Ashford Hospitality Trust, Inc. (AHT) Q1 2012 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Ashford Hospitality Trust first quarter 2012 conference call. During today’s presentation all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Thursday April 26, 2012. At this time I would like to turn the conference over to Scott Eckstein with Financial Relations Board. Please go ahead, sir.

Good day, everyone, and welcome to Ashford Hospitality Trust conference call to review the company’s results for the first quarter of 2012. On the call today will be Monty Bennett, Chief Executive Officer; Douglas Kessler, President; and David Kimichik, Chief Financial Officer. The results as well as a notice of the accessibility of this conference call on a listen-only basis over the internet was distributed yesterday afternoon in a press release that has been covered by the Financial Media. At this time, let me remind you that certain statements and assumptions in this conference call contained are based upon forward-looking information and are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These risk factors are more fully discussed in the section entitled “Risk Factors” in Ashford’s Registration Statement on Form S-3 and other filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company’s earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on April 25, 2012, and may also be accessed through the company’s website at www.ahtreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. I will now turn the call over to Monty Bennett. Please go ahead, sir.

Thanks and good morning. The first quarter this year continued to reflect the early stage benefits from the hotel cycle recovery and as a result our reporting metrics are positive. It should be recognized however that until the recovery gains have more sustained footing, progress could be uneven at times. We continue to make headway in certain key areas such operating margin improvement, RevPAR growth and risk mitigation. We are focused on how best to create near term and long-term shareholder value within an environment where we continue to see improving trends in the lodging sector and great resiliency in the US economy as a whole. We remain bullish on the hotel outlook and are confident that our initiatives are adding value. Since our last conference call on February, US hotel demand has continued to improve with RevPAR growth still well above historical average growth rates. In 2011 US market achieved annual RevPAR growth of 8.2%. At 2012 and 2013, the US hotel industry is expected to report steady RevPAR increases at 5.8% and 6.6% respectively according to the recent forecast from PKF. For the first quarter Ashford’s RevPAR growth was 3.1%. The legacy portfolio registered a RevPAR growth of 3.6% whereas the Highland portfolio was 1.3%. The performance reflects our heavy concentration at Washington DC, Dallas, Forth Worth and certain airport locations as well as some impact from capital expenditures. Approximately 15% of our EBITDA comes from the Washington DC area. While DC has underperformed other gateway cities, we remain confident in this [external] long term market and expect to see improved performance particularly following the 2012 election. Some factors that affected the quarter’s RevPAR in DC were related to the Pentagon’s Base Realignment and Closure Program particularly in the Crystal City area where several of our assets are located. Also affecting our RevPAR for the quarter was the fact that our second largest market Dallas, hosted the Super Bowl during the first quarter last year which makes year-over-year comparisons challenging. Lastly airport markets generally, and our airport markets in particular experienced better weather by comparison to last year resulting in fewer stranded passengers needing hotel rooms. In January and February for 2011 the nation experienced 45000 cancelled flights compared to 12000 for this year. Clearly compared to our peers we have one the most diversified geographic portfolios which we believe mitigates risk. The pace of the economic recovery in certain markets could at times contribute to RevPAR variations. However we continue to see the hotel RevPAR recovery as broad based, noting that for the entire industry, the top performing markets for the first quarter were Nashville, New Orleans and Waikiki, while the top performing segments was highway locations. Additionally we have implemented an aggressive CapEx program which is having