with billions of transactions that I’ve been responsible for with respect to closings and interaction with management teams on the other side.

I can say that there is none -- no other team out there that has a collection of multi-disciplines of finance, lodging, capital markets, asset management, project management and a team that is more focused, that has an analytical rigor that turns every single stone over looking for opportunities and manners in which to minimize risk, not analysis paralysis, but analysis to reduce risk to produce higher yields, higher returns for shareholders.

So its starts from the top here, but we also have a culture within our organization, where we take very seriously all the away from the mailroom, all the way up to the top of the leadership team of guiding principles that we foster a culture within our organization that is focused solely with respect to our strong ownership and high alignment with shareholders to produce a result from a team that follow certain guiding principles, such as tenacity, profitability, ethical, things that we stress quarterly that functions at quarterly meetings, public service type events and so on that we believe have fostered and has yielded in some of the slides that Monty had shared with you the outperformance in comparison to our peers.

Couple things to takeaway from my section and in particular is that this team has, the senior executives have 20 plus years of experience in the lodging space, in the real estate space, in the financing space, capital market space.

Every single member of this team has been here since our IPO in August of 2003. We have a proven track record outperformance in total shareholder returns, the slide that Monty shared, if you look at and slice it and dice it from a one-year look back, two-year look back, three-year look back, we have substantially, materially outperformed the peer average.

Then lastly, just from hotel operations and capital markets, we have multi-disciplines within the organization that drive the value that go all the way from understanding the bones of a hotel, the ability to perform diligence quickly, the ability to make us very competitive with respect to looking at transactions because of the experience all the way from development, project management, the finance side, the banking relationships, the brand relationships, the participation in the brand committees, the ownership committees, the organizations that help shape the standards with respect to what is imposed by our brands or our franchisers.

And then lastly, not specifically listed right here on the slide, but you cannot emphasize that the alignment of the executive team of 22% plus of insider ownership in comparison to our peers is just -- it’s substantially more. And what better way to have a comfort as an investor, knowing that you have a primary investor is actually running the platform.

Capital markets experience just some examples of things that we stress, things that we have the benefit of and things that have yielded the outperformance of our company. First from an asset diversification standpoint, both geographically, and both and also from a brand perspective, upper-upscale, upscale, Hilton’s, Marriott’s strong relationships, but we focus on diversification to obviously minimize risks and to level out the performance of our company.

We have other disciplines that we that have yielded, say, for example, the interest rate swaps, the preferred stock buybacks, the common stock buybacks.

At a time, in 2008, when we're going through the great recession, many of our peers were issuing equity highly dilutive to their investors where we in turn not only implemented a counter risk strategy through interest rate swaps and flow-throughs but as well bought back close to 50% of our float, creating approximately 500 million plus in shareholder value, a strategy that no one else thought about. But it was through the analytical rigor of his team, looking at all the data points, looking at historical and looking at means on which to hedge where we thought we were going that played out perfectly for our shareholders.

Strong experience relative to a large portfolio transactions that’s made us competitive with respect to being aggressive and being able to work and work and work and not give up and acquire major transactions that benefit our shareholders. Our experience with joint ventures, Prudential, for example in our Highland portfolio, a credibly accretive transaction for us with respect to being able to maneuver a position and a mezz position and lend into the equity through a consensual foreclosure. And we walk through a few, just major transactions that we've done which I think is key to this management team and how it’s been able to deliver outperformance to its investors.

Prior to the IPO, as Monty said we're the largest buyer of RTC paper. We bought approximately billion book, predominantly all non-performing loans. I came onboard and we headed up the asset management team with the skills that I have had from a workout restructuring and legal dynamic together with finance and accounting. With David Kimichik, we're able to yield equity -- acquire the equity and quite a few of those assets and delivered significant returns to our private investors.

FGS portfolio, $250 million portfolio that was a tax driven transaction units delivered to its owners and that was approximately 21 assets, I believe. CNL portfolio in 2005, another example, the first one was a 30 property acquisition and again it was through tenacity being in the face of the seller, developing those relationships, not giving up that has yielded these large transactions. Another example, MIP portfolio $270 million which is a seven property acquisition.

The second CNL portfolio, which was 51 assets, again the tenacity of our team stayed in front of the potential opportunity, been able to perform diligence quickly, been able to understand the hotels quickly, been able to understand the markets, all putting together the ability to make us competitively superior with respect to our peers in securing that large transaction.

And then lastly, the Highland portfolio which we would closed in March of 2011. Just an example, we were a mezzanine 6 holder in the joint venture with Prudential. And the portfolio became troubled and by numerous, numerous meetings and negotiations with multiple parties and constituents within the cap stack, over 10 various organizations or institutions face-to-face meetings, traveling, traveling, working through the borrower, even making additional investments of acquiring a discount to the mezz 5 position.

Because I knew strategically from a bankruptcy perspective, if it were to go that route, that would be able to block us and give us more leverage. It’s those type of theories, strategies that in that structure, we are able to work in to the equity position on an unbelievable portfolio of 28 assets and about 158,000/key -- when, at that time, if you compare that to what our peers were paying for assets, at that time it’s approximately 270,000/key, excellent transaction and Doug will share more about that later.

And then lastly, the team has produced total shareholder return outperformance compared to our peers, up 132% compared to our peer average of 31%. Just as important the flows are continually beating the flows of our peers and are producing to the bottom line.

So, in summary, I'd like to for you if one thing I could just ask for you to take away and from what I've presented is that the key is management team, has an incredible investment in this institution, this company and that we are highly aligned and we are locked with shareholders with a high insider ownership of 22%.

We’ve been innovative in our strategies and our strategies have yielded results to our shareholders. We have a proven history of tenacity and taken on large transactions and been able to win those and as produced for our shareholders. And lastly, we have been together for a long time and we've been there since the inception of effectively cofounders of the company which I think gives great comfort to our shareholder's. Thank you.

I’d like to introduce David Kimichik, Our Chief Financial Officer. David has been with the Remington principals and with Mariner, the predecessor to Remington since he came out of Cornell lodging school, approximately 29 years ago. Kimo, as we mentioned was instrumental in the RTC days of acquiring of assets and heading up the management team with respect to the work out of all those loans that was approximately 160 hotel assets. He also serves as our head of underwriting, in addition, to being our Chief Financial Officer.

And most important, Kimo was the proud father of her daughter, who has just been accepted to Cornell. May I introduce Mr. David Kimichik.

David Kimichik - Chief Financial Officer
Thank you, David and welcome. I’m going to talk to you today about capital structure and balance sheet. But before I begin, I’d like to introduce you to Deric Eubanks since you haven't met him yet. Deric is our Senior Vice President of Finance. He has been with the company for 10 years and was involved in our IPO process and all subsequent capital raises.

He served in multiple roles including sourcing and originating -- originating acquisition opportunities, heading up our mezzanine lending platform and executing our hedge strategies. He is also highly involved in the Highland transaction and currently handles our debt financing initiatives and oversees our investor relations effort. Deric has a bachelor’s degree in finance from Southern Methodist University as a CFA charterholder.

Okay. Let’s talk about our capital structure. When speaking about debt today, I'll be referring to total debt, which includes our Highland debt which is not consolidated due to equal control on major decisions with our joint venture partners. We can consolidate it but we’re referring to all of our debt today.

All of our $3.2 billion of debt outstanding is property level non-recourse debt. We have gross unappreciated hotel assets of $4.5 billion and total gross assets of $4.9 billion. We have 68.3 million common shares outstanding, $18.9 million operating partnership units outstanding, for total fully diluted share count of 87.2 million.

We also $394 million of par value of perpetual preferred stock and as of March 31, we had cash and cash equivalents of $234 million on our balance sheet, clearly enough liquidity to handle any upcoming cash need. Subsequently, end of the quarter, we have acquired the peer house for $90 million in cash and are currently evaluating our financing alternatives for that asset.

Now, let’s talk about our balance sheet. High leverage does not equal higher risk. All of our debt is property level non-recourse debt. I can say that enough. Our highest leveraged loans have the longest time to maturity. Essentially, all of our 2017 maturities were related to our 2007 CNL purchase.

In spite of making a very good deal, we bought at essentially at the top of the market. All these loans however, have positive cash flow. And based on recent historical EBITDA, growth trend should be fully refinanceable either today or within the next year. So positive in that area as well.

We currently have the strongest liquidity in the 10 years since we’ve been public. We have excess cash flow. We have undrawn credit facility of $165 million. Again, we had $234 million of unrestricted cash on our balance sheet as of March 31. And our next meaningful debt maturity is not until December 2014.

So let’s talk about our debt maturity schedule. During the past two quarters, we have refinanced $436 million of maturing debt. And I have added $90 million of excess loan proceeds to unrestricted cash in our balance sheet and leaving nothing due in 2013. And then we currently only have $104 million due in December of 2014.

As you can see, we have a significant amount of debt coming due in 2016 and 2017. We have $935 million coming due in 2016 and $1.3 billion coming due in 2017. That’s quite a bit of debt but I can assure you as we’ve done in the past, it will be loan fund of this maturating debt when the time is right.

