Good day and welcome to the Ashford Hospitality Trust Fourth Quarter 2016 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Joe Calabrese with the Financial Relations Board. Please go ahead, sir.

Thanks. Good day everyone and welcome to today's conference call to review the results for Ashford Hospitality Trust for the fourth quarter of 2016 and to update you on recent developments. On the call today will be Douglas Kessler, Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Executive Vice President of Asset Management. The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were 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 contain or 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 company's 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 February 23, 2016 and may also be accessed through the company's Web site 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. This communication does not constitute an offered by or solicitation of any offer to sell securities. This communication relates to…

Good morning everyone and thank you for joining us. First of all, I'm enthusiastic about my new role as CEO and look forward to Ashford Trust future. Before I review our results for the fourth quarter, I would like to spend some time discussing our recent public offer to acquire FelCor Lodging Trust. We have long thought that a combination of our two companies make great strategic and financial sense. In fact, we first approached FelCor in 2011 that we are met with resistance. It has remained on our radar and after the departure of their CEO last year, we reengaged with FelCor's board about a possible combination. Since October, we have pursued in good faith an engagement with FelCor on a friendly basis with a hope that they reciprocate. We have been disappointed they have not been receptive to a combination that we strongly believe would result in significant value creation for both sets of shareholders. As a result, we decided to take our proposal directly to shareholders. The highlights of our offer on the announcement day were as follows; $9.27 per share price based upon a fixed exchange ratio of 1.192 Ashford Trust shares for FelCor share, which equated to a 28% premium to the FelCor share price. FelCor shareholders would also receive 20% ownership in our advisor Ashford Inc., along with warrants to purchase additional Ashford Inc. shares to enhance alignment of interest and sharing the performance of Ashford Inc. shares. We believe the meaningful premium, the potential for significant future upside via stock for stock deal, a 138% increase in FelCor's pro forma dividend coupled with direct ownership and the advisor delivers compelling value and alignment to FelCor's shareholders. It is also worth noting that there is approximately 67% across institutional shareholder ownership in the two…

Thanks Douglas. For the fourth quarter of 2016, we reported a net loss attributable to common stockholders of $57.3 million or $0.61 per diluted share. For the full year of 2016, we reported a net loss attributable to common stockholders of $88.7 million or $0.95 per diluted share. For the quarter, we reported AFFO per diluted share of $0.16 and for the full year of 2016, we reported AFFO per diluted share of $1.51 compared with $1.44 for the full year of 2015. This result reflected a 5% growth rate over the prior year. Adjusted EBITDA totaled $84.1 million for the quarter and adjusted EBITDA for the full year of 2016 was $431.1 million, which reflected a 6% growth rate for 2015. At quarter's end, we had total assets of $4.9 billion. We had $3.8 billion of mortgage debt with a blended average interest rate of 5.4%. At the end of the quarter, our debt was 15% fixed rate and 85% floating rate all of which have interest rate caps in place including the market value of our equity investment in Ashford Inc., we ended the quarter with net working capital of $525 million. As of December 31, 2016, our portfolio consisted of 123 hotels with 25986 net rooms. Our share count currently stands at $115.1 million fully diluted shares outstanding which is comprised of 96.4 million shares of common stock and $18.7 million OP units. We have 19.4 million OP units but as a result of the current conversion factor being less than 1 for 1, these units are convertible into approximately 18.7 million shares of common stock. With regards to dividend, the Board of Directors declared fourth quarter 2016 cash dividend of $0.12 per share or $0.48 per share on an annualized basis. Based on yesterday's stock price,…

Thank you, Deric. Our RevPAR growth of 3.2% for all hotels not under renovation for the fourth quarter outperformed the upper upscale segment nationally by 260 basis points and our competitors by 210 basis points. RevPAR growth was negatively impacted by the Jewish holiday falling in October of this year compared to September in 2015. For the full year, the company grew RevPAR by 3.2% with EBITDA flow through of 56%. First, I would like to recognize the outstanding performance of the Hyatt Regency Savannah during 2016. For the year, the property had RevPAR growth of 12.5% with 6.2% occupancy growth and 5.9% rate growth. Even more impressive was the 1740 basis point outperformance relative to its competitors. The resulting increase in rooms revenue translated well to the bottom line with property posting 52% EBITDA flow through for the year. We are also excited to be undergoing major lobby renovation and food and beverage repositioning that will enhance a property uniquely positioned in the market with one of the best locations and some of the most spectacular views overlooking the Savannah River. And the third and fourth quarters of 2015, we acquired the W Atlanta downtown hotel, the W Minneapolis Hotel, the Foshay, and the Méridien Chambers Minneapolis. With the change in ownership and with the same property management teams in place including General Managers, these three managed properties have experienced a substantial increase in profitability. This current managed portfolio achieved 174% EBITDA flow through during its first full year under our ownership on 3.3% RevPAR growth. This RevPAR growth equated to 190 basis point gain versus competitors. Additionally EBITDA margins increased 343 basis points for this group of properties. This outperformance is a direct result of our teams timely implementation of several value added opportunities at these three hotels.…

Thank you. [Operator Instructions] And we will now take our first question from Ryan Meliker from Canaccord Genuity.

