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Ashford Hospitality Trust, Inc. (NYSE:AHT)

Q2 2010 Earnings Call Transcript

August 5, 2010 12:00 pm ET

Executives

Tripp Sullivan – Corporate Communications

Monty Bennett – CEO

David Kimichik – CFO andTreasurer

Doug Kessler – President

Analysts

Patrick Scholes – FBR

Andrew Whitman – Robert W. Baird

Smedes Rose – Keefe Bruyette Woods

Will Marks – JMP Securities

David Loeb – Robert W. Baird

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Ashford Hospitality second quarter 2010 earnings conference call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Thursday, August 5, 2010.

I would now like to turn the conference over to Tripp Sullivan with Corporate Communications. Please go ahead.

Tripp Sullivan

Thank you, Sarah. Welcome to the Ashford Hospitality Trust conference call to review the company's results for the second quarter of 2010. On the call today will be Monty Bennett, Chief Executive Officer; Doug Kessler, President; and David Kimichik, Chief Financial Officer.

The results, as well as notice of the accessibility of this conference call, on a listen-only basis over the Internet were released yesterday afternoon in a press release that has been covered by the financial media.

As we start, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information that are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to numerous assumptions, uncertainties, and known or unknown risks, which could cause actual results to differ materially from those anticipated. These risk factors are more fully discussed in the section entitled Risk Factors in Ashford's registration statement on Form S-3 and other filings with the Securities and Exchange Commission.

The forward-looking statements included in this conference call are only made as of the date of this call and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release, and accompanying tables or schedules, which has been filed on Form 8-K with the SEC on August 4, 2010 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.

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

Monty Bennett

Thank you. We are pleased to report that our second quarter 2010 performance was our best ever in terms of AFFO per share, with $0.46 in the quarter, compared with $0.31 a year ago. This year-over-year growth of 48% was the strongest reported from our lodging peer group. The quarter's success has a direct result of our investment, operational, and capital market strategies, which set us apart from the competition.

As a public company, we believe we have just completed one full cycle in the hotel industry. From the beginning, our desire was to create a more stable earnings platform through a variety of strategies in a volatile industry. Our trailing 12-month AFFO per share troughed in the third quarter of 2009 at a level just 14% below our peak, despite the worst downturn in the industry since the Great Depression. It seems our peers, however, have yet to trough, and thus far, are down an average of 78% from peak to trough on a trailing 12-month AFFO per share.

Our one-year, two-year, three-year, four-year, five-year, and six-year total shareholder returns exceed every one of our peers except Sully for one peers run up this year. Specifically, our share repurchases and debt strategies continue to accomplish the stated goals and distance us from the peer group. Loan extensions, modifications, and refinancing since January 2009 totaled $495 million, and has contributed to our strategy of reducing near-term loan maturities. We only have one $5.8 million non-extendable loan coming due between now and November 2011.

We are also benefiting from our floating-rate interest strategies, with freights remaining at historic lows with the Fed indicating rates are likely to remain low for an extended period of time. Based upon current LIBOR, we would expect to earn $62.1 million in 2010 from the strategies put in place beginning back in March 2008. By comparison, all of our peers have a significantly greater percentage of higher cost fixed rate debt during this downturn and have not capitalized on these unprecedented low rates.

Our share repurchases have been well-timed and quite effective. The goal of the strategy has been to maximize current and future shareholder appreciation by using our cash to make the best possible investment at a deep discount to value. During the quarter, we repurchased an additional 2.1 million shares of our common stock, and repurchased 519,000 operating partnership units. The total common share equivalents purchased since inception is 74.1 million shares, which is a 50.4% reduction from our historical peak fully diluted share count. Our average repurchase price since inception of the program is $3.26 per share for the common, $6.47 per share for preferred, and $7.25 for common equivalent partnership units. Based upon yesterday's closing prices, that represents approximately $500 million of shareholder value we have created this far, assuming we were to reissue like amounts this year is repurchased.

By comparison, our peers have raised large amounts of equity when we see an excess amount of capital chasing transactions at low cap rates and high prices per key. We are extremely pleased with the success of our buyback strategy, and have forecasted capital appreciation for our shareholders.

