Ashford Hospitality Trust's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.28.14 | About: Ashford Hospitality (AHT)

Ashford Hospitality Trust, Inc. (NYSE:AHT)

Q4 2013 Earnings Conference Call

February 28, 2014 11:00 AM ET

Executives

Scott Eckstein – IR

Monty Bennett – CEO and Chairman

David Kimichik – COO and General Counsel

Jeremy Welter – EVP, Asset Management

Douglas Kessler – President

Analysts

Ryan Meliker – MLV & Company

Robin Farley – UBS

Andrew Didora – Bank of America

Thomas Allen – Morgan Stanley

Nikhil Bhalla – FBR

David Loeb – Robert W. Baird

Patrick Scholes – SunTrust

Bryan Maher – Craig-Hallum Capital Group

Operator

Good day, ladies and gentlemen thank you for standing by. Welcome to the Ashford Hospitality Trust and Ashford Hospitality Prime Fourth Quarter Conference Call. During today’s presentation, all participants are in listen-only mode. Following the presentation, the conference would be open for questions. (Operator Instructions). This conference is being recorded today, February 28, 2014.

I would now like to turn the conference over to Mr. Scott Eckstein. Please go ahead, sir.

Scott Eckstein

Thank you, operator. Good day, everyone, and welcome to today’s conference call to review results for both Ashford Hospitality Trust and Ashford Hospitality Prime for the fourth quarter of 2013 and to update you on recent developments.

On the call today will be Monty Bennett, Chairman and Chief Executive Officer; Douglas Kessler, President; David Kimichik, 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 press releases that have 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 both companies’ filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made only as of the day 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 releases, and accompanying tables or schedules which have been filed on Form 8-K with the SEC on February 27, 2014 and also be accessed through both companys’ website at www.ahtreit.com and www.ahpreit.com.

Each listener is encouraged to review those reconciliations provided in the earnings releases together with all other information provided in the releases.

I will now turn the call over to Monty Bennett. Please go ahead, sir.

Monty Bennett

Thank you and good morning. Today, marks our first quarterly conference call following the recent spin-off of Ashford Hospitality Prime as a new independent public company from Ashford Hospitality Trust.

Here with me today is the management’s team responsible for directing the activities of these two distinct entities. At Ashford, we believe the best way to measure the management team is by looking at the value we create for our shareholders.

While Ashford Prime is new to public markets, Ashford Trust has an extensive history of generating excellent shareholder returns. Since Ashford Trust IPO in 2003, this management team has generated a 210% total return to our stock shareholders, compared with the 96% return from our peers over the same time period.

Looking back, we have outperformed our peers in every yearly cumulative total shareholder return period since our IPO. We believe there are several reasons for our strong return performance compared with others in the hotel REIT space, including our team’s extensive operational expertise.

Our Chief Executives have spent their entire careers working in the lodging and real-estate industries in a variety of roles, including acquisitions and dispositions, asset management, property management, finance, accounting etcetera.

If you look at just the top 10 most senior executives in our company, we are well over 200 years of cumulative hotel and real estate experience. We believe that our industry and capital allocation expertise is most clearly reflected and demonstrated in a strong consistent shareholder returns that I reported earlier.

It is the same management team that is still guiding both Ashford Trust and now Ashford Prime. I believe we have the most highly aligned, stable and effective management team in the hotel industry. The same people that took Ashford Trust public over 10 years ago are all still here. We are proud of our performance and challenge ourselves daily to meet and exceed the expectations of our shareholders.

We already think like shareholders because it’s exactly what we are. Our insider ownership at Ashford Trust is 19% and following the spin-off in subsequent equity raise our insider ownership is 14% in Ashford Prime.

The next closest hotel REIT peer has 4% insider ownership. We collectively have sold very little of our stock over the years and have made material cash purchases of shares. The majority of our management team’s network is at Ashford Trust and Ashford Prime stock, and as a result, we strive to be good stewards of the capital entrusted to us by our investors. Since our own capital is at risk with yours.

We are by far the most highly aligned management team, with our shareholders in the hotel REIT space, and we consider this one of our key differentiators and competitive advantages. That is why, when we structured Ashford Prime, we came up with a new revolutionary external advisory agreement that has been structured to ensure that Prime like Trust, has closed the management alignment with shareholders. Since announcing the specifics of this advisory agreement, as our industry participants have stopped to emulate tunic structure.

So, with this management that will manage both the Ashford Trust and Ashford Prime investment strategies. With the recently completed spin-off of Ashford Prime, we have created separate entities with a renewed focus on their two distinct well defined and corresponding investment strategies.

Ashford Prime now has a focused investment strategy targeting high RevPAR hotels and resorts located predominantly in domestic and international gateway markets. Ashford Trust will continue to focus on all segments of the hospitality industry with RevPAR criteria outside the Ashford Prime investment focus in all levels of the capital structure.

This leads me to our latest announcement. Yesterday, we announced that the board of directors of Ashford Trust, (inaudible) approved a plan to spin-off it’s asset management business and to a separate publicly traded company in the form of a taxable distribution. The distribution will be comprised of common stock at Ashford Inc. and newly reformed success for company of Ashford Trust existing advisory subsidiary. Ashford Hospitality Advisors LLC, which currently advises Ashford Prime.

The company plans to file a listing application for Ashford Inc., with the NYSE or NYSE and KC exchanges. In connection with the spin-off, it is anticipated that Ashford Inc. will enter into a 20-year advisory agreement to externally advise Ashford Trust.

In addition, Ashford Inc. will continue to externally advise Ashford Prime. This distribution is anticipated to be declared during the third quarter of 2014, however it remains subject to the filing of the required registration statement with the Securities and Exchange Commission, the review of the registration statement by the SEC, the approval of de-listing of shares by the ethical exchange and other legal requirements.

Ashford Trust expects to file the required registration statement next month. We cannot be certain this distributional proceed, in the manner as currently anticipated. This spin-off of our asset management business is another step toward maximizing value for our shareholders.

With advisory agreements in place, with two publicly traded companies, and several potential lines of business, we believe Ashford Inc. is well positioned for growth. For example, Ashford Trust real-estate investment security subsidiary is currently raising private capital and it’s expected that Ashford Inc. will advisor this platform.

In addition, other business opportunities for Ashford Inc., include future external advisory services to the platform, such as a select service hotel feature platform and a hotel desk platform, both of which are potentially being explored by the company.

Further, it’s anticipated that Ashford Inc. will pursue other business acquisitions which may include hotel management, project and construction management and other hospitality related services. We will have more information to share with you about this spin-off as we file the required forms as we get closer to the distribution day.

Now, on to our review for the fourth quarter. From our perspective during the fourth quarter and more recently in 2014, we have seen a continued recovery in the hotel space driven by improving macroeconomic conditions.

We expect to see several additional years of growth as demand steadily rises while new hotel room supply is expected to remain at low levels for at least the near term.