Let’s talk about our upcoming debt maturities. Regarding 2014 and 2015, maturities were in great shape. We show up here TTM debt yield that’s the amount of property level EBITDA over the current debt balance. The UBS loan maturing in December of 2014 has a TTM debt yield of 11.5%.

Typically, today a hotel loan is sized to refinance about 10% EBITDA debt yield. So we could have some excess proceeds from this loan if we choose to, when we go to refinance. All of our debt coming due in 2015, the Bank of America $172 million loan, the Merrill Lynch $152 million loan, the UBS $96 million have a combined weighted average debt yield of 12%. So that’s $525 million of our maturities coming due in 2014 and 2015, that's all clearly refinanceable today with the possibility of getting some excess loan proceeds if we chose to do that.

Lastly, I’d like to talk about our sources of liquidity. We have many sources of liquidity should we choose to or need to tap into. We currently have a zero balance on $165 million credit facility. We have -- we had $234 million of cash available to us at the end of the first quarter.

We have a preferred at the market facility currently in place. We have used that in the past. We haven’t used that in about a year but we could turn that on any time should we need to or choose to. We have in place, a common at the market facility, we have not used this but we could turn that on at any time should we choose to or need to.

We have potential excess refinancing proceeds from the 2014 and 2015 debt maturities that are coming out that I’ll just walk you through. And we have excess cash flow. Last year, we had $127 million of AFFO. And we had excess cash flow out of that.

So we have many sources of liquidity available to us should we choose to or need to tap into. And I think this is the best liquidity we’ve had in the 10-year since we’ve been public.

So that concludes my prepared remarks. We are going to adjourn for a 10 minute coffee break. If you like to sign up for one-on-one meetings, you can -- this afternoon, you can please see Kari or Elise in our foyer here. See in 10 minutes.

[Break]

Deric Eubanks - Senior Vice President, Finance
Rob is our Senior Vice President of Corporate Finance and Strategy. He joined Ashford in 2005. Rob is responsible for the formation and execution of the strategic initiatives of the company working closely with Ashford’s CEO, Monty Bennett. He oversees all financial analysis as it relates to the corporate model, including acquisitions, divestures, re-financings, hedging, capital markets transactions at major capital outlays. He oversaw Ashford’s investor relations function from 2010 until earlier this year.

Previous to working at Ashford, he was in the corporate development group at Dresser Incorporated, an oilfield service company in Dallas, it was part of the global power and energy investment banking group with Merrill Lynch. Rob has a bachelor’s degree in politics from Preston University and later studied philosophy at the Pontifical University of the Holy Cross in Rome, Italy. Rob Hayes?

Rob Hayes

Thank you, Deric. When we started this two years ago, we were the first lodging REIT to do a specific Annual Investor Day and the reason we did that and started it was we knew Ashford has a little bit of a unique story. We tend to make capital decisions a bit differently than our peers. We tend to do things a little bit and we think a little bit more innovative, but they definitely are little bit more complex. So we thought it would make sense to get in front of investors and analysts and be able to kind of explain and give some insights into how we think, why we make the decisions that we do to help you all; one, hopefully, give you all comfort but hopefully give you guys just again some insight into us. In light of that something that we wanted to do this year was to give you a summary but a little bit of an overview of how we view risk and return, how do we make the capital allocation decisions that we do and why are they a little bit different than our peers. So we’re going to walk you through this.

So some of this is going to be little bit like going back to college statistics. So I apologize but it gives us kind of a good framework to work from and one of the things that's the most important aspect of it is really defining what is risk and the simple definition is risk is variability of returns. So you’ve got an expected return on it transaction and it has variability around that. If you have two deals both have expected returns of 10%; one, where you have high confidence it’s going to be between 9% and 11%, is much less risky than one that has variability between 5% and 15%, so simple concepts.

However, we think there is a lot of misunderstanding sometimes in the industry not necessarily always intended but it sometimes happens and sometimes people think risk equates to downside only as part of it but risk again is the variability, it can be upside or downside. Even recently I read in a very well-known real estate magazine a real estate executive have the quote “that debt equals risk” and as Kemo mentioned earlier, we generally disagree it can be and it can cause more risk but not necessarily. So it depends on the recourse nature of it. It depends on is it floating or fixed. It depends on kind of is it how they structure it. All of these things impact the variability one way or another some in a diminish sense and some in a diminus sense. So anyway, we’re going to talk about risk equals the variability of returns.

So this really is like college statistics one on one, I’m actually put on the normal distribution curve and your expected returns and here is all your standard deviations. So as a refresher, your expected return in this case is 10% that’s the mean and also one of the most common ways to measure variant, the variability is your standard deviations and this is we are seeing a normal distribution curve, again this is very simple. I’m just doing this because you’re going to see in the next slides.

I’m going to use this as a structure to layout some examples of how we view risk in return and in all of this what I have on here on expected returns really have no bearing on how Ashford does underwriting or specific numbers on a deal. They’re just used for illustrative purposes.

So all else being equal and in this case all else being equal mean risk, higher returns are better and this is a rough example of how we viewed the Highland transaction a couple of years ago and that when we looked at the Highland portfolio and we looked at the markets that those assets were in. We’re looking at the types of assets that they’re in. We’re looking at the capital structure that existed on it. When we looked at all the different pieces of it, we thought that fundamentally the risk profile of Highland, the variability of returns on Highland was very, very similar to our existing platform and we couldn't find any reason why Highland over the long-term, again it’s different in a short term but over the long term why it would perform any different from a risk standpoint.

However, we thought the expected returns on that portfolio were materially higher than our existing platform and so when you overlay those together, this is kind of a rudimentary way of expressing it. Expected returns are much higher at a very similar risk profile and that’s why we thought that transactions need a lot of sense.

Now, again all things being equal you would prefer lower volatility and this is really an example of what we really thought our hedging strategy was doing. So in 2007 Monty and myself and Derek and some of the other guys of the team we all kind of sat together and we thought how can we hedge our cash flows. We knew that we were least getting much later in the cycle and that relatively our upside was substantially less than our downside risk. We also did know to what depth it was going to be but if we knew that then it would have been a lot easier, we would have made even more money.

And so we sat down, we thought how could we hedge ourselves and what we came up with was taking and we thought it was really, I spent months looking at every economic variable you can imagine, looking at various structures, derivatives you name it, we looked at it to see how could we hedge the cash flow and the answer would be very simple and I thought kind of poetic and elegant is that all we did was take our fixed rate debt and we took $2 billion of it and swap it to floating. So we went from 5.5% to 6% debt to LIBOR plus 250 basis points and it behaved exactly as we hoped in recession, short-term interest rate stopped and we saved a lot of money on our hotels and this is really what we did was we recognized that to the extent that the industry continue to grow and you had continued outperformance in hotel business interest rates likely would go up that that would continue to kind of tick rates up and we will be giving up some of our upside and we understood that. But we also thought I said relatively the downside risk was much more significant and so we try to take off that tail risk and so as kind of illustrated here we kind of squeezed in. What? We kind of squeezed in the tails and we thought we were lowering the overall volatility, the risk of our portfolio. So that’s example of what we did here.

Now it’s also easy if you think all right all else being equal you can get higher returns or all else being equal you can get better lower risk, but the tension comes in when you have to weigh those and one of the examples I think is great of how we do that was in our buy-back strategy. So in 2007 we started, we put on the interest rate hedges and then in 2008 those hedges were behaving and we began the process of looking at doing buy-backs.

In doing those we had kind of a weekly process working with our Board of Directors and Monty and I specifically would go through this very, very deep analysis, are looking our cash flows and looking at the risk profile of our company and something was done very, very thoroughly every week and it took a lot of time but he was one but we’re really trying to measure this, what was the upside returns that can come from those buybacks and what was the risk that was putting in our platform.

And thankfully, we because of the hedges and because of the non-recourse nature of our debt and because of all the other floating-rate exposure we had, it is very, very difficult to come up with a scenario that where we didn't see positive cash flow in our assets and to the extent there were some that maybe one can be cash flow positive if things got even worse.

We were looking at scenario upon scenario of even another year on top of 2009 of another 15% to 20% down. We still felt very confident that we build a cash flow in that scenario. We would sit there in and stress those analyses. So, in there, at the end of day we didn't see how those buybacks incrementally's were doing and we’re adding that much material risk to the platform, certainly not bankruptcy risk or anything where we were risking the company.

It was very small, very incremental. But the expected returns were so significant that we thought it was something we could turn down. I mean, there were times where we were looking at transactions. We were looking at buying back stock and we thought that there are going to be five year plus of triple digit IRR returns, which I think has proved itself out. We're buying some stock at $0.90 and it’s 13.5 almost today. So, on a five-year basis that is triple digit returns.