an impact on RevPAR. We believe these capital expenditures will result in the future strong market share gains. We are targeted to spend a $120 million to $135 million for 2012 and during the first quarter we spent $29.5 million in 32 hotels. By comparison to our historical experience with CapEx initiatives in other quarters, we are seeing an impact on RevPAR from the acceleration of our work and a scope for the refurbishments. If we were to exclude those assets in renovation our RevPAR would have reflected 4.8% growth. In terms of new hotel room supply, the limited availability of construction financing continues to constrain new development to levels well below historical averages for the foreseeable future. Recent estimates from PKF anticipate new supply growth for 2012, 2013 and 2014 will be 0.6%, 1.0% and 1.6% respectively. Through 2016 it is expected that new supply will remain on average well below 2% annually which is less than the average annual change in the nation's lodging supply from 1988 through 2011. The lack of new rooms coming on the market in the face of increasing demand is very good news for a continued RevPAR outperformance in the years to come. Given that significant amount of the RevPAR growth will be more heavily weighted in terms of gains and average daily rates, we expect to experience enhanced benefits to the bottom-line given our success and improving margins. It’s important to note that the industry is still in the early stages of its recovery, perhaps, just one-third of the way to the next peak. We believe the majority of the growth has not yet been realized. Our view is that it remains a very good time to invest in lodging REITs as a whole. For the first quarter of 2012, Ashford recorded AFFO per diluted share of $0.20 compared to $0.40 a year ago. The main difference in our performance is due to the favorable impact we experienced from the interest rate hedges that we used to protect our cash flows during the economic downturn. With the economic recovery taking hold and the hedges burning off, we expect to see declining impact from these risk management tools in our financial recording. Ashford continues to demonstrate solid EBITDA growth performance. In the first quarter, we received EBITDA flows of 46% and margin improvement of 75 basis points for our legacy portfolio, which has an impact on our flow through end margins. As we expect our RevPAR performance to accelerate, we believe that our cost saving measures will facilitate even stronger bottom line performance. In the Highland portfolio, we received EBITDA flows of 215% and margin improvement of 288 basis points during the quarter. Asides from impact, the same hotels underwent renovations. We also saw the temporary effect of the conversion of the Hilton Boston Back Bay and Hyatt Regency Windwatch from brand managed assets to franchises. As we stated previously, this management shift is part of the continuing integration of the Highland portfolio. We expect these newly franchised hotels to join long-term value creation to enhance revenue realization and additional cost savings. Hotel EBITDA for Highland increased a strong 15.6% for the quarter. Since closing the Highland acquisition in March 2011, the portfolio has achieved a trailing 12-month increase of 12% in EBITDA. This increase has come largely from cost savings. We expect increasing revenues to play a greater role in continuous EBITDA improvement. As previously announced, our Board of Directors declared a dividend of $0.11 per share for the first quarter 2012 which represents an annual rate of $0.44 per share. This cover dividend is well above our pure average. Based upon on yesterday’s closing price, the dividend yield is 4.9%. We see the combination of our high dividend and potential capital appreciation make for an attractive investment. Looking ahead, we expect macro economic improvements will lead to strong RevPAR growth and higher hotel values. The global economic and portfolio condition remains fluid and as a result we continue to act convertibly with our shareholders capital. At the same time, the transaction market continues to accelerate as more attractive assets come to market. Therefore, we will continue to strategically deploy capital and pursue a creative investment opportunities very selectively with both on the eye on risk mitigation and shareholder return maximization. With that, I would now like to turn the call over to David Kimichik to review our financial results.