Hey, good morning, guys. Thanks for taking my questions. I had two those I was hoping to touch on. First of all, Doug congratulations on the promotion to CEO. I'm wondering that with the new title and in the new role, if you are going to take any closer look at the incentive fee structure and obviously you guys, recorded an incentive fee to Ashford Inc., this quarter I think most of us missed it, it's probably our fault. Then, we missed it, not really think how much the stock can run up in the fourth quarter. But, if I look at the stock up 23% in 2016 that's a year after it was down 40% in 2015 and on a two year basis down 26% which is largely inline with the group. Are you thinking about any call opportunities there for AHT, it seems like that might make sense to look at things on more than just one calendar year basis, any thoughts in the new role Doug?

All right. Thanks for the congratulations, I appreciate it. In terms of the agreement that we have with Ashford Inc., you are correct that the calculation is done on an annual basis with no longer term period view to that calculation. As you also know over at Ashford Prime the agreement between Ashford Inc., and Ashford Prime pursuant to discussions between the Independent Directors of those boards reached some changes to the agreement which is subject to a forthcoming shareholder vote. And if that is passed by the shareholders then it maybe worthwhile for the Ashford Trust Board of Independent Directors to engage with the Ashford Inc. Independent Board of Directors and evaluate what types of potential changes they make sense. Clearly, we have structured that concept around the transaction with FelCor. And we believe and we have stated that the expectation would be within a year of the transaction closing that we would seek to negotiate some similar changes between Ashford Trust and Ashford Inc. that Ashford Prime was able to achieve.

But, if I recall correctly, the Ashford Prime changes don't include any type of change to the -- I guess period for the incentive fee calculation or potential call back provision, is that something you would look to do at AHT?

That would be something perhaps for our Board to take under advisement. We were very open to receiving feedback during the process for Ashford Prime based upon feedback that we received from the research community as well as shareholders. And obviously, while Prime and Trust are similar they are also different and so to the extent that we go through that process that the Trust Board and the Ashford Inc. Board, we will take into consideration input from shareholders to come up…

Got you.

Go ahead.

No. That makes sense. And I guess just to -- as a follow up to that. If for one reason or another the FelCor deal does not go through, would the Ashford Trust Board still be interested in having those same discussions with the Ashford Inc., Board or is it 100% contingent on the FelCor deal?

The Ashford Trust Board hasn't commented on that. Obviously, they will be looking closely at the outcome of the forthcoming vote between Ashford Inc., and Ashford Prime, when that shareholder vote takes place. And we'll be looking closely at the results of that.

Okay. Now, that makes sense. And then, just with regards to the FelCor offer, since you guys have made it public and are starting to address some of these concerns publicly. Not asking for public negotiation if you will, but is the offer that you put up there open to some adjustments particularly open to a potential cash component and a reduced stock component, it seems like the stock is the biggest hang up that FelCor has and obviously you've highlighted why they shouldn't be so concerned about that, but maybe reducing the exposure of stock might make a big difference.

Well, based upon their response today which seems cold water on perhaps our stocks performance and their stocks performance given that we are both down materially, it didn't seem like it had to do with the amount of the offer seem to have to do with some structural components and early in our discussions with them, they strongly encouraged us to propose stock and that's what we have done. We are opened to engagement and discussion and that's the purpose of what we are trying to accomplish here. We believe a deal makes great sense for both set of shareholders, but in order to get to a deal we have to get pass some of the issues that I think we gave very clear crystal answers to today that really have no barring on the economics of this opportunity for both sets of shareholders. Once we get pass that, then I think we're happy to engage in productive dialog on the real economics behind this opportunity, but having said that at a 28% premium compared to most M&A REIT transactions that average between a 10% to 15% premium, I think it's hard to disagree that this is a full and fair price for the opportunity.

No. That makes sense. And then I guess along of those lines with regards to the FelCor dynamic, one of the points that they address is, they claim that the external management fees would be in excess of $25 million. If I'm doing my math correctly that's nowhere near to value, am I right?

Yes, you're correct Ryan, that's an extremely high number and I don't know how they're getting that number.