So that's kind of the way that we were weighing them. Now here's one where, probably examples of deals that -- some deals that we've seen that where we simply pass on them. And this is just an example of, one where you can have higher expected returns. But the risk profile of those -- of that asset or that transaction is one where we just think it materially changes the risk platform, the risk of the platform and it’s not as interesting to us. And so this is again just a visual way to demonstrate it.

So, from a summary standpoint and they kind of finish up, everybody does this expected return standpoint, everyone of our peers, everyone who's an investor puts together, kind of those expected returns. And we do the same thing. We have had a great team that does due diligence, underwriting and sourcing deals and we did that very, very fairly.

But I think we differentiate ourselves little bit on this next part which is kind of quantifying that variability of expected returns. We do as much as more, I can imagine someone that does more than we do in terms of stress testing and scenario analysis and really trying to turn over to sensitivity to those inputs. Giving an example, on Highland, I went back for this talk and went back to our Highland structure that we did in 2011. And I counted 160 different models and structures that we put together for that analysis.

And that's not terribly uncommon. We really tried to figure out what moves a needle on these deals. But its important not just as David mentioned in terms of doing kind of data for the sake of data. That does no one any good and it's a waste of time. But I think we were very good at is taking tremendous amounts of data and trying to translate those into whether its juristics or some actionable way of understanding those relationships that to the extent X changes by X amount, Y changes by Y amount. And really allows us to use that data in a beneficial way and that's what we do.

It’s a final step which is we all sit around together and being able to understand the relationships and sensitivities of transaction whether it’s in the capital structure, whether it's in the price of the stock that you’re issuing, whether it's in the supply in the market or the revenue assumptions, margins or wherever it maybe that really moves a needles. It’s really honing on that and spending a lot of time internally debating upon our comfort levels and understanding of those risks.

So it’s very rigorous and the reason that we do this at in a days because how much we care about this company, how much the value of this company means to us, all of our networks in this company. So we spend a lot of time understanding again this risk and reward trade-off.

So that is my section. I’d like to introduce Jeremy Welter. Jeremy Welter is one of my dearest friends. I have know Jeremy since fourth or fifth grade. And he hasn't changed a whole lot in those years. He is out so much smarter, more upstanding guy but his personality is one that is very, very similar and Jeremy is one of the most tenacious and energetic guys I've ever known.

And I'm very glad he is on our side of the table and not the others because he can wear you down over long periods of time, which is why I think he is great in his asset management role. Jeremy joined us at Ashford in 2011 in January just prior to the Highland acquisition.

In his role, he oversees the operations, capital investments, risk management and brand relations and he also oversees strategic position of our properties, including rebranding and lease activity. And prior to joining Ashford, he was a Chief Financial Officer of Remington, our affiliate manager and before joining Remington, he was an investment banker at Stephens Inc., a boutique investment bank where he worked on M&A and capital raising transactions. So Jeremy Welter.

Jeremy Welter - Executive Vice President, Asset Management
Thank you, Rob. Ashford has consistently delivered leading operational metrics, specially when it comes to revenue generation, flow-throughs and margins. What makes our asset management team different? What makes us best in class? First I’d like to start with our affiliate manager, Remington.

Remington is highly aligned with ownership. We have the same goals, the same objectives. We speak the same language. They also provided a rapid response. We share office space with Remington. It is a huge advantage to have your property management company in the same offices across the hallways from your asset management group.

Remington also provides an operational check against brands. What I mean by that is that we have great financial data and how hotel should be run. We take that financial data. We share with other property managers and show them, what -- how assets should be run to really push and drive incremental performance.

Our asset management team also has intense analytical rigor. We question everything. We’re very financially savvy. We are quantitatively driven companies you’ve seen from rest of management team. But our asset management group is just the same.

During brand owner meetings, the brands often say that Ashford comes with data and they come prepared. And what I found is that the brands really responded to data. When you share them relative performance, they respond. And I believe that this is gotten the brands move faster and jump higher for us.

Our asset management team is focused and compensated on achieving measurable metrics that we believe maximize shareholder returns over time. Now, the third a lot of times the industry describes our asset management team as aggressive but I actually think they were persistent.

Once, we identified opportunity whatever the case may, we stay the course, we push, we prod, we tug, we pull, we do everything we can until we hit our goal, meet our objective and if we hit a wall, we’ll take a few steps backwards, reevaluate virtually at a different angle. One thing that we do not do, our asset management team does not give up.

We are little unique compared to our peers. We’ve got five different property managers. We also have the strategic relationship with Remington. Many of our peers just have franchise hotels and maybe they are brand manage hotels. We’ve got both brand and franchise. We believe this provides us a balanced approach. You can look Remington is about 50% of the rooms, may ask another 42% of our rooms, but we also have some other great property management companies as well.

In our property management, diversity allows us to identify and implement best practices across the entire portfolio. There are numerous areas that Remington excels in. And we take a lot of those strategies that Remington has. We steal them, we put them into other properties managed by the managers. Conversely, Hilton and Marriott, they have some good ideas on their own as well as the other management companies. We take some of those ideas and employ them in our Remington hotels or the other managers as well. This allows us to bring each property up to perform at their optimal level and it’s a great advantage to us.

I’ll give you a couple of examples, okay. As Rob mentioned, I was formerly the CFO of Remington. And Remington has very strict overtime approval process at the property level. And what the result is, is basically we don't have hardly any overtime that's incurred at the properties.

We acquired Highland -- with Highland transaction, look at the historical financials and we noticed there was a tremendous amount of overtime. And some of the reason is, because they didn’t have the right procedures, some of, is that they had the right procedures that they weren’t following them. The conversations we had with lot of property management companies at the time. This is 2011. It’s not -- we not in recession anymore. We don’t have to focus on this. And so we put in some really strict overtime procedures in the Highland Hotels and that was a great cost benefit immediately.

Some of the brand managed hotels have some great premium room upgrades strategies, all incremental, all ADR. We have taken some of those strategies, tested in some further hotels and continue to role amount throughout the balance of the portfolio. This balanced approach along with the expertise of our asset management team has led Ashford to consistently outperform its peers in numerous operational metrics.

I want to spend some time discussing revenues and before I do that, I want to emphasis with portfolio our size nothing is immaterial. Nothing is immaterial. And we very much operate that way. We look at every rock to uncover and try to find opportunities. We had 7.6 million room nights sold last year.

If our team did find a way to get every customer that came in our hotels going to spent $0.50 maybe $0.75 more, chances our guest is going to really notice impact but it’s going to be meaningful to us.

As well with approximately $1.4 billion of portfolio revenues, each additional percentage increase in ADR is worth about a $1 per share to our stock price. So there is great tremendous upsides, we can grow additional revenues.

We have a fully dedicated revenue development position. We continue to expand our revenue capabilities. Market share gain is an important part of our asset management computation.

There is really three different ways, main initiatives we have to drive revenue, and I’m going to talk with first one is, is the, topline drive. Topline drive is a comprehensive review of our long-term revenues deployment and strategies. Drive stands for driving revenue improvement and value enhancement.

As part of the drive, we conducted an on-site meaning with the property divisional, the GM and key sales area leaders. We review sales team deployment, key account coverage, we review key transient account production. We analyze channel production and develop premium room opportunities. We discuss changes in the market dynamics and changes in the comp set. What is going on the market? How we respond to those changes to better competitively position our hotels going forward?

We review in challenge booking goals, we review group space and identify need periods and develop action plans and how we want address the need periods. We analyze segmentation. We also develop the most profitable optimal mix for each one of our hotels.

We are proactive in push our managers to segment out -- to switch gears and segment out some of the lower margin business, some of the easier business to go after which are the OTA's, wholesale accounts, even some groups that maybe are lower rated and have low ancillary spend, and so we push them to segment out and go after higher-rated business. We’re also proactive in pushing for F&B minimums for our groups.

As part of the topline drive we also review e-commerce, trip advisor, anything social media related. It’s a big important growing part of our industry. We also have something is probably a little bit more unique as standard part of our topline drive, we just have the question, is our hotel named appropriately? I'm not talking about switching brands, just the name of the hotel.

And I’ll give you just the most recent example, we had Courtyard Boston Tremont, we require that with the Highland Portfolio and we determine the Tremont is not a well-known identifier.

We solicit the request for Marriott to rename it as Courtyard Boston Downtown, much more powerful, much more well-known and it’s a much stronger draw than Tremont. But almost as important as now we own the name Courtyard Boston Downtown, against any future Courtyard development in Boston.

As part of the topline drive we have all the strategies I just mentioned. We document these strategies. We have key takeaways and we use them for reference for follow-ups and future tracking.

The next initiative we do is more of an ongoing initiative. It's a group funnel reviews. We review group account production in new leads. We analyze group weekend and weekday pace. We review forecasted pace. We review and optimize transient and discount production.

What we are doing is really the same, what's going in the funnel, is enough going in the funnel. How we deployed against cost to get more business into the funnel. Once it's in the funnel, we pulling that business through to convert it to a definite room night.

Another ongoing strategy we have is Transient RevMAX. We are reviewing a concept pricing. We spent a considerable time analyzing state patterns to driving incremental yield. We determine optimal weekday, weekend pricing mix.