In recent projections PKF is forecasting that 2014 RevPAR will increase by 6.6% over 2013. Further the firm’s projected RevPAR forecast for 2015 is currently 7.5%, driven by expectations for growth in both lodging demand and AVR.

Supply growth is also expected to remain well below its long-term average with PKF projecting net supply growth of only 1.2% and 1.4% in 2014 and 2015 respectively.

Now, I’ll provide some high level highlights for the quarter starting with Ashford Trust. For the fourth quarter, we face some difficult year-over-year RevPAR comparisons due to our concentration in the Washington DC area and notably from the favorable impact in the fourth quarter of 2012 from Hurricane Sandy, which caused us occupancy in several of our Northeast Assets as people would display from their homes for several months following a storm’s impact in late October.

Jeremy will address this in more detail shortly. Of course, the most important accomplishment we made during the fourth quarter was finalized in the spin-off of Ashford Prime was to again trading on the New York Stock Exchange, under the ticker symbol AHP on November 20, 2013.

Ashford Trust completed the spin-off by distributing a pro-rata taxable dividend of Ashford Prime common stock to Ashford Trust stockholders based on a distribution ratio of one share of Ashford Prime common stock for five shares of Ashford Trust common stock.

The performance of Ashford Prime’s portfolio speaks to the strength of our prime assets and the rationale for the spin-off. During the quarter, the Prime portfolio experience RevPAR growth of 6.9%, RevPAR per actual prime hotels not under innovation and increasing exceptional 10.1% during the quarter.

Much of this performance was driven by our West Coast assets, which continue to outperform relative to competitive sets. This includes RevPAR growth of 19% for our Courtyard San Francisco Downtown, 20% for our Hilton La Jolla Torrey Pines, and 10% and 9% for our Courtyard Seattle Downtown in Seattle Mariette Waterfront respectively.

At this year-end, we have already announced two acquisitions for Ashford Prime, the Sofitel Chicago Water Tower and Pier House Resort in Key West. Douglas will discuss the details of those transactions later today’s call. Both acquisitions were strong intuitions to the prime portfolio, more importantly these deals are representative of the types of transaction we will look for as we expand the Ashford Prime portfolio, high RevPAR hotels with attractive locations in key U.S. gateway markets.

As previously announced, the board of directors of Ashford Trust declared a dividend of $0.12 per share for the fourth quarter 2013. The board also approved Ashford Trust dividend policy for 2014, during which we expect to pay a quarterly cash dividend of $0.12 per share or $0.48 per share on an annualized basis.

The board declared a fourth quarter 2013 quarterly cash dividend of $0.05 per share for Ashford Prime. The board also approved Ashford Prime’s dividend policy for 2014, Ashford Prime expects to pay a quarterly cash dividend of $0.05 per share for 2014 or $0.20 per share on an annualized basis.

The adoption of a dividend policy does not commit either competition to clear future dividends both Ashford Trust and Ashford Prime, will continue to review their dividend policies on a quarter-by-quarter basis.

In conclusion, we are very pleased to announce that we are spinning off Ashford Trust’s asset management business and that we have completed the spin-off of Ashford Prime during this new high RevPAR portfolio.

Ashford Inc. will be an asset like company with limited capital lease that will have attractive advisory agreements in place with two publicly traded companies, a pipeline of potential sources of business and a currency to make acquisitions. The management team that has been responsible for Ashford Trust’s out-performance for the past decade will continue to work in the best interest of our shareholders. This same team can now work through multiple platforms offering more avenues for us to develop a new and creative strategies to enhance shareholder value.

With this test we have taken already to improve the capital structure and dry power available for both Ashford Trust and Ashford Prime, we believe we are poised to benefit from the favorable conditions in the lodging sector and look forward to updating you on future calls as both organizations continue to execute on their distinct investment strategies.

Before turning this call over to my colleagues to discuss this past quarter’s performance. I want to discuss some new initiatives we have underway at our affiliate manager at Remington.

Last quarter, I briefly discussed some of the steps we have taken at Remington’s drive revenue growth and market share at our hotels. First, we turned over and replaced our senior sales and marketing position, which oversees direct sales such as group contract and preferred accounts. In addition, we created two new senior positions in sales and marketing to report to this most senior position overseeing all of the hotels.

The new senior sales and marketing leadership team has focused on creating strong alignment between the director of sales at our hotels and the sales team to ensure everyone is motivated and focused on maximizing total revenues and driving market share growth at our hotels.

Secondly, on the revenue management side, which oversees revenue management electronic commerce, we’ve created and have almost completely filled a number of new positions, taking this department from 11 individuals to over 20, with new both senior and junior executives. This group has been focused on maximizing revenues from a lowest cost channels including hotel websites.

We are already seeing growth in bookings through our hotel website that is exceeding the industry averages. In addition to personnel, we are comprehensively upgrading our business analytics capabilities on the REIT side and with Remington. This big data initiative is focused on revenue optimization to make sure we are implementing the best possible pricing strategies for our available inventory and historical and projected demand patterns.

We believe these investments and systems and personnel will materially increase our revenue enhancement capabilities. I am personally overseeing much of this effort.

With that, I would now turn the call over to Kimo to review our financial performance for the quarter.

David Kimichik

Thanks Monty. For the fourth quarter 2013, Ashford Trust reported AFFO per diluted share of $0.14 compared with $0.39 a year ago. The fourth quarter of 2012, include $8.1 million of interest REIT derivative income which impacted AFFO per share by $0.08.

It also included 20 more days of income to the 40 Marriott managed hotels and converted to the calendar year accounting system in 2013 in the previous ‘13 period 28-day accounting cycle.

During the quarter, Trust pro forma hotel operating profit increased by 4.6%. For Ashford Prime, we presented the quarterly result in accordance with GAAP, which requires that historical capital financial statements represented. Accordingly Ashford Prime’s results for the period may not be representative of results in future periods. In particular, the G&A expenses that are shown in historical carve-out financial statements did not reflect the expected G&A cost of Ashford Prime that rather reflect an allocation of the actual G&A cost of Ashford Trust.

Ashford Prime will have G&A cost that incurs as well, reimbursable cost that Ashford Trust incurs on its behalf. Ashford Prime will pay a base management fee at Ashford Trust equal to 70 basis points times of total enterprise value.

Ashford Prime reported AFFO per diluted share of $0.09 compared with $0.23 a year ago. The fourth quarter was also impacted by the Marriott accounting change, six of the eight prime hotels are Marriott managed hotels.

During the quarter, our pro forma hotel operating profit increased by 5.2%. For the fourth quarter, we reported adjusted EBITDA of $71,168,000 for Ashford Trust and $10,656,000 for the Ashford Prime hotels.

At quarter’s end, Ashford Trust until last that’s a $3.6 billion including the Highland portfolio which is not consolidated and $1.8 billion of mortgage debt in continuing operations and $2.6 billion overall including Highland.

Our total combined debt currently has a blended average interest rate of 5.3%. We currently have 53% fixed rate debt and 47% floating rate debt, all of which have interest rate caps in place.