Right, I mean, I think the base is, when its closer to $10 million or so, it seems…

Hey, Ryan. The incremental base advisory fees would be about $17 million to $18 million based on the value of the equity, value of the preferred and…

In recall this, our current structure has a step down fee arrangement within Ashford Hospitality Trust, over a certain total enterprise value, the fee drops and so we would cross that initial threshold here and so both platform stand a benefit effectively from a reduced fee based upon increased scale which when the agreement was reached between the platforms in Ashford Inc. that was a built-in concession given by Ashford Inc. recognizing that the incremental profit margin on scale is sizable and so that the fee should be commenced or certainly reduced.

Okay. That makes sense. And just one last thing here on the FelCor opportunity. It sounds to us like the FelCor Board and management are not receptive to this which is obviously why you guys are going public. If you guys do and then moving forward the proxy contest that you've started, can you give us an idea of how much of that it might impact G&A at Ashford Trust?

It's not an excessive amount of money just depends on what the legal costs are along the way and we can't anticipate that. We think that the small amount of dollars to proceed with this relative to the overall big picture gain here and the 100s of millions of dollars is absolutely the right thing to do and you could frame it and we spent capital chasing after acquisition opportunities and we use that capital judiciously to chase, so we think at the right opportunity. So this is the same type of approach. We have to spend some diligence dollars here some effort dollars here to pursue an acquisition opportunity that we think is very advantageous to our shareholders and their shareholders as well.

So, does that mean that any dollars you spend in terms of -- took deal costs or proxy costs you then do an add back into adjusted EBITDA and adjusted FFO?

Yes, Ryan. We would view those cost as obviously non-recurring cost that we would adjust in our adjusted EBITDA and adjusted FFO tables.

Okay. That's helpful. That's all for me. Thanks guys.

Thank you, Ryan.

[Operator Instructions] We'll take our next question from Robin Farley from UBS.

Hi. This is a question actually about the results in Q4, it's just looking at the hotels under renovations versus your comparable hotel fit. And obviously the hotels under renovation would underperform the comparable hotel set, but it seems like there was sort of bigger underperformance in Q4 versus that we saw the first three quarters of the year. I was just wondering if you could give color, was the sort of extent of the renovation disruption worse in Q4 for some reason or just because the sort of full comparable hotel set didn't outperform the way the hotels not under renovation did?

Yes, Robin. All renovations aren't equal and so when we do the disclosures sometimes rooms renovations versus lobby renovations. And sometimes we find that lobby renovations can be more impactful, but and you are not taking rooms out, but generally rooms do displace more revenue. I think the bigger overall, look here is that when you don't even adjust for the renovation activity we still gain market share 40 basis points against the comp set and 30 basis points against the track scale. So we did a great job in spite of the renovations and still gained market share just when you don't even account for the renovation activity.

Okay. Great. Thank you.

And we'll take our next question from Tyler Batory from Janney Capital Markets.

Thanks, good morning. Congrats to Doug on the new role, and then I appreciate some of the additional commentary you gave on the FelCor transaction, maybe a big picture question here, I know you guys don't give guidance and obviously we've heard from a lot of your peers this week, but you've been outperforming some of those peers on a RevPAR basis, so Doug just wondering if you have any general comments on how you are thinking about RevPAR in 2017?

We won't give guidance but we certainly can state that we believe that the diversity of our portfolio is advantageous to us at this time relative to the composition of our peer group portfolio. Our footprint is broader. Our asset base is more comprehensive in terms of the chain scale segments and locations and so. At a time where the more consolidated strategies and some of these urban markets may have made sense earlier in the cycle that's unusually where right now all the new supply seems to be coming in. So our supply impact situation is a bit mitigated by the footprints that we have today. And moreover, I think the key is that our asset management team does a phenomenal job. We believe they're best-in-class. They get very granular both at the top-line as well as bottom-line to maximize flow through on these assets. And this is a pennies business, you have to go after every possible scrape that you can get. And I think even the example that Jeremy highlighted on our earnings call related to the billboard sign into the W Atlanta is an example of that. So that's how we generate this kind of performance and that's what we hope to do going forward. And my general macroeconomic comment, I think there is a lot of expected enthusiasm about where the economy is headed whether it's due to the potential tax law changes or infrastructure growth, whatever it is I think people have an eye on the potential economic expansion. I'm obviously as we get deeper into this administration and their economic plan, people will start to want to see proof of that and provided there is proof of that then our view is this could be more of an extended cycle. So Jeremy I think also has a comment as well.

It's just couple of comments. When you look at our portfolio mix, group can be anywhere from 22% to 25% and without giving guidance, I can tell you the group outlook for 2017 is very healthy for the Trust portfolio. And one other dynamic is that when you look at the market, as Doug mentioned, our largest market is Washington DC, I think what the change in administration, and we have already seen it, is giving away a lot of new demand in that market. So I think that bodes well for the Trust portfolio.