We are also implementing day week price in our hotel. We don’t think it make sense to charges the same rate for Tuesday and Wednesday when we know our hotels are going to be sold out as we do for Monday and Thursday. That is more of a battle with our managers, requires a lot more work, changes to some of their systems, and a lot more oversight. But it does drive a lot of incremental yield when you change the pricing for based on day and week.

We analyze extended-stay, occupancy contribution. We provide extended-stay incentives to promote stay-overs during weekday, shoulder nights, as well as weekends. Our review retail discount channel strategies, as well as the accuracy of our short-term forecast. It’s really important to make sure that we have good insight on how our hotels are going to perform in the short-term because we are making pricing decisions today based on our forecast.

Another underlying theme that we have is with these three main touch points is just a threat of just all the ancillary revenues we have in our hotels. Banquet and catering, premium room upgrades, parking opportunities, such a big part of our business is parking we do, annual parking surveys to understand what our comp set is charging, make sure that we are pushing towards the top of the market in terms of parking rates.

There is even a few examples where none of our comp set charges and we make the strategic decision to be the first in the market to charge for parking and we’re very thoughtful about that and we have contingency plans if there is lot of resistance we have to pull it, we haven’t had to pull any yet. So we’ve been the first to charge parking in some of our hotels.

Audio and visual revenue, retail, I'm sorry, real estate and rooftop antenna third-party leases is another opportunity that we continue to pursue.

As Monty mention and some of other rest of management team. We have a strong industry-leading flow-throughs and things are charged to compare off flow-throughs versus the pure averages. And it has added a significant value to our stock price overtime.

And I’d like to share with you, how we achieve those flow-throughs, what we do to make sure that we have the right cost structure in place and there is a lot of different initiatives, one I’m going to focus on right now is really kind of post-acquisition strategy. I'm convinced that any hotel that these guys had decided to acquire that go over our group, we’ll able to cut cost.

Post-acquisition, we conduct a cost-cutting review that we internally call it a deep dive, okay and that’s starts with benchmarking. Deep dive is most effective when you use comparable hotels within our portfolio to identify areas of opportunity.

So each hotel in our portfolio has its own set of top set of comparable hotels. The comparable hotels are determined by similar levels of ADR, occupancy, RevPAR, F&B mix, change scale, market wage rates and so forth.

And we compare the cost structure the subject hotel versus the comparable hotels identify area of opportunities, once we do that, we set an on-site organizational review. And that is really what we call the deep dive.

The on-site organizational review is going to include the regional manager and the general manager, very select group from the property as well as our team. And we really start with what we call a zero-based staffing assumption, okay. And what we mean by that is we force the property to justify every single managerial and supervisory position, all the department staffing models and all the headcount within the hotel.

We even come with organizational charts of some of the comp set hotels we have and we go through that organization chart compare that versus the hotel we’re conducting the deep dive. And we’ll find a situation maybe we have three or four managers, maybe a few more supervisors and we’re forced to probably say why do you need these extra positions. Is there an opportunity to combine responsibilities within the hotel or you have other hotels in the area they manage.

We can cluster some of these positions with some of those other hotels, realizing I’m doing some of my competition a little bit of a favor but it is beneficial to us as when we cluster. As part of the deep dive, we’ve hit every item on a P&L, okay but we also review overtime third-party vendor and service contracts. We look at the last time the contract was re-bid.

You’ll be shocked on hotels that we acquire and they are not rebiding these service agreements. They are not evaluating whether or not they even need this service agreement today, maybe five years ago they needed them. We also looking at the frequency. If it's a service, maybe they’re getting 12 times a year, do we need it 12 times? So we cut it back to 9 times a year.

Those are all the items that we go through on a deep dive. The net result of that is a profit improvement plan. And this is a detailed plan. It’s got specific action items, specific dates. We quantify all the statements that we’re going to agree to with the property. We actually laid down on the financial schedule. We have the property sign -- we sign it. We track it against future actual results to see how well we’re doing against that profit improvement plan.

I want to give you an example. We bought Highland. We acquired DFW Marriott and we benchmarked property against some other comparable hotels in our portfolio. And we identified some low-hanging fruit. EBITDA flows for the first full year of ownership for DFW Marriott at 144%. That’s despite 2% decrease in ADR. ADR went down because a year before we had a Super Bowl, didn’t come back the subsequent year but we’re able to hit strong flow-throughs anyway.

This was a brand manager of the hotel, no change in general manager, no change in the property management company. The only difference now is that Ashford now owns a property. It’s got a different asset management team working with the property to drive better performance. While I heard just a few specific items as part of the deep dive to see some of our strategies, position eliminations, clustering positions, I talked about that briefly. We have cuts and stringent monitoring of overtime, productivity improvement particularly in the area of housekeeping.

We have some really good strategies and how we clean rooms more efficiently and effectively. We reduce opening hours of F&B operations when they are not profitable. We also do vendor rebids and utility best practices such as boiler and HVAC timers. There’s a lot of other strategies we do. A lot of other cost savings plans we do. That’s just a few examples.

I like to transition over to spend a little bit of time talking about the DC market. We have 11 hotels in the DC market. There is a lot of questions often about DC. We have a meaningful presence in DC. It represents about 11% of our total rooms in our portfolio, Washington DC RevPAR growth has traditionally outpaced the rest of the country. It performed relatively well during the great recession.

We have a great portfolio of hotels in the market. We are very bullish in the market long-term. Looking on a TTM trailing basis through March of 2013, our hotels in our DC area were 110.3%, market share relative to the comp sets.

When you look at our DC portfolio, you really kind of look at it as, kind of three distinct portfolios or three distinct segments. The first market is the district and that's the blue, the three blue assets on slide up here. That is little bit more resilient market. It’s much less reliant on government spend.

The second market is Crystal City. That’s the three red hotels and that’s right outside the district. Crystal city has been challenging recently because it has been hit with some new supply. It’s currently going through a transition. I’m going to talk about a little bit more later. But this transition is going to make it a much stronger market.

We’re very bullish on crystal city long-term. We think it’s a great market. And we have got great hotels within the market. Approximately 83% of our DC EBITDA comes from the district of Crystal City.

The third market is what I call everything else that's the purple hotels. This market has been more reliant on government spend in compression from DC. However, it only represents a small portion of our DC EBITDA. I think we have great hotels in DC.

They are all very profitable. They have great cash flow. They have positioned very well within their comp sets. So we think long-term, we’ve got a great portfolio in DC.

I want to spend a little bit of time on Crystal City, okay. You guys have probably heard a lot about the BRAC. I want to give you an update, kind of, walk you through with what we’ve seen in the market. For those of you who are unfamiliar with BRAC, it is the base realignment and closure act, which we realigned 12 and closed 13 major facilities of the Department of Defense. It impacted approximately 3 million square feet of office space in Crystal City which is approximately 25% of office space in all of the Crystal City. We have three hotels approximately 1200 rooms in Crystal City submarket.

Market Outlook. In 2013, we think the office marketing Crystal City bottoms out. We’re very active in following Vornado which owns lot of real estate. We've talked a lot of brokers in the area. So we think they were hitting the bottom in 2013.

Over the next couple of years, we see strengthening the market and then long-term 2016 and beyond, we think this market is going to be more improved than what it was prior to the BRAC because it made much less reliant on government business. It’s going to have a lot more corporate demand.

We estimate that virtually all of the BRAC relocations in Crystal City are either complete or near complete. We estimated 3 million square feet of BRAC space will be repositioned as more corporate business, less reliant on government, it’s going to be higher paying guest, they are going to spend more at our hotels with ancillary revenues, less price sensitive and a lot of the office basement in Crystal City, it’s class B that the government has rented. It’s going to be repositioned to more Class A space.

So we think a lot of good things long-term and it’s got the market. It is in a great location. You’ve got great favorable demographics. So long-term fundamentals in Crystal City, we believe we’ll remain strong due to a strategic location to Pentagon in Downtown Washington DC. They also have -- they're close to Reagan airport. They got great access to public transportation.

Now, I’d like to introduce Douglas Kessler, our President. Doug has been with Ashford since its IPO and in fact was the one who truly spearheaded the whole IPO process. He has been instrumental in Ashford’s growth and is primarily responsible for Ashford's investments, acquisitions and capital market activities.

Previously, Doug was the managing director of Remington lodging and hospitality. Prior to Remington, he was an investment banker for 10 years with Goldman Sachs’ Whitehall Real Estate Funds, where he oversell more than $11 billion of real estate and served on the board or executive committee of several companies.

Prior to Goldman Sachs, Doug worked with Trammell Crow Ventures. He’s over 25 years of experience in real estate acquisitions, developments, sales, finance, asset management, operations and capital raising. Doug [resilient] MBA from Stanford University. Doug Kessler?

Doug Kessler

Thank you, Jeremy, and good morning, everyone. I'm going to begin my presentation with a few comments about our most recent acquisition, the Pier House Resort and Spa, located in Key West, Florida.