Including the market value of Ashford Trust’s OP units of Ashford Prime and as pro rata share of the net working capital of the Highland portfolio, Ashford Trust ended the quarter with net working capital of $381 million.

Ashford Prime at quarter’s end had total assets of $962 million, we had $622 million of mortgage debt in continuing operations which has a blended average interest rate of 5.3%. We currently have 68% fixed rate debt and 32% floating rate debt, all of which have interest rate caps in place.

At quarter’s end, our Ashford Trust portfolio consisted of 115 hotels, with 22,809 net rooms and our Ashford Prime portfolio consisted of eight hotels with 2,912 net rooms. The Ashford Trust share-count currently stands at 101.1 million fully diluted shares outstanding, which is comprised of 82.1 million common shares and 19 million operating partnership units.

While Ashford Prime share-count currently stands at 34.1 million fully diluted shares outstanding which is comprised of 25.3 million common shares and 8.8 million operating partnership units.

I’d now like to turn the call over to Jeremy, to discuss our asset management accomplishments for the quarter.

Jeremy Welter

Thank you, Kimo. RevPAR at eight properties in our Ashford Prime portfolio increased 6.9% in the fourth quarter, driven primarily by rate which increased 5.5%. The strong revenue performance was driven by the four properties located on the West Coast which experienced significant combined RevPAR growth of 15.6%.

For the full year of 2013, the RevPAR gains for the Ashford Prime portfolio was 6%, again largely driven by ADR growth of 4.7%. For the full year of 2013, Ashford Prime EBITDA margins improved by 35 basis points or EBITDA flow-through was 40%.

EBITDA flow-through for Ashford Prime in the fourth quarter was adversely impacted by increases and property taxes of $500,000 and incentive management piece of $400,000. These two items impacted margins for the fourth quarter and the full year by 121 basis points and 89 basis points respectively.

I mentioned last quarter that the Hilton La Jolla Torrey Pines completed a truly stunning rooms renovation in the second quarter of 2013. Fourth quarter RevPAR growth for this hotel was 20.2% and RevPAR index in the fourth quarter exceeded all of its competitors enabling the hotel to gain significant market share to close out 2013. And we’re very excited about this hotel’s prospects heading into 2014.

Turning to the four hotels in the Eastern half of the country. There were some one-time challenges to keep in mind when analyzing their financial results. First, the primary factor affecting performance in the fourth quarter was a federal government shutdown during the first 17 days of October.

In the fourth quarter, the capital health in Washington DC experienced a 23% decline in government business. Second, the Philadelphia Courtyard downtown, began a significant rooms renovation during the quarter and as such suffered a 6.9% year-over-year loss in occupancy.

Lastly, the plan on Marriott Legacy Town Center underwent main space and ballroom renovations leading to a 15% decline in group room nights. Excluding these two hotels under renovation, and the Capital Hilton, which was impacted by the government shutdown, RevPAR growth for the Ashford Prime portfolio in the fourth quarter was 14.3%.

I’d like to end my section, I mean, Ashford Prime portfolio by taking a moment to highlight the portfolio’s remarkable success thus far in the current economic cycle. Last year marked the fourth consecutive year of EBITDA margin expansion for the current eight hotels in the portfolio, going from 28.1% in 2009 to 33.6% in 2013.

While revenues have increased at 5% compound annual growth rate since 2009, we’ve been able to grow hotel’s EBITDA at a 10% compound annual growth rate over the same period. I believe this sustained performance reflects Ashford’s unique and superior asset management expertise.

Moving to our Ashford Trust portfolio, RevPAR increased 1.3% in the fourth quarter, driven by rate which increased 1.6%. For the full year 2013, RevPAR increased 2.6% again entirely driven by ADR which increased 2.9%.

For the full year EBITDA margins improved by 51 basis points while EBITDA flows were 55%. Again, the primary factor affecting performance in the fourth quarter was a federal government shutdown during the first 17 days of October.

While the impact of the shutdown was felt to varying degrees across the country, the Washington DC market was the market that was impacted the most. Collectively, the 10 hotels and the Ashford Trust portfolio located in the Washington DC market experienced a RevPAR decline of 9.3% in the fourth quarter and a RevPAR decline of 6.7% for the entire year.

These hotels of the Washington DC area experienced a 41% decline in room nights directly related to the government in the fourth quarter.

Last year, Ashford Trust seven hotels in the New York, New Jersey metro area, benefited significantly from storm related business and the aftermath of hurricane Sandy. Insurance adjusters, utility repair workers and display residents drove RevPAR growth of 17.9% for these hotels in the prior year quarter.

The non-repeating nature of this business made for difficult year-over-year comparison for the fourth quarter of 2013. Those seven hotels in the New York, New Jersey market area experienced a RevPAR decline of 12.5% in the fourth quarter. If you exclude both Washington DC and the New York, New Jersey market areas, Ashford Trust RevPAR growth in the fourth quarter would have been 4.3%.

We believe the booking window for group business is extending which is indicative of the improved business sentiment and overall economic environment. Our hotels will continue to strategically and selectively evaluate group business opportunities taking it down stay patterns, F&B contributions and expected concurrent transit demand.

In terms of the corporate negotiated rates, we have been very encouraged by the aggressive pasture our managers have taken and strategically pursuing ADR growth even if it sometimes comes at the expense of not being accepted into every corporate program.

At Ashford Prime, we have seen an aggregate increase of approximately 5% to 6% for negotiated accounts while Ashford Trust recorded a similar increase of approximately 4.5% to 5.5%.

We’ve also been active in identifying savings in our energy consumption. We have implemented numerous energy ROI initiatives, conservation practices, energy audits and usage bench market. In addition, we have been diligent in our energy procurement negotiations, combining tactics have resulted in savings of $4 million annually.

Regarding capital expenditures, we invested over $7 million in the Ashford Prime portfolio in the fourth quarter of 2013, bringing the full-year 2013 capital expenditure amount to $24.5 million, which was $0.6 million or 2.5% owner funded above and beyond what was required by our FF&E reserve requirements.

But Ashford Trust portfolio, CapEx invested in the fourth quarter was $40.8 million bringing the full-year 2013 capital expenditure amount to $149.2 million, which was $17.8 million or 12% owner funded above FF&E reserve requirements.

We will continue to strategically invest capital onto our hotels using our analytical and quantitative framework to make sure we are maximizing returns for our shareholders on that invested capital. Thank you.

Now I’d like to turn the call over to Douglas.

Douglas Kessler

Thank you, Jeremy. In the fourth quarter, Ashford Trust continued to focus on improving its capital structure and further strengthening its liquidity position. During the quarter, we closed mortgage loans totaling $18.2 million on the residents in Jacksonville, Florida and the residents staying in Manchester, Connecticut, with both launch now set to mature in January 2024.

The previous $6.4 million loan balance on the residents in Jacksonville was refinanced with a new $10.8 million loan that is non-recourse with a 10-year term and a fixed interest rate of 5.49%.