Thanks, Monty. For the first quarter, we reported a net loss to common shareholders of $29,549,000, adjusted EBITDA of $70,846,000 and AFFO of $23,176,000 for $0.28 per diluted share. At quarters end, Ashford had total assets of $3.6 billion in continuing operations and $4.6 billion overall including the Highland portfolio, which is not consolidated. We have $2.4 billion of mortgage debt in continuing operations, and $3.1 billion of overall including Highland. Our total combined debt currently has a bundled average interest rate of 4.6%. So one of the lowest among our peers. With the maturing of some of our swap positions, we currently have 62% fixed rate debt and 38% flowing rate and the weighted average maturity is 3.8 years. Since the length of the swaps is not matched with term of the underlying fixed rate debt, for GAAP purposes, the swap is not considered and effective hedge. The result of this is that the changes in market value of these instruments must run through our P&L each quarter as unrealized gains or losses on derivatives. These are non-cash entries that will affect our net income where we added back for purposes of calculating our AFFO. The first quarter, the unrealized loss and derivatives was $9.9 million. At quarter’s end, our legacy portfolio consisted of 96 hotels and continuing operations maintaining 20,395 rooms. Additionally, we own 71.74%, the 28 Highland hotels containing 5,800 net rooms in a joint venture. All combined, we’re currently on a total of 26,195 net rooms. We’re also on a position in just one performing mezzanine loan, the Ritz-Carlton in Key Biscayne, Florida with an outstanding balance of $4 million. Hotel operating profit for all hotels, including Highland, was up by $6.7 million or 8.8% for the quarter. Our quarter-end adjusted EBITDA, the fixed charge ratio for our credit facility now stands at 1.58 times versus a required minimum of 1.35 times. Our share count currently stands at 85.8 million fully diluted shares outstanding, which were comprised of 68.2 million common shares and 17.6 million operating units. During the quarter, we sold approximately 370,000 shares of our series A and series D preferred stock at the market program for total gross proceeds of $9 million. I’d now like to turn over to Douglas to discuss our capital market strategies.

Thank you, and good morning. We are encouraged by improving trends in the debt markets and the increase in the number of investment opportunities. Even with these better market conditions, we remain both conservative and opportunistic in our approach. We still recognize that market and political uncertainties exist. As a result, while we are looking for new investments, we continue to maintain sufficient liquidity levels. As we discussed, earlier during the first quarter we upsized our previous $105 million senior credit facility to $145 million with the options subjected to lender approval to further expand the facility to an aggregate size of $225 million. We believe that it makes sense to increase the revolver to better position us for investment opportunities as well as provide us with more liquidity if needed. As part of the expansion, we added Deutsche bank to our banking line up along with KeyBanc, Morgan Stanley, UBS and Credit Suisse. Regarding our $167.2 million non-recourse portfolio mortgage loan that matures this coming May, we completed widely marketed effort to refinance the loan. We hope to announce our progress shortly. We would expect to use the $23 million currently held in our restricted cash balance to pay down the loan. Additionally, we anticipate un-encumbering one of the hotels as part of the portfolio refinancing. Assuming that we subsequently sell or refinance this hotel, we expect the combined cash needs or the refinancing will have been satisfied. In other words, at this time we are progressing as planned and do not expect any additional amount of cash needs from our balance sheet. This loan is the only loan maturing this year. We continue to work to stay ahead of upcoming maturity dates. In fact, we are already engaged in discussions with lenders regarding our $102 million of loans set to mature in early 2013. The debt yield on this high quality portfolio is currently in excess of 16% and there was a good amount of lender interest to refinance these loans with no expected pay-down required. Admittedly, this transaction is sometime off from now, but again it indicates our proactive approach. So at this time, we believe we have addressed all near-term maturities and have no recourse debt aside from our senior credit facility which remains undrawn. We also continue to strengthen our liquidity and financial resources. This healthy capital positioning allows us to take a closer look at an increasing number of hotel investment opportunities. We’ve been on a few transactions recently and admittedly have not been selected. I believe this shows discipline and our team’s focus on making sure our investments are accretive to shareholders. We have and will remain methodical in our analysis and due diligence of potential investments. As we evaluate our current portfolio of assets and the best opportunities for growth in new assets, we are primarily focusing our attention on full service, upper upscale hotels, franchise with major brands and top markets. This is more targeted in or historical approach. However, we will remain opportunistic and will not restrict ourselves if there are other opportunities that we see could provide strong shareholders returns. Aside from our domestic interest we are also seeing interesting market dynamics in Europe. With the financial and political changes, now is a unique time to consider hotels in such areas as the gateway cities given their low new route supply outlook, international demand and attractive long-term fundamentals. We've been analyzing and visiting markets for several months. We are will aware of the complexities, but also the opportunity. The competitive landscape is different and the types of transaction are varied. Our ultimate investment decisions will remain consistent with our dedication to maximizing value and mitigating risk. That concludes our prepared remarks and we will now open it up to you for questions.