Okay, great. It's very helpful. And then on the FelCor proposal, it sounds like you maybe offer using limited information, how comfortable are you guys with the bid and some of the estimates that you put out?

But we're very comfortable based on the information that we received. We'd looked at their public data. They've given us some limited information as part of the signing of the NDA. But it really wasn't what we're looking for, was a typical and customary information like property P&Ls. The benefit that we have here is that our assets are profitable in many ways and we can look at the publicly available information and compare and contrast on market comps and operating comps within our existing portfolio to arrive at our estimates for savings. Flow through is a flow through and it's pretty easy to evaluate the difference. Even to the point that we made in our conversations that if we're only partially right, which we think we won't just be partially right, but even partially right there is a tremendous amount of value-add here. Moreover to the extent they would share property level P&L information with us, engage with us. We may find that there is even more to the upside here. So we believe that based up on the information that we have and this has been done with a thorough amount of diligence going back to October in conjunction with our own internal team, our advisor, UBS and our law firm Cadwalader that we're very confident in what we have on the table right now.

Okay, great. That's all from me. Thank you.

And we'll take our next question from Michael Bellisario from Robert Baird.

Thanks. Good morning everyone.

Good morning.

Just had a question on the $18 million of operating synergies, I know you haven't had a chance to look at all of FelCor's property specific data, but is that number -- is that based on a comparable analysis where your portfolio is currently operating versus where FelCor's is currently operating, that's really just a high level estimate, correct?

Yes. This is Jeremy. It's a combination of the G&A savings which is fairly easy for Deric and his team to calculate and look at their run rate, the G&A cost and then look at what our incremental cost would be and you can calculate the G&A savings. On the operational side, it's the merit of -- I would say quite of bit things using their publicly available information, using our benchmarking that we can do with our comparable hotels, using our track record of looking at acquisitions we've made over the years including brand managed acquisitions, I think we just quoted that the most recent three brand managed acquisitions we delivered a 174% EBITDA flow through in the first year. And as we start with properties and our team just does an outstanding job. But we went over this in the call, I think earlier this week and we went through the different components and the different ranges in which we think their savings will come out and so I think we feel very confident that we can deliver the savings especially when you look at the flow through they had, I think somewhere in the range of 16%. Our brand managed full service hotels in Ashford Trust for the year was over 70%, I think was technically 72%. So that's phenomenal flow through that we were able to deal with all brand managed assets and so this is a team that has a track record of adding value in any asset to that grows our way.

Got that. It makes sense. And just clarify, you brought up G&A, but that's a separate topic, right, this is just $18 million at the property level, I just want to clarify that.

No, $18 million to $30 million that is a component of G&A and property level savings and we think the G&A component is somewhere in the…

And it's a $11 million right out of the gate.

Yes. So then the balance is operational savings.

Got it. That makes sense. And then just one kind of housekeeping item for Deric. On the incentive fee recognition when Prime recognized their fee a year ago in the fourth quarter they added back two-thirds of it to be recognized ratably over the next eight quarters, is something changed on the accounting front that you're not doing that at Trust for the fourth quarter?

Yes. When we did that last year we received the comment from the SEC that they did not like the way we did that when we tried to match up the cash payments versus the GAAP recognition. And so for GAAP purposes, Trust had to recognize the 100% of the expense in the fourth quarter, but you're correct that will be paid over a three-year period, so from a cash standpoint, the payments that will go out over three years.

That's helpful. Thank you.

Management given the upcoming conference call for Ashford Inc., we have time for one additional question. Bryan, please go ahead with your question.

Thanks. Glad I made it in. I saw in your comment that FelCor was kind of steering you towards stock versus cash that's pretty interesting since cash is basically cleaner. But, I wanted to follow-up on one of Ryan's seven questions. When it comes to cash, are you not ruling that out and how I think about this is, if you're truly going to potentially sell this three New York City assets, there is $500 million in cash right there, which would be close to half of the market cap of FelCor that you could immediately work to delever, is that something you guys would actually consider?

I think until they started engaging with us, we have come up with what we think is a very attractive proposal for them. And if they want to engage in discussions around a deal then we're already seated at the table. So, happy to discuss things with them. We follow what we believe, they suggested we should do, so at this point we're waiting for them. We're waiting for engagement from them at this point.

Right. But if you're going to go hostile on them and you think you might be able to sway more buy side to side with you if there was a meaningful cash component, isn't that away of maybe addressing that without levering out Trust further.

It would be. It potentially could be. I think that until we hear feedback from them as to any changes to our proposal this is our offer.

Okay. Thanks Doug.

Fine. Then thank you everyone for joining today's call and we look forward to speaking with you again on our next update.