Refinance resulted in an excess net proceeds of approximately $4 million which were added to Ashford Trust unrestricted cash balance. The residents in Manchester was previously unencumbered. The new financing on this property includes a $7.4 million loan also with a 10-year term.

The new loan has a fixed interest rate of 5.49% and is non-recourse. Ashford Trust has an 85% ownership interest in the property with interstate hotels and resorts holding the remaining 15% and the terms I’ve described refer to 100% of loan indebtedness unless or otherwise indicated.

The excess loan proceeds above typical closing costs and reserves were distributed to the partners on a pro-rata basis. Ashford Trust share of the excess proceeds was about $6 million which were added to the unrestricted cash balance.

We continue this progress in 2014, successfully refinancing our $165 million MIT portfolio mortgage loan last month, with a new $200 million non-recourse mortgage loan with a two-year initial term and three 1-year extension options, subject to the satisfaction of certain conditions.

The new loan is interest only with the phoning interest rate of LIBOR plus 4.75% with 0.2% LIBOR 4. There were excess net proceeds of about $30 million, which were added to the unrestricted cash balance. The new loan remains secure by the same five hotels including the embassy suite Philadelphia Airport, Embassy Suites Warner Creek, Sheraton Mission Valley San Diego, Sheraton Anchorage and the Hilton Minneapolis St. Paul Airport mall in America.

Since the excess proceeds from each of these financings was added to the unrestricted cash balance, these financings were neutral to the company on a net debt basis.

Turning to Ashford Prime in connection with the spin-off, Ashford Prime entered into a new $150 million secured credit facility with Bank of America acting as a sole administrative agent. Other participating lenders include Credit Agricole, Credit Suisse, Deutsche Bank, KeyBanc and Morgan Stanley.

The new credit facility has three-year term with two 1-year extension options and there is interest at a range of 2.25% to 3.75% over LIBOR depending on Prime’s leverage level.

We also have the opportunity to expand the facility’s borrowing capacity by up to $150 million to the aggregate size of $300 million.

To further strengthen Prime’s liquidity position to better position the company for investment opportunities, this January we closed an underwritten public offering of 8 million shares of common stock. Including the 1.2 million shares of common stock sold in connection with the underwriter’s option, a total of 9.2 million shares of common stock were sold at a public offering price of $16.50 per share.

Total gross proceeds to Ashford Prime from the offering before deducting the underwriting discount and other estimated offering cost were $151.8 million. BofA Merrill Lynch and Morgan Stanley acted as a joint book running managers for the offering.

As we previously announced, Ashford Prime closed on the acquisition of the 415 rooms Sofitel Chicago Water Tower for $153 million in cash or $369,000 per key. This 4-star hotel features over 10,000 square feet of meeting space situated in the Gold Coast sub-market of Chicago, a major U.S. gateway market for both corporate and leisure travelers.

Sofitel continued to manage the property. At closing, we refinanced this hotel with $80 million of non-recourse mortgage debt priced at LIBOR plus 2.3%. The new debt has a five-year term including extension options.

The purchase price of $153 million represents a trailing 12-month cap rate of 6.0% on net operating income, then EBITDA multiple of 14.1 times. On a full 12-month basis, the purchase price represents a cap rate of 6.8% on net operating income and an EBITDA multiple of 12.7 times.

In 2013, the Sofitel Chicago Water Tower achieved RevPAR of $182 with 82% occupancy and an average data rate of $222.

We expect to close on our acquisition of the $142 room Pier House Resort in Key West order today. And we’ll provide more information regarding that acquisition soon. As a reminder, the purchase price is $92.7 million, and Ashford Prime will assume a $69 million mortgage on that hotel and pay to Ashford Trust, the balance of the purchase price with cash on hand.

These acquisitions were significant milestones for Ashford Prime. Not only are they the first acquisitions Prime has completed as an independent public company, but as Monty mentioned, they are indicative of the high RevPAR, well located properties at attractive values that we are targeting for Ashford Prime’s growth.

In conclusion, we’ve continued to strengthen the capital structures and liquidity resources for both Ashford Trust and Ashford Prime to better position ourselves for investment opportunities by capitalizing our today’s attractive debt and equity market conditions.

As 19% holders of Ashford Trust and 14% holders of Ashford Prime, your management team has dedicated to maximizing shareholder value and delivering superior returns.

That concludes our prepared remarks, and we will now open it up for your questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). Our first question is from the line of Ryan Meliker with MLV & Company Please go ahead.

Ryan Meliker – MLV & Company

Hi, good morning guys. Just first of all with regards to the Ashford Inc. spin-off, can you help us understand, I guess, how Ashford Inc. is going to be aligned with those shareholders of Trust and Prime? Is Ashford Inc. going to own a portion of Trust and Prime or is Ashford still owing to own the equity and dividends and Prime and then fee structure going to be similar to how the fee structure is currently is with Prime?

Monty Bennett

Sure, Ryan, this is Monty. On the alignment side we want very much for Ashford Inc. to own – have ownership in Trust and in Prime. But because of some I think 1940 Securities Act regulations it makes it very difficult for that to happen.

So, what we’re going to do for strong alignment is do it to the management team. So, the management team is going to continue to own this 19% in Trust, the 14% in Prime and then the 19% in Inc., so that is how we’re going to provide that alignment because again, having the advisor own interest in the other ones, just wasn’t feasible considering the 1940s Investment Act, those were considered securities and that just caused all kinds of problems.

We look to that extensively if that’s what we wanted to do but just can’t do it legally. And what was your second question?

Ryan Meliker – MLV & Company

Just regarding the fee structure, is that going to be similar where it’s going to be based on stock performance to a large extent?

Monty Bennett

Yes, yes. We anticipate it will be, it will marry the same structure.

Ryan Meliker – MLV & Company

Okay. That’s helpful. And then with regards to obviously you don’t have a ton of income coming from this I guess asset management arm today, so you have plans on growing that income stream before the spin-off is completed in 3Q whether that be maybe contributing Remington into Ashford Inc. or during something else, maybe be another acquisition in advance of the spin-off so that the company comes out with enough earnings that it’s I guess more relevant and investors aren’t looking to dump it given there is a bit of lack of liquidity to your capital?

Monty Bennett

Well, we think it’s going to come out in a fairly big size because the – even as it is today, the amount of revenue that we’ll be taking in, if you look at the TEVs of the entities today, and without any intensive fees from Trust and from Prime, it’s about $38 million in cash flow.

So, the expenses of that new platform will be something like 28 million or so, so you can see we’ve got some good cash flow right out of the box. But as far as growing the platform, we’re looking at all options. We have got a real state securities platform that we’re in the process of launching and starting to talk to people about it, that’s in process. And we hope to have our first launch sometime this summer on that.

Remington being involved somehow, there is certainly a possibility somewhere along the ways whether it’s before the spin-off or afterwards if we wanted to roll that in. Although, as you know, we’d have to get in, put the directors on board and we have to go through a process because of the related parties.