Thank you, sir. (Operator Instructions) Our first question is from the line of Robin Farley with UBS. Please go head.

Hi, this is Matt (inaudible) online for Robin. Thanks for taking my question. I wanted to ask, do you expect I know this quarter you have tough comp receivable and obviously you see a lag there, but do you expect in further quarters maybe Q2, Q3 and beyond, to close the gap with RevPAR growth with a wider market, I guess in their relative segments that, much to housing?

This is Monty; we design our portfolio and have designed it overtime to try and track the overall market, the overall US industry. And that has not happened over the past few quarters and it has been happened in this past quarter; our markets were down. But to be more specific, it wasn’t a board markets brand, but the individual submarkets that we’re in. And when you look at the boarder markets that we’re in, they all achieved inline with the national averages on average. But our individual competitive steps business and our RevPAR index for individual assets was down about one point on average from our competitive sets. Which is in the range of how we performed in the past, sometimes we’re down a point, sometimes we’re up a point, over the long-term we’re up, but we’ve got that fluctuation going. So it wasn’t an underperformance of our assets within our competitive sets; it was the underperformance competitive set to their boarder markets. And so the question that I think you are asking which we’ve vests ourselves is why have those individual competitive sets, why have our submarkets not performed as well as the larger markets that we’re in? And the challenge that we had is that when you go back from each quarter, in many regards it’s a different reason and it’s not a consistent reason. So it’s a string of bad luck in many regards. The only thing that’s more consistent is that our portfolio is made upper upscale and upscale assets that has just very modestly underperformed the broad industry maybe the 50 or 80 bps, so not much. And then our DC exposure and DC has been rough by going for a while. The market itself, they say should be better for the rest of the year and then better next year. But, when I say better for the rest of this year, not much better. Really it won’t take any more traction until the next year. So it has some clarity for DC and it’s not fantastic, but it’s a great long-term market and we’re there. As far as everywhere else it’s frustrating because we can’t put our finger on a specific trend. Again, when you look at the metrics of our own properties and how our asset management team, our affiliates Remington performed, it was very good. Our RevPAR was right inline despite all the many transitions we’ve had in the Highland portfolio. That is our RevPAR yield penetration and we expect that to improve overtime. And then our flows were, I think, as good or better than anybody in the industry and our margins were great. So we are very happy with those things that we have been able to control. But it’s just is -- the question that you asked about, these are the factors that are driving and again it’s frustrating. One point that affected us for example Nashville which I think was these strong performing market nationwide last year. This is kind of a site here; is that our exposure in Nashville is Downtown. For the last year or two years ago, -- I am sorry last year we had the floods in Nashville in the fourth quarter and some in the first quarter. Well, those floods negatively affected most of the outlying areas, not the Downtown area; that’s where asset is. So as the market improved, most of the improvements were in those markets, those submarkets, not the Downtown market, although the Downtown market was up as well. So again it’s kind of an anomaly and we’ll have several of those each quarter and it’s a bit frustrating. But let me add one more point here which I think is very important, that overall our EBITDA growth was 9% for the whole portfolio. We have a more leveraged platform and that leveraged platform has advantages in some parts of the cycle, great advantages and disadvantages doing audits. We are in the part of the cycle where it’s a great advantage and if you look at our leverage level compared to say the average of our peers, our 9% EBITDA growth should mean more to our stock price growth than 14% EBITDA growth for our peers, because of their lower leverage. And so I think that the market needs to understand that to go through the math on that, because that’s a great advantage of ours. So again, while our competitive sets for reasons that seem to change are doing as well as the overall industry average. Number one, we can’t see any identical patterns why that will continue to be the case other than DC. And then secondly, even with the 9% EBITDA growth, that strong performance compared to how it should affect our stock price. So a short question and a long answer, but I hope that was helpful.

And if I can just ask a quick follow-up; I apologize if I missed this earlier, but could you possibly update or may you had updated and I missed it, since last quarter how long the impact of renovation are going to be a drag on RevPAR or both Legacy and Highland?