It’s been two years since we’ve acquired a hotel and obviously we’ve been very patient, very disciplined taking into account where hotels have been trading and given the multiple of our company's share price. Although we’ve submitted offers on some other hotels, we want to make absolutely certain that whatever investment we made was an investment that is accretive to our platform and we believe our patience is clearly paid off. We’re extremely pleased with this investment. Many of you in this room have actually stated this property will know the high-quality nature of this asset. So let me just highlight a few of the key stats of this investment that we recently made, we closed on last week.

We purchased the asset for $90 million equating to $634,000 per key and a trailing 12 month cap rate of 6.2%. Now when you take into consideration the high-quality nature of this asset, the irreplaceable location and you compare that to other comparable assets that have traded around the U.S., we feel like the purchase metrics of this asset are absolutely incredible from the standpoint of the value that we have obtained.

Now in a minute I’ll talk about some of the operational synergies but on a pro-forma basis what I want to share with you is that the relative metrics of this transaction actually are even better when you factor in what we can accomplish with this asset. I think based upon what Jeremy shared with you; you now have a very clear understanding of what we can do with the property. After these operational synergies, we believe that the cap rate on a pro-forma basis improves to 8.4% and a 10.5 times EBITDA multiple.

There are some other aspects of the transaction that we believe are very attractive to shareholders. This is undoubtedly a great market and for those of you who are familiar with the Key West market, this market has the second-highest RevPAR. It is second only to New York City quite a jewel.

Also this is a market that has incredibly high barriers to entry for new supply. There is a rate of growth ordinance which is a legal ordinance which makes new supply incredibly difficult for developers to consider building.

This asset is of very high quality, luxury property, irreplaceable location. It has a $275 RevPAR which is materially higher than the RevPAR in our current portfolio and why does that matter. There is a clear correlation between RevPAR and EBITDA multiples and so we feel like directionally this moves the needle with respect to the EBITDA multiple for our platform. In addition, since 2006 it had approximate $20 million of capital renovations so that when we acquired the asset it was already in great shape.

Operational synergies, this property has been managed by a family for an extended period of time and obviously you can imagine given the professional approach that we have with respect to cost saving, with respect to revenue enhancement and given the fact that we have operational synergies in the market because Ashford already owns a hotel and Remington manages other hotels in the market that we can have the benefit of complexing and other synergies with respect to various cost of the property.

A good example would be you can imagine that an owner operator a family that previously owned this property cannot match the insurance benefits that we can get through our provider given the critical mass of assets we have in our portfolio and because of that it spreads risk and because of that we can reduce the overall cost. So it’s just that one item alone we see substantial savings.

So the bottom line with respect to this asset, great market, great asset, great transaction metrics, expectations for further improvement in the performance of the asset, and a lot of it has to do with our know-how in fact we already have a great deal of knowledge in the Key West market.

Now I’d like to turn to the Highland Hospitality joint venture. You’ve heard a little bit about this investment. We think it is a tremendous addition to our platform. It will continue to deliver results. Ashford has a 72% ownership interest along with our joint venture partner Prudential who has the remaining 28%.

We acquired this 28 hotel portfolio with 8,800 rooms back in March of 2011 at a value of approximately $1.3 billion or $158,000 per key. Think about the markets these assets are in. Think about the upper-upscale nature of these assets. When you look at those transaction metrics just a screening home run deal in addition to the value adds that I will share with you that we’ve been able to accomplish.

Now, again what we found interesting not only about the metrics of this deal is the fact that as David Brooks mentioned this was a transaction that we entered in through a junior joint venture position, a 25% joint venture position, and a mezzanine cap stack, we were the mezz six position in an extended capital structure that had more mezzanine positions. We through a consensual foreclosure and restructuring were able to invest another $150 million and effectively take a 72% ownership interest [Audio Gap].

This was the time when there was a tremendous amount of stress in the marketplace and I can share with you that I think that we perhaps were the only one of our peers that was able to execute on a loan to own investment strategy anywhere near the magnitude of this investment. So again another complex transaction that we feel has added a tremendous amount of value to our portfolio. With the right capital investment in the tenacity of asset management team, we're very confident in future performance of the hotels and I will share with you now some of the most recent metrics of how we actually performed.

The next few slides I’ll share with you some us of the exceptional gains that we've made in this portfolio. We continue to increase EBITDA flows and when you compare this to one year prior to the takeover. In 2012 for every added dollar of revenue that we brought in to this portfolio, 94% or $0.94 went to the bottom line that is an incredible flow-through and when you compare that to one year prior to our takeover, only $0.33 for every added dollar went to the bottom line that is a marked enhancement to the performance of this portfolio.

We obviously believe this has to do with what Jeremy shared with you is a very detailed process that we go through and increasing value and looking for opportunities to enhance the value of these assets. So Remington’s expertise in conjunction with the brands who manage these hotels, we think we’ve delivered great, great improvement in terms of the EBITDA flows.

Not only have we been focused on flow-through but another fundamental driver of EBITDA growth has been revenues. Obviously since closing the acquisition we've had a focus on consistently growing the revenues of this portfolio and more recently we've seen the increased acceleration in revenue growth primarily due to the enhanced focus on that top line improvement but also we’re seeing the improvements related to the capital expenditures that we’ve made in this portfolio and most recently with the quarterly announcement we disclose that the RevPAR gain for this portfolio was 7.7%, which was a function of a 6% increase in ADR and 110 basis point increase in occupancy.

So this is a trajectory that we’re very pleased with. And I think as we share with you initially that the revenue gains were going to be a little bit slower on this portfolio and the capital -- the cost savings were going to be easier to grab because that was more of the low-hanging fruit. But now, we believe we’re into that part of the trajectory of this portfolio, we can continue to see improvements in both areas.

Now, our original underwriting this portfolio mandated that the transaction had to be accretive to FFO and accretive to share price, both short-term and long-term. And today the performance has exceeded our expectations. Again I want to stake that we had high expectations and to date the performance has exceeded those expectations.

And again, as I said a moment ago, despite the revenue side being initially a little bit slower which we had commented that that would be the case, the NOI has exceeded our underwritten expectations by $4 million so far and that's mainly right now due to better flow-throughs through our cost savings.

And we clearly feel that as revenues continue to grow, the stickiness of these cost savings will hold and that we will continue to get improved performance out of these assets. And when you reflect upon the original purchase price of this portfolio, $1.3 billion at a 6.1% cap rate. And you apply the incremental gains we've made in an NOI through our asset management expertise that effectively at the same cap rate, if you were apply that creates almost $400 million of added value from this portfolio through the enhanced performance, a great, great return on this investment already.

Now, within this portfolio we obviously identified some value-added opportunities of some of which I'd like to highlight here. Not all of these value-added opportunities were low-hanging fruit. For example, here's the Renaissance Nashville. This is a 673 room upper upscale hotel located in the very dynamic market of Nashville. And in early April of this year, we finalized negotiations with the city of Nashville to restructure some shared nature of this property that we had with them.

For example, this was a leasehold interest. And we were able to renegotiate so that we converted this leasehold interest into like fee simple interest, saving a platform $500,000 annually. In addition, we signed a 30 year lease, which more than triples our meeting space, increasing at from 30,000 square feet to 210,000 square feet, which will enhance our F&B revenue and opportunities to provide space for group meetings, small association meetings, et cetera.

And obviously, it’s part of this deal, we committed to a transformative $20 million renovation which clearly the property is in need of and that we had planned to do in large measure anyway. So, the view is that we have really for no added price created a tremendous amount of value with this asset. And it's an asset in the market, that is going through a lot of dynamic change, the new convention center is about to open.

We think that that will attract additional demand to what is already a high demand towards market. And so we’re very excited about how this asset will continue to perform in this market.

Next, I’d like to highlight another example of the value adds in our asset management operations. And this is the advantage that we try to implement of converting from a brand manage property to franchise property. And I think you’ve now seen through a lot f the numbers that we’ve shared with you, the incremental benefits of doing so.

The Hilton Boston Back Bay is a great asset in, I mean, irreplaceable location and one of the most dynamic lodging markets in the U.S. So an incredible performing asset and what we negotiated with Hilton was to pay Hilton a $2 million fee to convert from a managed property to a franchise property and the additional cost for some of the CapEx they didn’t required us to do really was just minimally incremental, wasn't that much.

But in return, the way to think about this is that a franchise property trades typically at a different Cap Rate then a managed property. There is Cap Rate compression for franchise properties because owner operators like to acquire. They like to manage the assets and so we think that for an asset of this quality, an upper upscale property in one of the top five U.S. hotel markets but that is approximately 75 basis points of Cap Rate compression.

So if you think about the Cap Rate, let’s say of 6% going to 5.25% that would create $27 million of incremental value really for $2 million payment upfront. So, as Jeremy said every possible situation within an asset, we take into account to try to figure out how we can create shareholder value.