And there is other opportunities, growing the existing platforms, Trust and Prime and/or spinning out new platforms. So we’re looking to grow all these platforms pretty aggressively.

Ryan Meliker – MLV & Company

Okay. One last one from me and then I’ll jump out of the queue. With regards to Prime, you guys – I don’t want to say DC with the Capital Hilton is roughly 15% to 20% of annualized EBITDA right now. What’s the appetite for acquiring crystal gateway given that that’s going to bolster your exposure into DC closer to 30%?

Are you more inclined to acquire other assets so that you dilute that massive exposure to one market before acquiring Crystal gateway or is that – or are you not as concerned about that because you’re more focused on the long-term value, I know that you’ll acquire other assets later on?

Monty Bennett

Sure. Back to your first question and I want to point something out. You may be familiar with a company called the Alta Source that spun out and had their own home manager and the North Star did this here recently as well. And one reason that I think Alta Source traded so well, their manager, is because they started with a relatively low base of management fees. And so, to the extent that Ashford Inc. comes out on a smaller side, the advantage is that – as it adds platforms, it can benefit from a large percentage increase in fees, which would be a great benefit to shareholders.

So, that’s advantage, that’s a big advantage of coming out of a little bit of a smaller size if we do. Over to the gateway property, we are kind of sitting on our hands right now. We’re not in a big rush to run over there and do anything. So, we haven’t talked internally and specifically about the timing. We were really anxious to get to an outside investment into the platform in form of something like Sofitel which we’re very, very happy with. There couldn’t have been a better opportunity for us and then in getting Pier House over.

But as far as the other asset goes, the Gateway Marriott, we’re not in a rush. We’ve got I think another 18 months to exercise that option. So, I think that prime’s just going to wait on that for a little while and see how the market, the DC market fares over the next period of time. And concentration risk would definitely be something that would be considered on the Prime board side.

Ryan Meliker – MLV & Company

All right. I think that answers my questions. And I guess if Ashford Capital or Ashford trades like Alta Source out of the gate, investors would be very happy. That’s all from me. Thanks a lot.

Monty Bennett

I’m sorry. And just as a reminder, Ryan, that transaction for the Marriott property, the Marriott Gateway property, would have to be per units, and so it wouldn’t be a transaction that would require cash in any event.

Ryan Meliker – MLV & Company

Right, thank you.

Operator

Our next question is from the line of Robin Farley with UBS. Please go ahead.

Robin Farley – UBS

Thank you, I had two questions. The first one, you kind of alluded to already, I was basically going to ask if Ashford Inc. is just kind of a vehicle to buy Remington. And it sounded like from reference to it basically that is what’s going to happen. You suggested it sounded like it could even happen before the spin-out but I don’t know if I misunderstood that because that would be structured. But it sounds like that something we can expect by year-end I guess, and then I have a question about the transaction market after that?

Monty Bennett

Sure. As far as Remington being rolled into it, we just don’t really have any guidance on that. We wanted to get this platform up and going. And as far as Remington being as part of it, that really knowing here off the top of my head, it might affect our Form 10 filing and complicate things. We’d really have to look into that and see if that would delay the whole process which we’re not interested in doing. But we just haven’t sent down and looked at the timing of Remington or even if it’s going to happen.

We just haven’t come to any conclusions on that whether it’s before the spin-out or after or at all. We go into transaction market I’ll let you ask your question with that.

Robin Farley – UBS

Sure. I mean, I was just really to kind of get your view on the transaction market and whether you expect you’ll be a net buyer or a net seller this year?

Monty Bennett

Well, I think for Ashford Prime, we’ve already indicated the net buyer with the great transactions we’ve already completed with the Sofitel property and then as we stated, we’ll be closing today on the Pier House Resort in Key West Florida. The market is an attractive market we believe there is still several years of upside potential for hotel values, in the cycle. Even at the mid-point and many people believe this could be an extended cycle.

In addition, the volume of transactions is increasing, we’re hearing more broker opinion and values, work is being done by the major brokers. So that’s sometimes an early indicator potentially more transactions coming. And then naturally you see, in the spot of the cycle more transactions coming into the market as buyer and seller expectations are meeting one another.

We’re not seeing much movement in cap rates. We’re seeing the debt markets remained very stable and increasing liquidity, so that’s also a good sign from a valuation standpoint. And obviously on the operational side, we’re pretty bullish on what the industry pundits were saying with respect to future RevPAR growth.

For Ashford Trust, we’re also seeing opportunities in that platform as well. The interesting aspect about Ashford Trust, arguably is that potentially there is need to be less of a competitive playing field just because I think that the Ashford Trust platforms target RevPAR which is less than two times the national average because obviously it cannot be competitive with the Ashford Prime target of two times or greater than national average.

We see numerous properties in that zone coming to the market and not as many buyers chasing those assets. So, I’ll conclude that within both cases, as we’ve done for the past decade with Ashford Trust, we’re very disciplined. We look at the added value of these assets in terms of the near-term and longer term accretion on a share price basis to our companies. And we’ll continue to operate with a very disciplined focus on capital markets activities as well as our purchasing.

But generally we expect to be a net buyer in Prime. And I think we’re looking at certainly opportunities for Trust.

Robin Farley – UBS

Okay, great. Thanks very much.

Operator

Thank you. Our next question is from the line of Andrew Didora with Bank of America. Please go ahead.

Andrew Didora – Bank of America

Hi, good morning, everyone, and thank you for taking the question. I guess, Monty, when I think about these transactions, you’ve entered into over the past year or so, one of the concerns I think of is just the relatively small size and liquidity of each of the entities that have already been talked about. When you talked about the Ashford Inc., now how did you guys think about this concern and how quickly do you think you can get this platform growing and how will you drive that growth, will it be through debt or equity?

Monty Bennett

Good question. The liquidity is an important part of us. And we want to make sure we size this that we could lift it on a good size exchange, we’re going to go for NYSE. And maybe we can only get on the NYSE MK2, but that is very important to us.

But I think also probably even more important is share price performance. And that’s why we want to go ahead and do these types of things. If you look at our share price performance over the past 10 years, our results were up over 200% compared to our peers of about 96%. That long-term performance is because we do different kinds of things.

And while, in the short-term it may make a little difficult for one investor or another to participate in the stock which we regret. We’d rather they just stay in the stock and stay all the way through and they would get fantastic returns, liquidity is only important that you want to jump out right.

And if you look at something like Alta Source, their liquidity was extremely, extremely small. And their stock performance went sky high. So, I don’t know that liquidity makes a difference as far as our stock performance and in fact, maybe it’s just the opposite, maybe they did so well because of their small market cap size.

But that being the case, we know that a number of our investors like bigger platforms and like more liquidity. And we do have plans for growth. You saw what happened with Ashford Prime here. If we were still together and Ashford Trust, Ashford Prime and Trust together we wouldn’t have been able to do that equity raise.