We find that the overall renovation impact as to our portfolio between 100 and 200 basis points on RevPAR, when you average it in. For this quarter it was a 150 basis points about. So it affected us this past quarter. It wasn’t a big factor in the performance and so in the future quarters it's still going to be between those two numbers especially for the share between a 100 and 200 basis points and our overall RevPAR performance. We don't see that changing much for the year but again that's really not that different than our historical performance despite the fact that we've got relatively more under renovation right now because of all the Highland assets.

Thank you. Our next question comes from the line of Smedes Rose with KBW. Please go ahead.

Monty I wanted to ask you your views, do you think it's possible that given how strong the industry is recovering and just doing well that we might see lenders you know mainly that can may be regional banks get back into lending sooner for development than maybe we think now or do you think you know just essentially that's just still off the table, I am just kind of curious if you think maybe we can get kind of a negative surprise given how well things are going.

I was just up in New York meeting with a bunch of my industry colleagues that are IFRS meeting which is all the top lenders and owners and et cetera in the industry and this very question came up. The struggle that a number of the banks have is that the amount of their lending is just not as much as what they used to have. They are shrinking their balance sheets on balance and while the big banks have started to recover, the small regional banks are still having trouble in that regard and on a net basis are reducing their balance sheet. So that makes lending overall harder. Also the CMBS market is not what it needs to be, it's so far behind it. So that means that just regular refinancings that can absorb more of the bank lending which used to be a relatively more dominant in the new construction side. Right you can't get a CMBS loan for a new build property. So there are some headwinds in the new construction arena that didn’t exist as much in the last cycle. It probably existed back in the early 90s because of SNL problems that we had, but it didn’t exist so much in the last cycle. So it's hard to say, we certainly see the new supply growth are really low right now. The number of properties under construction are still very low, the number of rooms under construction is still very low. So we don’t see it moving up quickly, but there does seem to be some natural headwinds on the lending side.

That’s very helpful. And then when you guys just used to talk about maybe potential accretive acquisition opportunities, your portfolio is pretty wide and varied but I mean, can you just sort of talk about you know maybe what kinds of markets you see those opportunities then, I mean are they the core markets that the run seems to be jacking for or are they more regional or airport or et cetera.

Not so much the top you know five gateway marks to competition for those markets is very strong. Rents in the top 25 markets and in fact the top 25 markets performed very well, this recovery is very broad based. So we’re looking in the top 25 markets and generally what we would like to do over the next number of years is move from fewer brand managed and select service hotels to more full service and grand sized hotels. And that’s just a broad statement and we will veer out of that from time to time. But that’s what we would like to do and over the course of the next few years, we will be selling off some of our select service hotels, probably more of the brand managed select service hotels. We are taking a look over in Europe. There is a lot of interesting dynamics going on over there. We are looking at close. In those situations you have to look very carefully because on one hand there is some great pricing opportunities and on the other hand no one knows how long their troubles are going to last. But it’s in those situations where we have made our marks and have really added value for our shareholders of buying when other people weren’t buying. And that the pressure to buy over there is a lot less. Most private equity funds can’t buy because they can’t get the amount of leverage that they need. Very few REITs are involved over there. Strategic has pulled out. Host is a bit active, but no one else is. And so there are just fewer buyers out there which makes it a bit more attractive for an entry point. But again, you got to be careful about where you go and we spent a lot of time analyzing it over there, but aren’t convinced yet that we are going to do anything yet. But we are looking at it. So that's generally how we are looking at acquisitions.

Thank you. Our next question comes from the line of Nikhil Bhalla with FBR. Please go ahead.

Just wanted to get some clarity on, you mentioned about the base closure in around Pentagon, is that a secular event now or how is that impacting these visa (inaudible)?