When it comes to CapEx, we want to get every bank for the buck. And as money share with you, our typical CapEx spend has been sort of 10%. We try to maximize the value of that CapEx spend. And with our affiliate Remington overseeing the majority of our development CapEx efforts, we have more control, better outcomes with a more cost-efficient approach.

And here's an example, The Melrose in Washington D.C., great located asset and this was a property that we spent $9.5 million to renovate the rooms. And it included redesign of guestrooms and the public space, making the asset more vibrating décor. You can see the before and after pictures but still not losing sight of the history that is so integral to this hotel in the DC market.

We think with its strategic location, the dollars that we spent on the asset anticipated longer-term recovery within the DC market. This will be a great performing property for us and we are very pleased with the outcome of this renovation. I encourage any of you if you are traveling to stay at these three hotels that I just highlighted for you, I think it will very pleased with the results.

Now, I wanted to discuss a minute our Highland debt. And in general, we've been proactive on all of our debt within our portfolio. We've always stayed ahead of the curve. We’ve monitored the performance of the assets. We’ve looked at the opportunities in the capital markets to negotiate the best possible refinancings for assets.

And within the Highland portfolio when we acquired the portfolio, there are three existing loans that were separate part from the restructuring that we did as part of the consensual foreclosure in restructuring with the lenders. These three separate properties were recently financed and now have a maturity date through 2018.

So with that taking care of, we now are refocusing our energies on this portfolio in terms of what can we do to create value from a financing standpoint. We believe that when you look at the debt yields, it's already a financial portfolio, a highly desirable portfolio when you take into account the recovery of the CMBS market, the high quality of these assets, the markets that they are in and of course sponsorship matters to lenders today.

So we think we’ve got a terrific opportunity to run a very competitive process to maximize the optionality of this portfolio with respect to proceeds, structure and the packaging of the assets either as one large securitization or giving up the assets under smaller pools that give us perhaps the option to sell some, hold some longer, different length terms in maturities.

Again this is an area we can potentially extract very inexpensive cash. When we think about doing that although you might say well that's higher leverage. Not on a net debt basis because additional cash is used to offset perhaps the additional loan proceeds.

So we’re very excited about our plans for this. It’s something that we’re watching the ramp up of the assets and we’re watching what's taking place in the capital markets to make sure that we’re maximizing the future opportunity with respect to our skill at financial engineering within our portfolio.

So to close out. I want to end where I started, deals. What are we looking for? Well our preferences are to focus on full service hotels, major market locations, the ability to franchise and most importantly, it must be accretive to our platform.

And obviously the Pier House acquisition hit on all these criteria and we continue to look in the market for future acquisition opportunities that will be as accretive if not more so to our platform.

So, with that, I will now turn the program back to Deric to begin our Q&A session. Thank you.

Question-and-Answer Session

Deric Eubanks - Senior Vice President, Finance
Thanks, Doug. That concludes our prepared presentation. We will now open it up for a 30-minute Q&A session. And we have some microphones that will be making their way around the room, so please wait until the microphone gets to you and you can ask you question.

So, with that, we’ll open it up. Yeah. Right here in front.

Unidentified Analyst

Could you talk about the transaction market, you talked about asset value is going up, a little bit color on 2014? Do you still expect to be in that buyer of assets?

Monty Bennett - Chairman and CEO
The question was about the transaction market. Do we expect to be a buyer of assets? We haven’t bought an asset aside of Pier House since two years ago, when we bought Highland transaction. Doug why don’t, I’ll let you comment on that a little bit.

Douglas Kessler - President
Sure. The transaction market has been relatively slow, you look at the quantity of deals that have been coming to market and that’s not a typical following a downturn. It takes time for the desire of sellers to sell based upon the draft and their performance. It takes time for buyers to once reentering the market.

But what you are seeing right now is that, the pace of transaction in U.S. let say is circa $20 million, that’s well down from key periods of about $40 million to $45 million. And what’s taking place is that you have this natural pull and tug between buyers and sellers because both realize the expected longevity of the cycle.

And I think we all can state here confidently that perhaps throughout the midpoint of the cycle there is a tremendous amount of room to run in terms of values if you recall the slide that we shared with you in terms of peak hotel values and so if you are seller, you probably have the view why sell today? I could make more if I hold. If you are buyer you'd like to get into the market today and buy. Financing is available, so it's not a function of the lack of financing and I think that from our perspective, we have shown a tremendous amount of discipline.

Now bear in mind, although, we’ve only purchased one asset in the past two years. Since the downturn, I think, I can comfortably say that in total given the Highland Portfolio we've acquired more assets than any of our peers and I think that's an interesting commentary on the fact that when we say we’re disciplined, we mean it, when we say we’re opportunistic, we mean it and when we think about just buying a hotel just to add for growth, we don't do that. We add to our portfolio because it's accretive.

So going forward, I think we have a mindset of, there will probably be more transactions incrementally coming to the market. We’re seeing that now and our hope is that we’ll be able to either find opportunities, structure them, find value added ways to increase the share price performance of our assets by chasing after them.

But there are plenty of opportunities we bid on and we just had a limit us to where we would go on pricing and we lost out on those track transactions and finally lost out at those prices.

Monty Bennett - Chairman and CEO
One last commentary on that is that, we calculate our equity cost-to-capital based on where our stock price is today, based on where we think its going to be in five years say. And because we internally believe that that is going to a strong performance, our equity cost-to-capital is high. So while there's a number of transactions to marketplace, it's not too easy for potential acquisitions to meet our underwriting hurdle rates because of our own perceived cost -- our own perceived cost-to-capital.

Deric Eubanks - Senior Vice President, Finance
Over there.

Unidentified Analyst

So a number of REITs have been successful and actually selling assets in this environment as the CMBS market improve and you mentioned that there is a lack of product in the marketplace, if you consider...

Monty Bennett - Chairman and CEO
I’m sorry, I can’t hear you.

Douglas Kessler - President
Yeah.

Monty Bennett - Chairman and CEO
Can we have the volume turned up on these mics guys.

Unidentified Analyst

I was only saying, a number of REITs have been very successful selling assets in this environment and as the CMBS market improve and you, I think you mentioned that, there is a limited amount of product out there, you consider testing the market today to sell assets and do you think it would be sort of at a point where you would accelerate that process?

Monty Bennett - Chairman and CEO
Regarding selling assets, we have got one asset for sale right now in the marketplace. We have sold, I believe a couple last year and one or two before. So since the inception of our platform, we’ve sold maybe a $1 billion or more worth of assets. So we probably rotate our portfolio even more so than our peers.

As far as listing those assets for sale right now, generally we are holder. We believe that assets are going to be increasing in value just about everyone even some of the ones that we sell. So we would like to hold onto them.

Some have talked about, well, maybe if you sell an asset than the market could see what assets are going for and may be they’ll help the stock price that could be the case, although all someone has to do a little bit of research to see that our platform is trading below private market values or some has suggest that we sell assets and then buyback stock as a way to enhance our shareholder returns.

In the past, when we've done that we find that by the time we actually get an asset at the door because whole process start to finish can take six months or more, our stock price has moved to something more reasonable as far as pricing. So at this point in time, we don’t see ourselves engaging in any larger number or amount of hotel assets prices, hotel asset sales.

Deric Eubanks - Senior Vice President, Finance
Right here, here in front.

Unidentified Analyst

Thanks. Kimo, when you went through the debt maturities, correct me if I’m wrong, but I think the Highland debt and the CMBS debt you had pushed out to when it’s actually due as oppose to when you could potentially pay it off without any prepayment penalties? Can you give us any updates on your plans for that CMBS debt?

David Kimichik - Chief Financial Officer
We are currently looking at refinancing, I think, we are taking our time. I would say, and that we have a different opinion -- we have a different opinion. But sometime maybe next year, we probably are position to pull the trigger on something. But we don’t have rush to get out there refinancing. I think, everyday the asset performance is improving and if only better loan proceeds will go out and start final way, but I think at some point probably next year (inaudible).

Unidentified Analyst

Based on the market right now can you give us any indication of whether you think you would able to take proceeds out, whether you take assets out of the loan pool, what type of debt yield to market might be looking at or et cetera?

Monty Bennett - Chairman and CEO
Yeah. I think on the overall, we are at a point where we could take out excess proceeds and probably get a slightly lower rate. But as Kimo mentioned, we are still spending a lot of CapEx on that portfolio and we think the value will continue to go up. So we think it make sense to wait a little bit longer so we get to a point where we could get more excess proceeds.

Now, we are incentivize to refinance it because that portfolio was in a cash trap and since we can refinance, we can start getting out the excess cash. But we are going to wait little bit longer I think.

David Kimichik - Chief Financial Officer
And I think also not just from the standpoint of the operation of the assets, but the CMBS market continues to open up more and more with more participants coming in, as well as the flexibility of some of the structures. So I think we want that to mature a little bit further before we actually engage.