So, already Prime has been able to increase its market cap by $150 million. And then, as far as growing Inc., we are very excited about its growth across the bench. And we plan to be actively growing it, whether that’s through cash or with our own currency, which increases our equity market cap than our flow then that’s another way to do it. But we are very interested in growing the platforms and we’ll be active out there doing it, one way or another.

Andrew Didora – Bank of America

I guess, at this point in time, do you have any target, leverage levels for the new platform?

Monty Bennett

The new platform of Inc.?

Andrew Didora – Bank of America

Of Inc., yes.

Monty Bennett

No. Fairly modest, it’s not trading company. So, we carry less debt. When we launch it, I think our expectations right now that will be launched with zero debt. So, we could lever it up a little bit if that’s what we wanted to do. So, we’d get plenty of dry powder to get out there and to grow the platform.

Andrew Didora – Bank of America

Understood. And then yes, Monty I know you mentioned in your prepared remarks that you can’t be certain to spend all procedures anticipated and I realize this is probably just required legal disclosure. But I guess, what are some of the circumstances that would potentially make you reconsider the transaction before it’s declared in 3Q? And that’s it from me. Thanks.

Monty Bennett

We’ll always reconsider everything if that’s what we think is best for the company. Now, we did a lot of analysis. We believe very strongly about measuring twice and cutting once and that’s what we believe we did on this. So, we don’t anticipate that at all. But for some reason we saw the world change dramatically then yes, we absolutely would reconsider it.

But we’re seeing what’s happened with these other type of platforms with their structure, on the big scale it’s the (inaudible), it’s the Black Stones and the Light in the Fortress that it’s done very well in the public markets with this kind of structure. And then, here, recently we’ve seen smaller type of platforms, go public and do very well whether it’s Alta Source or North Star. And I’m sure you know the Star we’re talking about this type of structure.

So, it is the structure that the market is I love with right now. If there is a big change about that and then sure we’d look at it, we don’t anticipate that change. But you never could predict the piece here.

Andrew Didora – Bank of America

Got it. I guess, and one follow-up from that. You quoted a lot of other asset managers in your comments there. How do you envision the securities part of the platform looking like?

Monty Bennett

Our real-estate hedged equity strategy, is that what you’re referring to?

Andrew Didora – Bank of America

There is that and you would mention the debt platform as well, just maybe share about a little bit more commentary on what you guys are thinking right now for each of those?

Monty Bennett

Sure. Well, the real-estate hedged equity strategy is something when the process of being in the market right now and we’re talking to investors about it right now. So, that’s something where we hope to have our first closing here in the Summer, maybe third quarter of maybe $100 million to $200 million to start and then grow from there with traditional fees of 1.5% to 2% of growth and then performance fees at 15% to 20% of the ups.

And then, as far as the debt platform that’s something we’re also looking at. As you know, we’ve done that in our core Ashford trust platform for a while. And actually got a hold on it despite the huge turndown in the marketplace.

So, but some are looking at us as well but what we want to do is, when we roll it out and when we do it, we want to be accretive for our shareholders. So that’s something that we’re analyzing in our a little bit farther behind the real-estate hedged equity strategy. But something that we’re interested in, as far as the timing of it, just hard to say.

Andrew Didora – Bank of America

That’s really helpful, thank you very much.

Monty Bennett

Thank you.

Operator

Our next question is from the line of Thomas Allen with Morgan Stanley. Please go ahead.

Thomas Allen – Morgan Stanley

Hi, guys. It seems like there is increased talk around portfolio transactions in the market. Obviously, you had Highland in the past. What do you think about doing something similar again and now that you have or you’re going to have three platforms, how do you think you will structure it? Thanks.

Monty Bennett

Sure. I’ll touch on it, I’m sure Doug will too here. We’re absolutely looking at portfolio transactions, our old structure prevented us from looking at those. Because where the stock was trading on that one platform now with a variety of platforms, we just have more flexibility especially if you look at a portfolio and then we can divide it up among the platforms and put some assets in one and some assets in another and that’s part of the strategy of having these platforms.

There is a number of portfolios that are out there, we’re looking at all of them. And where we can make it accretive for our platforms, we’re going to pursue them.

Douglas Kessler

I’ll add to that just by saying, at this part of the cycle is generally when you start to see more portfolio trades happening. And on top of that you have whether it’s private equity funds or some of the non-traded REITs that have reached a certain time point in their cycle where liquidating event is certainly on the radar.

So, it’s a natural part of the cycle that we’re entering where you will see more portfolios. And there are several that are on the market. As Monty, by having these three platforms, we can really calibrate the portfolio to the respective cost to capital and make it accretive for that specific platform as opposed to when we were just asked for Trust. And some things may have worked and some things didn’t work. But now we can find that proper silo and put that portfolio opportunity into it or carve it up and create (inaudible) between platforms if need be.

I think what’s important to keep in mind though is that it’s the same management team that we have here that has clearly shown the expertise, more so than any of our peers in taking down large complex portfolio trades. We did it with a C&L portfolio, we did it before that with a portfolio we called FGS. And we did it with a Highland portfolio as you mentioned. And so I think the key here is that we have a demonstrated expertise and we know these are complex transactions.

And if there is an opportunity that we think can create value for our shareholders through some type of combination, we will be thoroughly looking at that opportunity and determining whether or not we can make it an accretive transaction for our shareholders. But that’s the beauty of having these multiple platforms.

Thomas Allen – Morgan Stanley

Okay and then just on DC, you guys talked about how you’re going to be patient around the cross-out gateway option. And then you talked a lot about in your prepared remarks about some of the government shutdown impact. But as we look forward, what are the expectations for that market? And then other markets, are there other markets you are very excited about for next year and in kind of the next three years any other markets are concerned about? Thanks.

Jeremy Welter

Sure, I can take that, this is Jeremy. As it relates to DC, I can’t really talk specifically about our portfolio for 2014 I can kind of give you general market updates. And if you look at, and to really understand you really need to look at what happened in 2013.

In May of 2013, there is really a new baseline set because of the cuts for the government and sequestration. And that’s when the industry started to see the impact. And it was consistently about 30% in government business declines monthly all the way through September. And then a little bit more in September in anticipation of the government shutdown and of course I just quoted it, in the fourth quarter, our loss of government was around 40% in the fourth quarter.

So, heading into 2014, the year-over-year comparisons are of course you have the inauguration in January of 2013, but did not reoccur in January ‘14. And you’ll have the impact of sequestration from January through April for 2014. And if you fast forward to May of 2014, you have sequestration in both May ‘14 and May ‘13 numbers, so, the impact to sequestration on a year-over-year basis should be muted.

And then of course, in the fourth quarter, assuming the government stays open, you have some easier comparables in the fourth quarter of ‘14 as compared to ‘13. There is some new supply that you’re probably aware of this coming end of DC, the Marriott Marquee is about 1,200 rooms. We have heard that originally it was scheduled to open in May, it’s slightly just slipped another month into June.