It is impacting the hotels in Crystal City and that is probably our softest market and softest sub-market in our portfolio. We have several assets in Crystal City and on top of the BRAC closures, the Base Realignment and Closures, there has been some new supply that’s come in to that market place, a renaissance with residents and that’s affecting us. And so we’ve got a double whammy of reduction in demand and new supply, and that’s still being absorbed. The BRAC program was suppose to be completed, I believe, in the fall of last year but is still underway. They are vacating government -- agencies are vacating, I think, that’s a 3 million square feet in the area and the good news though is that that will ultimately be back built by private enterprise, which should provide higher rates in that business for us. So -- but it is just a process that needs to happen and it is underway, and it is just frustratingly slow, as everything in Washington seems to be.

And in terms of EBITDA exposure, the three or four hotels you have in that area, is that about 4% or 5% of your total EBITDA?

I don’t know what hand for the greater DC area spell 15%. I don’t know what it is for those assets but we will see if we can get you that bigger.

And one more follow-up question on just your acquisition targets. What sort of markets or your types of assets are you targeting?

I would say the more full service franchise-type assets are sweet spots, but again you got to be careful because when you are doing acquisitions, and you basically get, let’s say, a 20% lever return on acquisition, well you have to issue 20% leverage shares in order to go by that property. So you got to buy properties that you think are going to outperform your existing sets of assets, to make it worth a while unless you think your stock is mispriced for the high side and you get some arbitrage there or if you are shuffling around your portfolio, and the latter is mainly what we are focused on is. More full service, more franchise, less brand managed, less leg service and that's kind of the target of our acquisition program.

And would it be fair to say that given where the markets are right now across both continents, Europe and the U.S., your preference maybe more towards Europe because you might be able to get the kind of yields you are looking for?

It’s hard to say, it’s deal-specific. Also when you look at, say, Europe, you've got such interesting different dynamics. For example if you buy a hotel in Nice, you are relying on the French economy and how well it’s going to do. You buy a hotel in Paris and you are relying on international demand and the world economy. That's a difference estimate, same with London versus Manchester. It’s very different. So, it’s hard to just estimate but that generally is the case.

Thank you. Our next question comes from the line of Bob LaFleur with Cantor Fitzgerald. Please go ahead.

A couple of related questions here. One, I know you guys have a habit of giving guidance but I was wondering if sort of we could look at that retrospectively. Were you surprised that the portfolio performance in the first quarter or was that pretty much in line with the expectations you had going in and then a related question is on the EBITDA flow for the legacy portfolio came in, I think the number was 46, which is a bit below your sort of 50% benchmark that you guys target as a minimum and if we could talk about some of the reasons for that if it was just a function of the absolute low level of RevPAR growth or where there some other extenuating circumstances there, thanks.

Sure, I will try to take that one. On your second question on the EBITDA flow, that 46% was a little bit low. We have a harder time getting our brand managed properties to hit those flows than we do on franchise properties that are managed by our affiliates, Remington. So that’s one issue. Secondly, is that in the first quarter 2011? We had some fantastic property tax reductions and we don’t book property tax reductions until the actual cash comes in and so we had a great benefit in the first quarter of last year. And so that made it a little tougher this year. If you look at the GOP level, we hit those 50% of low levels and we’re happy with that. So you know it was that property tax they got us and again some of our brand managers just don’t performance as well as Remington. As far as looking at the quarter, you know going into the quarter our forecast were lower but that’s always hard to rely on too much because many times you can get surprised to the upside and managers are naturally more conservative when they forecast, especially since the fourth quarter wasn’t as robust as some as it had hoped. So while the projection was there, it was hard for us, hard for me to evaluate whether that was real lower projection or whether it was because of the bias because what they just went through. So it was not -- it was a little bit of both I should say. It was not unexpected by our managers and what they had anticipated but in the end that couldn’t really -- I didn’t really believe whether it was real or not and it turned out it was.

(Operator Instructions) And our next question is from the line of David Loeb with Robert W. Baird. Please go ahead.