Rob Hays - Senior Vice President, Corporate Finance and Strategy
A couple other point is that, we have a joint venture partner and Prudential has this investment in a portfolio or a platform in which they want to exit at some point. So it might make sense to do the refinancing when they want to exit and so that would need to be coordinated and negotiated. And also when we refinance, we’ll probably put these into smaller pools and cluster assets together, full-service together, select service together, maybe certain parts of the country together, maybe some assets that we don’t see as long-term holders in their own pool.

Unidentified Analyst

That makes sense. And just with regards to Prudential exiting, do you have any indications from Prudential when that might happen and I’m assuming that Ashford would plan to buy out Prudential stake when that happens. Is that correct?

Rob Hays - Senior Vice President, Corporate Finance and Strategy
We don’t have any indication of what their plans are. They have 28% interest. That's a small enough interest that it makes it interesting for others to even contemplate buying that small of an interest because it's not something that, I think, a lot of groups would generally be inclined to put into their portfolio. So I’d like to think that we are the natural buyer of that position. And when the time comes, we’ll certainly be intending to accomplish that.

David Brooks - Chief Operating Officer and General Counsel
I’d say that I will be surprised if they were still involved in the assets three years from now. So I'd say somewhere between now and then.

Unidentified Analyst

Okay. Thank you.

Elise Chittick - Investor Relations
Any questions?

Unidentified Analyst

Hi. Speaking to the Remington relationship, you mentioned in -- kind of the outside of the conversation that the thrust of the company is really toward HT. Could you be specific in terms of what percent of the company Remington is HT and if it is substantial portion, why not just internalize the relationship?

Jeremy Welter - Executive Vice President, Asset Management
On the Remington side, Remington manages three assets outside of Ashford. And Remington has to manage some in order to qualify as an eligible independent contractor under IRS rules for the purpose of the REIT to maintain its tax-free status. And so it’s just three compared to something like 80 or so that's manages for the REIT.

As far as internalization, that will be an option if the REIT rules would let a REIT own a property manager, which they don't. So the property management for hotel REITs have got to be performed outside of the REITS in a different -- by a different company, different structure.

Elise Chittick - Investor Relations
I’ll go to a question we received online. And that is there’s been a lot of talk about group business trends. What are you guys seeing on the group front?

Rob Hays - Senior Vice President, Corporate Finance and Strategy
I can answer that. It varies mostly by market but I would say that it's been less enthusiastic of the recovery than what we would have hoped at this part in the cycle. Most of the recovery has been through business transient. The good thing for us is transient is about 70% of our rooms revenue. So we haven’t been impacted maybe as much as our peers, but certain markets have performed better than other markets. And actually even DC is held up for the year in terms of pace.

But it has been a little bit more challenging from the group side than what we had thought. So we continue to see the growth through transient. We think 2014 and beyond, we hope to see more growth in group. One of things we’ve been able to do to mitigate, maybe, the lack of growth in group is to be able to push rate. And in the first quarter, our group rate was up 4.5% over the last year.

Unidentified Analyst

I was involved in your company back then but you made a couple of comments about 2007, 2008 timeframe. One, you mentioned that you guys decided to hedge the debt because you foresee maybe the upside, it wasn’t as good as -- as big as the downside. And then you also said that you overpaid in 2007 for an acquisition. So could you reconcile the two and what your thought process was for both of those deals because they don't seem to be consistent?

David Kimichik - Chief Financial Officer
Sure. In 2007, we didn’t overpay. We bought near the peak of the market. We didn’t realize that that was going to be peak. The financial turndown was going to happen. We paid about 11 times 2007 EBITDA for that portfolio, CNL portfolio, some great assets including this cap at Hilton and some other high-end assets. Almost all of the transactions that year which included JER acquiring Highland which we ultimately acquired later. Innkeepers purchase, I think also -- there's another big one, ESA off shaded about 14 times 2007 EBITDA.

So we were able to buy our portfolio at a much, much better price than we did. As far as looking at where the world go and what will happen to economy, that swapping of our debt happened a year later in 2008. And again, it’s not that we were so sure that the economy was going to turn down. Our purchase was in the spring of 2007, swapping of debt was 2008. It’s just that it was a hedge.

If interest rate went up, our cost of debt went up but our revenues would be going up because of inflation in a strong economy and the reverse was true. And we just saw it as a hedge. We thought that the downside risks were higher than the upside risks and turned out to be the case. But we are more interested in just hedging and again that happened full year after we purchased that portfolio.

Elise Chittick - Investor Relations
Next question.

Unidentified Analyst

You have a very sophisticated system of management, measurement and controls. And I was wondering is there a process that you used to upgrade that. I mean, a lot of it I'm sure is done on past experience. You get to be very smart by making mistakes in the past but there’s lot of changes going on, for example, global warming. What impact does that have on you? Would you -- was that something that's measured when you look at the keys. The growth of the Chinese market for example.

What impact -- what are you doing -- are you putting in (inaudible) in Chinese food and so on in hotels or getting ready for that. And I'm sure there are lots of others. But is there a system that you’ve got to update your measurement tactics?

Monty Bennett - Chairman and CEO
There is a system. And what we do is we’ll look at any type of item developing the marketplace that we think might affect our business. And we’ll take a look. I’ll give you an example. Right now, we’ve got an internal study going on regarding solar. The cost of solar installed for any place has been dropping by about 50% every 10 years.

Around 2010, that cost was about $0.20 per kilowatt hour. That's all in, that’s with financing, that’s assuming a life of about 20 years for the solar. Well, most power around the country costs around $0.10 per kilowatt hour, maybe a little bit more. Well, about 2020 that installed cost is going to be about $0.10 per kilowatt hour to install solar. We’ve got a lot of buildings. We've got space on our roofs for solar.

So what we’re going through right now is, all right, it is becoming more and more economical to install solar. However, we're looking at the fact that it may not be the smartest to go and install as soon as it is economical because the installed cost is falling so fast, you’d do better, waiving a few years into it as the cost gets lower, lower and lower.

And so my guys have been working on this right now and the report is due to me here in about a week about where do we think as a company is a smart time to start installing solar at our hotels. And so I look forward to what their conclusions are. And we come up with these different type of impacts, formulating of the year then also ad hoc as we think of them. And we’ll sit and study and analyze them.

Elise Chittick - Investor Relations
Next question.

Unidentified Analyst

My question deals with the liability side of your balance sheet. You mentioned that you’ve got a certain amount of debt to have funded out already which is clear but interest rates are extremely low levels. And you're taking your time in terms of refinancing. Currently, there is a lot of activity in the preferred market where they’re issuing perpetuals. I think you mentioned that you have a perpetuals, but I thought your preferreds do have maturity days? Isn’t this a good time to really lock up very, very long-term financing and how you’re thinking about it?

Monty Bennett - Chairman and CEO
Our preferreds are perpetual and so they’re out there for a longtime, and they’re little higher than our peers because our overall leverage is higher than our peers. On the debt side interest rates are very low. We do believe that debt interest rates are going to be low for quite some time in fact a couple things. The risk fee rate we believe is going to stay low for quite some time since we are in this deleveraging phase for overall economy.

And secondly, the credit spreads on hotels are slowly coming in, slowly coming in, so we think that we’ve got some time on refinancing. That being said, we want to make sure we lock some of that down when the time comes.

So I’d say in the next couple of years we’re going to take a longer term hard look at our debt and say, all right, how can we lock this debt down for the next five, 10 years as interest rates after that maybe start ticking up. But at this point in time, we’re happy with variable rate debt and waiting until our portfolios build up the cash flow, so that we can justify pulling more loan proceeds out.

David Kimichik - Chief Financial Officer
One other comment related to that is some of the early refinancing would necessitate a penalty, a business cost, yield maintenance penalty and so we have to factor that into the overall economic decision. But we’re closely monitoring what’s taking place in the capital markets and I think directionally it’s moving in the direction that we would like to see from the standpoint of better terms, better liquidity, more competitive process to get the best possible financing structure. So I think time is on our side right now.

Monty Bennett - Chairman and CEO
We also see on the preferred side that we could issue preferred at a lower rate than what they’re trading at today and some of that is callable now, some of our existing preferred but by the time you add in transaction cost of a new issue payment to the bankers and lawyers and alike, it would take right now, issuing new preferred and having on our books five years just to break-even and to us that's just not enough straight for the effort. We’ll wait until hopefully you can see even lower and then we’ll look at whether we should refinance some of those perpetual preferreds.

Deric Eubanks - Senior Vice President, Finance
Other question?

Unidentified Analyst

Thanks. You guys pointed out earlier in the presentation that, you do traded a discount to your peers and I know that over the years you’ve done a pretty good job of educating investors about your philosophy around leverage and not giving guidance and so forth, but to what you really attribute the fact that you traded maybe a turn below the average at this point?

Monty Bennett - Chairman and CEO
We trade about a turn and half below of our peers and again six months ago, we are about half a turn below and we were just going to hope to close the gap. We’ve got different thoughts on that. Our debt has not gotten any worst then since, it’s got modestly better and the outlook in the world has gotten much better since then.