And what we understand is that Marriott has done a very good job of selling that hotel and ramping it up. So, hopefully some of the impact of the industry will be mitigated with that new supply.

But long-term, we’ve got great hotels in DC, they make great money spend out a lot of great fast flow, which get great brands and locations within those markets. So, I do think that this is certainly a challenging time but going forward we’re very bullish on DC over the long-term.

Other markets, I would say that there is some challenges in Philadelphia when you look at the convention calendar. Nashville Convention calendar is incredibly strong. We see a lot of good outlook in certainly our West Coast markets, Seattle, San Francisco are very strong. The bookings are strong from what we hear in those markets. So we’re excited about more of the West Coast markets. And Philadelphia is probably the more challenged market in the portfolio. Atlantic Convention calendar is well, it’s very strong for the foreseeable future.

Thomas Allen – Morgan Stanley

All very helpful, thank you.

Operator

Our next question is from the line of Nikhil Bhalla with FBR. Please go ahead.

Nikhil Bhalla – FBR

Hi, good morning, everyone. Monty, you talked about, you referenced a couple of names here the Sheraton traded pretty high. Would you be able to give us some color on what the entity economics may look like just as it comes out of the gates? I think you talked $38 million of management revenues, you talked about $28 million of the expenses. If you don’t mind help us, kind of just think through the broad level of economics if you can? Thank you.

Monty Bennett

Well, I think we touched on the broad level of economics. There are $38 million in fees if they were paid today, just basically is with incentive fees. And it’s hard to estimate those are, but that will be on top of. And then our allocation of allocated expenses that we see right now is associated with this platform there is something like $28 million.

So back there and there is no debt on it, and there is no preferred equity at least, that’s what we’re planning on doing right now at the box. So, you can see that it has great positive strong cash flow. And again as I mentioned it’s got the ability to grow it on a multiple basis, considering its size which we think is a great advantage.

And we went over a number of different ways in which that fee income could increase over time while the expenses will not increase proportionately, whether to be growing Ashford Trust, launching Ashford Select Service platform. We’re growing Ashford Prime, launching our real-estate hedged equity strategy. And receiving the benefits of those higher levels of fees from that one in Ashford debt platform, which is something that we’ve got experienced with and have done.

Will it be management companies, property management companies and related of renovation companies, Remington being one but there are definitely others that are out there. Whether it be services that are provided to these hotels within these different structures of publicly traded platforms.

Our Inc. has the right to provide other market services to them such as future brokerage services of selling and buying assets such as bring about re-financings and financing services. In the list of potential services goes on and on, and whether that’s Ashford Inc. buying a company that sells for as a pedestrian example soap, and so in the soap to these, different platforms for their use in their rooms for their guest rooms for all the hotels, or it’s something more in the services sides which this management team has more experience with.

We just see quite a bit of revenue producing opportunity for this new spin-out platform. And that’s why we’re so excited about it and that’s why we did it. While we really are excited about the short-term run-ups in those platforms that I mentioned, and that helps because we know many of our investors are looking for shorter term movements in the stock, we think the long-term prospects then are absolutely fantastic.

And we’ve had a great eye for identifying our long-term moves. And that’s why over the long-term, our returns have materially outperformed our peers. So, we did this for the long-term benefits and all those revenue generating possibilities. But we’re also pleased that at least the market currently seems to be rewarding stocks in the short term for adopting this strategy.

Nikhil Bhalla – FBR

Thank you. That’s very helpful. Monty, just a follow-up question on the expense side. Does the $28 million is there an assumption there for public company costs or would that be over and above that?

David Kimichik

This is Kimo, that’s included in the $28 million.

Nikhil Bhalla – FBR

That is, okay. That’s all from me. Thank you so much.

Monty Bennett

Thank you.

Operator

Our next question is from the line of David Loeb with Robert W. Baird. Please go ahead.

David Loeb – Robert W. Baird

Good morning. Monty, a couple of follow-ups. Just on your last comment about the brokerage and financing, I guess if you’re talking about doing that for companies like Prime and Trust, wouldn’t that be included in the base fee, is in that kind of normal management that you would buy and sell our assets or refinance assets?

Monty Bennett

No, that would not be, because right now when we go out and we acquire some financings, we typically will hire a debt broker to help us with that to hire a real estate broker when we’re selling assets to the extent that the new manager acquires those skills then taking charge for those services.

Now, I believe that management team already has the skills on the debt side. And can offer that today. But on the property side, that would be something we’d have to build out.

David Loeb – Robert W. Baird

So, you’re really talking about replacing something you’re paying for externally?

Monty Bennett

That’s right.

David Loeb – Robert W. Baird

Okay. And on Remington, just to be clear, I don’t think Ashford Trust can own Remington prior to the spin-off right, because the management has to be done at an arm’s length way with (inaudible) the subsidiary?

Monty Bennett

That’s right, it just wouldn’t work beforehand. Although, you could probably have the property management, I’m sorry, the project management and construction business owned by – it’s probably speak too messy. So I don’t see it happening beforehand. The earliest would be simultaneous. But again, that might gum up our filings and make things difficult.

David Loeb – Robert W. Baird

Great. Possibly under contract or with an option to buy at in place or something like that?

Monty Bennett

Something like that but again, many times it’s on stock price, and who wants to take that risk. I just see it to be more cleaner, to be afterwards.

David Loeb – Robert W. Baird

But at the same time the more important piece here is that you as a principal owner of Remington, one of the two, your inclination is to have Remington be part of Ashford Inc.?

Monty Bennett

I think that would be a lot cleaner, and I think although over the past five, seven years, we’ve gotten just zero comments about the related parties between Remington and these others. I think some new investors would like it, we only face the question when we come across new potential investors.

But to assure the marketplace, there is no casting out that will be going on, I’m here, I’m staying here. We love this platform and if we did something like that we’ll just roll it all in and take back shares or our units and double down our investment in the platform.

David Loeb – Robert W. Baird

Right. It certainly does align the interests of public shareholders want to on the operator as well.

Monty Bennett

It definitely does.

David Loeb – Robert W. Baird

Just to kind of step back a little bit, why now, what it that motivated you to announce and commence the work on this spin-off now?

Monty Bennett

Versus sometime but versus when?

David Loeb – Robert W. Baird

Two years from now, after you’ve had a chance to grow the fee stream a bit more for example?

Monty Bennett

I would say, well, it’s because in order to grow some of those streams we need to be able to grow the real-estate platforms. And we just couldn’t grow trust because of where share price was performing. I think we shared with you that we think Trust has been trading in such a way that it’s equity cost of capital is over 25% because we think this, the share price will do very well.

So, we couldn’t raise equity capital into trust to grow the platforms. And as by growing the platforms as to how you grow the speeds right. So, if we’re to launch something bigger and to get bigger, we have to have these other platforms out there that grow and therefore grow the piece. So we couldn’t really grow it, at least the way we wanted to, just in one platform with Trust, because Trust can’t grow.