Monty, thanks first for the clarity on the margins and the revenue in the legacy non-renovated portfolio because that’s was one of my question. I think you explained it pretty well. On the acquisition front, in Europe in particular, are you looking at debt investments for loan to own or are you looking principle ownership of equity of assets?

We are generally staying away from debt acquisitions, at least right now. We have got team that’s world class on debt acquisition upfront here in the States and I think as you know from our history they have done more than anybody in buying debts in order to ultimately own the assets. That’s our specialty over there. You don’t have experience in doing that. And I think we will never do it under any circumstances. That’s right now, if we happen to go over there, we want to go over there more cautiously and at least right now we are looking at just these temple as they say of their freehold ownership interest and just buying assets and not trying to do this other way.

And Doug I think mentioned that you had bid on some assets, but had not succeeded; were those domestic, international, both. Where the assets sort of since closed, can you give us a little bit of an idea about whether this was pricing or due diligence and what kind of pricing metrics the assets ended up going forward, kind of an idea about your investment criteria?

David, these were domestic assets and they have not yet closed the transaction, like I said it’s heated up over the most recent quarters. So these are deals that, with multiple rounds of bidding; we went pretty far the bid process, but at some point it turns and you have a more aggressive buyers, the numbers are as accretive as we would like them to be and we have thresholds and we are not going to surpass those thresholds just to get a deal done. We have never done that. We’ve always tried to buy accretive hotels for the shareholders. So when we reach our limit, we stop and we let somebody else pay more than we would.

So can you give us a little color of what those limits area and that’s great by the way that you stopped because it seems you’re looking out for value?

Well those limits are depended upon a variety of factors. We take into consideration a return requirement from an IRR standpoint. We take into consideration the cost relative to replacement cost. We take into consideration the required CapEx overtime and what we think our forecast stock price might be overtime and the source of those funds. We obviously, first and foremost take into account the amount of accretion for the capital expenditure and that does not mean the CapEx dollars, but just the initial outlay. We also take into account what we think the cost of debt might be for that particular investment and the availability of it. So it’s never one dimensional, it’s always multi-dimensional with us. We are trying to look at every possible angle of an investment opportunity to make sure that number one, we are not riding on just one upside opportunity related to that asset, that there is multiple tools in the tool box and we might have access to create value. But also number two, just checking all aspects of price, value accretion, cost of capital to make the determination as to whether we should proceed or not.

So most of it sounds like really you there from property-to-property; but is there kind of a threshold there or can you share that with us, what are you looking for in terms of IRR when you purchase or is there going in at cap rate that you also look for?

Well, the easiest answer to be the greatest IRR that we could achieve, but generally speaking its high-teen type IRR.

That's on a leveraged basis. On an unleveraged basis, its 11 maybe 10, on the asset.

And just one more topic briefly, can you give us a little insight on to asset sales prospects, how are you coming along in those and if there is similar kind of investor interest for those types of assets as what you are looking to buy?

We are looking to sell the (inaudible) property and the DoubleTree Columbus and the sales efforts are slow. They are coming along, but they are slow. And so we are still evaluating whether to pull the trigger on the sale at lower amount or to keep the assets and put some capital into them for the longer-term. We would like to sell them. We think that's better, but we've got it there what's best for our shareholders.

Thank you. And gentlemen, I am showing no further questions at this time. I would like to turn the conference back over to you for any closing comments.

Thank you all for your participation on today's conference call. We will be hosting our 2012 Investor Day on Tuesday May 8th in New York at the Mandarin Oriental. If there are any analysts or institutional investors that have not registered for this event and you have an interest in attending, please contact our Investor Relations Team and we will be happy to assist you. We look forward to seeing many of you at our Investor Day and speaking with you again on our next call.

Thank you, sir. Ladies and gentlemen if you would like to listen to a replay of today's conference please dial 1800-406-7325 or 303-590-3030 using the access-code of 4530722 followed by the pound key. This does conclude the Ashford Hospitality Trust First Quarter 2012 Conference Call. Thank you very much for your participation. You may now disconnect.