So we don’t think that an incremental deduction in that multiple is because of our debt. My personal belief is that our stock has run up 70% in the past year. Number one, among all of our peers that’s because of our leverage ratio, I think whenever a stock runs up that much, people are, our investors are saying well, wait a minute, how much farther can it run up and not really focusing on the fact that it’s because we're leverage the platform.

And so, I think investors are just slowly bidding it up, but I do think that that difference will be priced out in the not too far future. I think we'll be back to trading at near our peers. It’s just trying to absorb stock price increase so much so fast, especially for a platform like a REIT, it's just not normal to most real estate investors.

Unidentified Analyst

Okay. And then one follow-up if I may. Could portfolio quality be -- maybe one source of that that you didn’t refer to just now and I’m looking at as I was listening to one of Doug’s comments with regard to the recent acquisition of the Pier House, you mentioned that higher RevPAR assets generally garner higher trading multiple, should we infer from that that maybe there is a strategy with recycling the portfolio to maybe a higher RevPAR average to increase that trading multiple, does that not even matter to you guys, or is it simply a deal by deal return on invested capital in every single case, how do you think about that?

Monty Bennett - Chairman and CEO
Sure. The first part of your question about the quality our portfolio. It’s about average among our peers. You’ve got some that are all select service like some at [RLJ]. You’ve got some that are on the very high end like strategic but if you break that all the assets and you look at all the RevPAR say, for example, and look at our RevPAR, our portfolio is right about an average with our peers so that’s about how we should trade over the longer term. And so we think that the estimate of what our EBITDA multiple should be it’s taken into account the quality level or our portfolio.

The RevPAR issue that you bring up and the trading multiple has a lot to do with what you pay for an asset versus what it will trade at. A $275 RevPAR asset will have in public markets a higher multiple, so that will pull up our overall multiple modestly, right, $90 million asset over $4 billion.

What was very attractive about this is that in the private markets it was not trading accordingly. We’ve bought it at 6.2% trailing cap rate. We think really that trailing cap rate was 8.4% because of the synergies we could put in place. So you never see $275 RevPAR assets trade at 8.4% trailing cape rate. So what was that difference of what it was traded from the private markets versus the public markets that was still very attractive for us.

So sometimes high RevPAR assets will work because of that and you'll get a higher trading multiple, but many times the private market you’re going to pay a higher multiple as well. And so what’s the difference between the public and private market values that will determine whether it's accretive for our platform.

Deric Eubanks - Senior Vice President, Finance
Okay. Yeah. Here in the back.

Unidentified Analyst

Yeah. Just a quick follow up on the acquisition front. I feel in the past you guys have indicated that you might be interested in opportunities outside the U.S. and some of the leading designation markets especially in Europe, is it still a focus for you guys?

Monty Bennett - Chairman and CEO
Yes. So regarding Europe, we are continuing to look at Europe. We’ve sensitized the market to the fact that we’re looking overseas, so if and when it happens the markets where it’s not a surprised, we have been looking at it for I guess maybe a year and a half now. We don’t think the time has been right up to this point, but we keep looking.

I went through that slide early on about the deleveraging process and Europe is not where the United States is, they are still kind of peeking out under total debt to GDP and they really need to roll over-the-top, that’s broadly. But individual certain markets they’ve already started to roll over in Europe and it’s starting to emerge as potential investment opportunities over there.

I think over, what’s happening over in Japan is very interesting. They have gone through this debt increase to GDP for 20 years and what they’ve done recently with printing has really helped them start to roll over the top and I believe that overtime their debt to GDP is going to start coming down. So Japan has opened itself up, this maybe a potential investing opportunity.

We’re looking lot at Mexico as well, there’s a lot of research that we buy into that Mexico is going to start to replace China as a manufacturing center. There is four basic costs for manufacturing. One is labor, and Mexico has caught up to China, I should say, China has caught up to Mexico it’s no longer cheaper in China than it is in Mexico.

Two is transportation cost to the source of market is cheaper to ship from Mexico to the United States and just from China to United States.

Third is raw materials, raw materials are essentially the same anywhere you buy them in the world.

And the fourth is cost of energy, and it's cheaper to fire up plants in Mexico because Mexico is buying a lot more into the fracking in the shale gas either doing themselves or fracking it from United States, so their energy costs are lower.

All this point to resurgence in Mexico. So we’re looking down there too, but we’re being very, very careful. So we keep looking. We’ll see if we have something here in the future for you, we want to be careful.

Deric Eubanks - Senior Vice President, Finance
Yeah. Right there.

Unidentified Analyst

Two questions, one is on group business, as everyone says it’s been lagging despite all the stimulus in the economy, what is it going to take to bring it back? And secondly, was there any near-term impact either positive or negative from the air traffic fair loss?

Monty Bennett - Chairman and CEO
Sure. On the group side, it seems to be hitting certain sectors, historically tech has been a big group consumer, they are back, they are doing well, but the financial services, markets have not and government has been a big consumer group, although not as high rated group and they're not back whether it be local state or federal.

So you can have to start to see the government start to spend more to see groups has pick up and if you can have to start to see financial firms spend more. Financial firms are still not close to where they were as far as their consumption of group. And what was the other part of the question?

Unidentified Analyst

Air traffic controller fair loss this quarter and are there any difference (inaudible)?

Monty Bennett - Chairman and CEO
I don’t thing we’ve seen a big impact…

Douglas Kessler - President
Not, no meaningful impact from that in our portfolio. But also the association market has been one that has been slow to rebound in terms of group and we are starting to see a little bit more life across our portfolio of good association business starting to book again.

Deric Eubanks - Senior Vice President, Finance
Next question.

Unidentified Analyst

Why do you have more leverage than your peers, sounds like its an intentional strategy and going forward, what are your plans, would you want to bring that down, the equity raise or whatever?

Monty Bennett - Chairman and CEO
We have more leverage than our peers because we think it’s a better way to run the platform and it makes more money for our investors, and many people don’t pursue as much leverage as we do, because they think it's more risk and it can be, but you can see from our slides that has not materialized in our stock price.

For example, if someone buys $100 million hotels and puts a $40 million loan on it. That’s one risk profile. We think it’s a lot more conservative to buy $100 million hotel, put $60 million of debt in it and put $10 million of cash in the bank.

Now the net debt is 50% in the second scenario compared to net debt of 40% of the first one, higher leverage. But the scenario in our view is much lower risk because that cash give you great optionality when tough times come to work out your debt and to take advantage of opportunities.

That being said is that over time we are on a glide path to slowly lower our debt and to lower our net debt-to-EBITDA, so we are deleveraging, naturally we have a good amount of amortization that’s going on, and by and large as we raise cash from refinancings, we’ll keep that cash as additional liquidity to lower our net debt and so, you are going to see it moderating overtime just naturally.

Deric Eubanks - Senior Vice President, Finance
I think we have time for one more question. In the back?

Unidentified Analyst

Thanks. Can you just talk about the common dividend, managements view, Boards view, is the management big owner of the stock? How should we think about potential growth of the dividend going forward related to growth in FFO and AFFO, and the Board and managements view on the appropriate payout ratio?

Monty Bennett - Chairman and CEO
Sure. Kimo, do you want to comment on that one?

David Kimichik - Chief Financial Officer
Sure. Our Board of Directors meets every December to determine our dividend policy for the next coming year. So we don’t have -- really don’t have a clue today what they are going to want to do in December. If things go like they are currently going, they’ll hiccups, I suspect we may raise the dividend, but it’s too early to tell. We are pretty conservative with our payout ratio and I think you'll see us take baby steps with respect to raising the dividend but again it’s truly to tell we’ll known in December.

Monty Bennett - Chairman and CEO
We have found in the last cycle that we had to cut our dividend and so we didn’t want to jump up so high that if tough times came we found ourselves in that situation again, actually turns out. We could have still paid our dividend because of our hedging strategies, but we didn’t know it when we cut it.

And when we look at our dividend compared to our peers, we are very competitive, we’re higher than the average and we don't see our stock trade based upon dividend and all the analysis that we've done on, it just doesn't.

So we’re paying above average. The stock price does not move based upon the dividend, so we don’t have a big impetus to take it materially higher. At the same time since we are all significant shareholders, we will like that dividend and don't have any desire to see it cut either. So we'll see what -- we will talk about with our Board but unless there is a material change in the economy, I don’t see it changing very much, maybe a little bit, but a lot.

Unidentified Analyst

So mechanically you have some cushion between taxable income and I guess, AFFO, so you can still grow your earnings and not be forced to raise the dividend?

Monty Bennett - Chairman and CEO
That’s right. We are not having our hand forced by growing of our net income. We still have the life flexibility on how we set our dividend.

Unidentified Analyst

Okay. Thank you.

Deric Eubanks - Senior Vice President, Finance
Okay. That concludes our presentation. Thank you very much for attending our Investor and Analyst Day. And if you are going to be joining us for lunch, we’re going to move right across the hall way here in, please be sure to check at the registration table to get your gifts and your Ashford gear. Thanks.