The only thing it could grow is if we just continue to grow Prime over time, and that’s possible. But we also want to make sure we do the right thing at Prime and we don’t want to grow Prime just to grow. And we’ve always avoided that accusation with investors and that speaks to our returns as well, is that we don’t grow just to grow, we do every single transaction and make sure it’s accretive.

Well, that just depends on where the stock price is trading and there are seasons where it’s good to under rate capital and seasons where it’s not. So, we didn’t want to be hamstrung or handcuffed to just one platform. So we think go ahead and getting it out there gives us more flexibility with more platforms to grow the fee string faster. So we’ll grow it faster by going ahead and spinning it out now.

David Loeb – Robert W. Baird

Okay. That’s actually very helpful. One more probably for Kimo. Can you just give us an idea about what the G &A of Trust would look like post transaction, obviously, we can calculate the fee we already have. But what do you think they reimbursements would be non-cash G&A expenses?

Monty Bennett

Well, I’ll deal with the reimbursement side of that non-cash. But the reimbursements were estimated to be about $6 million direct for Trust, in addition to its manager fee.

David Kimichik

Okay. Presumably the non-cash comp would be the same or would be along the same lines?

David Loeb – Robert W. Baird

Okay, great.

David Kimichik

So, just on a cash basis, let’s make it easy, the overhead for Trust is something like $30 million a year. And then as we split, it will be something like $28 million for Inc. and $6 million for Trust and that $4 million increase is the added cost for two public companies versus one.

Douglas Kessler

So, that explains a lot of that. And so I guess that’s kind of split between the two companies?

Monty Bennett

What do you mean?

Douglas Kessler

We increased the Delta.

Monty Bennett

Well, it starts at $30 million $28 million goes to one, $6 million goes to the others. So yes, I suppose that would be true.

David Loeb – Robert W. Baird

So, that starts at $30 million but moves out for Trust it goes to $32 million rather, $28 million plus $4 million?

David Kimichik

No, no, no, that $28 million includes.

David Loeb – Robert W. Baird

Okay.

David Kimichik

It’s $20 million afterwards it’s $28 million and $6 million in the other platform.

David Loeb – Robert W. Baird

Okay. We’ll work it all out and if we have questions we’ll call you. That’s great. Thank you very much.

Monty Bennett

Thank you.

Operator

Our next question is from the line of Patrick Scholes with SunTrust, please go ahead.

Patrick Scholes – SunTrust

Hi, good morning. The way I calculate it looks like you have pretty low dividend payout of CAD or FAD on the Prime. How much longer do you envision it staying that low?

David Kimichik

You mean, as far as our dividend?

Patrick Scholes – SunTrust

Yes, dividend.

David Kimichik

Well, we gave out the guidance this past December. And as you know our maybe don’t but we also like to every December give guidance for the upcoming year. And so that’s something for the board this coming December to sit down and discuss and to see. And if we and the board think that it will help our stock price performance to increase it we will.

Patrick Scholes – SunTrust

Okay. Thank you.

Operator

Our next question is from the line of Bryan Maher with Craig-Hallum Capital Group. Please go ahead.

Bryan Maher – Craig-Hallum Capital Group

Good morning guys, I apologize if I missed this. As it relates to Marriott impact on RevPAR both for Ashford Trust and Prime, as well for, do you guys have estimation of what the impact was as what RevPAR of impact might of been without those?

Monty Bennett

When you say Marriott, you say the accounting change?

Bryan Maher – Craig-Hallum Capital Group

Right. Right. What would you suspect RevPAR would have been. Would it have been up one percentage point, two percentage point, had that Marriott change not taken place?

Monty Bennett

Well, I think when we quantified board trust was about 20 basis point impact we see in Sandy for the quarter. And then as it relates to the accounting change, it’s – we don’t have that actually calculated, what I would say is just looking over the course of the full year and compared RevPAR on a year-over-year basis.

Bryan Maher – Craig-Hallum Capital Group

Okay. So, 300 basis points RevPAR degradation for Sandy and DC combined?

Monty Bennett

That’s right.

Bryan Maher – Craig-Hallum Capital Group

Or Trust?

Monty Bennett

That’s right.

Bryan Maher – Craig-Hallum Capital Group

Okay.

Operator

Our next question is a follow-up from the line of Ryan Meliker. Please go ahead.

Ryan Meliker – MLV & Company

Hi, just one last quick question. You guys talked, mentioned in the press release and I think it’s little bit on the call the plan to launch a select service hotel platform. Can you give us some color on what are you looking with spin-offs, some of the select service assets from Trust and potentially even Prime into a new read or whether this is something new what you guys are looking at potentially, acquiring one of the large select service portfolios that’s on the market right now and launching a third REIT to go along with Trust and Prime? Thanks.

Monty Bennett

Sure. We’re looking at all those options Ryan. The only option we’re not really looking at is pulling any of the select serve out of the Prime because those are high RevPAR assets and so we want to just keep those in there. But whether it be, any of those options and more are what we’re looking at as far as select service.

Ryan Meliker – MLV & Company

I guess when you think about Trust, I mean, how many, how small are you willing to make Trust, if you do decide to split up a select service obviously based on the assets that Trust owns today. If you split up select service you’d be looking at two pretty small companies I guess on a market cap basis and I’m not sure that would tend a lot as well as you were acquiring an entire portfolio to add in. So, it’s definitely you’re willing to do before you, you grow the platform or to be TBD still?

Monty Bennett

It really is TBD. First of all we don’t want to get Ashford Trust much smaller. So that’s going to go into our thinking a lot but there is no, hard and fast rules. We do notice that at least with all the analysis that size does not affect your trading multiples despite the fact that a lot of people say it does, but physically it doesn’t.

But we know our investors like more liquidity and so do we. So, we’re just reluctant to see where to do that. Sure, and I think from a size standpoint right now, we call that the Highland Hospitality which was formally a publicly traded company as embedded inside of Ashford Trust.

So, even if it were just that that would be arguably a sufficient platform on its own. But in addition to that, we still would have a great number of other full service hotels to the extent we were to do something with a select strategy. So, I think we would look at the situation as being more than adequate critical mass regardless of what we do.

Ryan Meliker – MLV & Company

All right. Thanks a lot.

Operator

Thank you. I’m showing no further questions at this time. I’d now like to turn the call back over to management for closing remarks.

Monty Bennett

Thank you all for your participation today. We will be hosting an Ashford Investor and Analyst Day again this year on May 15, at the Palace Hotel in New York City. Please be on the lookout for the safe date that’s May 15. We hope to see you there and we look forward to speaking with you again on our next call. Thank you.

Operator

Ladies and gentlemen, this concludes the Ashford Hospitality Trust and Ashford Hospitality Prime fourth quarter conference call. If you’d like to listen to a replay of today’s conference, please dial 1-800-406-7325 or 303-590-3030 with the access code of 4662726. We’d like to thank you for your participation. You may now disconnect.

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