Now, turning to operations, the monthly improvement in RevPAR we cited last quarter has continued through the second quarter. Since reporting an increase of 2.9% from March, we have experienced a 3.5% gain in April, 3.8% in May, and 4.6% gain in June. For the entire quarter, RevPAR for the hotels not under renovation was up 4.5% compared to the prior year, and up 3.9% for all hotels. ADR was down to 3.1%, while occupancy was up 502 basis points for all hotels. As we witnessed room demand increase, we expect to see an upward movement in ADR, which should result in improved RevPAR growth. Although trends over the past two quarters suggest that the industry is past the inflection point in the cycle, we will continue to evaluate the trends for sustainability, and seek to more definitive signs of a well entrenched recovery. There are still economic indicators such as consumer confidence, unemployment, and GDP, that suggest the economic turnaround is not yet on front footing.

Our RevPAR for the quarter was below the average for the industry. This was due primarily to our over-concentration in under-performing markets, such as Orlando, Dallas, Washington D.C., and Jacksonville; and our under-concentration in out-performing markets such as New York, Boston, Chicago, New Orleans, and Denver. Markets typically recover at different paces, and we hope our RevPAR performance will pick up, given the diversity of our portfolio.

We continue to excel at managing our cost structure to maximize operating results. Our aggressive cost-cutting resulted in our hotel EBITDA margin increasing year-over-year by 195 basis points for all hotels. This is the first year-over-year gain on EBITDA margin we have reported in over six quarters. Our affiliated manager Remington contributed consistently to these results. Given how hard-won these gains have been, we intend to manage our operations very tightly and keep cost increases under control as the economy recovers.

Regarding capital expenditures, we completed $15.3 million of projects in the quarter. We remain on track for our targeted spend of $87 million for 2010, as we continue to selectively upgrade hotels to improve their competitive ranking in their markets. Given the level of investments in our portfolio over the past two years, we believe we are well-positioned to take advantage of the continued improvement in the economy. When we factor in the lack of new supply in our markets, we are very optimistic about our long-term outlook.

Looking ahead, we remain focused and disciplined on our top priorities. We continue to manage our business with strong operational practices, and capital markets ingenuity that delivers bottom-line results and positions the company for maximum shareholder appreciation.

I would now like to turn the call over to David Kimichik to review our financial results.

David Kimichik

Thanks, Monty. For the second quarter, we reported net income to common shareholders of $1,969,000; adjusted EBITDA of $59,147,000; and AFFO of $33,742,000 or $0.46 per diluted share.

At quarter’s end, Ashford had total assets of $3.9 billion, including $174.9 million of unrestricted cash. We had $2.8 billion of mortgage debt, with a blended average interest rate of 2.97%. Including the $1.8 billion interest rate swap, 98% of our debt is now floating, and the weighted average maturity is 4.9 years.

Since the length of the swap does not match the term of the underlying fixed rate debt, for GAAP purposes, the swap is not considered an effective hedge. The result of this is that the changes in the market value of these instruments must be run through our P&L each quarter as unrealized gains or losses on derivatives. These are non-cash entries that will affect our net income, but we add it back for purposes of calculating our AFFO. In the second quarter, it was a gain of $16,534,000, and year-to-date, it was a gain of $30,442,000.

At quarter’s end, our portfolio consisted of 101 hotels in continuing operations, containing 21,917 rooms. Additionally, as of June 30, we owned a position in four mezzanine loans with total book value of principal outstanding of $56.7 million, with average annual un-leveraged yield of 7.1%. The loan positions at other mezzanine loans was zero book value and no current yield. Hotel operating profit for the entire portfolio was up by $7.5 million or 12.2% for the quarter.

Our quarter-end adjusted EBITDA to fixed charge ratio now stands at 1.76 times versus the required minimum of 1.25 times. Ashford's net debt to gross assets is at 58.5% versus a not-to-exceed level of 65% for our credit facility covenants. At quarter-end, our share count was 73.1 million fully diluted shares outstanding, which is comprised of 51.1 million common shares, 14.6 million OP units, and 7.4 million shares on our series D convertible preferred.

Regarding the assets in special servicing, on the Westin O'Hare, we have been working with a special servicer on the loan to arrange a consensual deed in lieu of foreclosure. Based on the status, we are required to write down the book value in the fourth quarter of last year, the estimated fair market value, which resulted in an impairment of $59.3 million. Once the deed in lieu of foreclosure is finished, we will then record a gain of approximately $53 million to the level of the non-recourse debt on the property for net impairment of approximately $6.3 million.

Another asset with the special servicers are Courtyard in Manchester, Connecticut that secures a $5.8 million loan maturing in January 2011. We are currently in discussions regarding possible loan modifications.

In May, we received settlements on our mezzanine loan on the Le Meridian hotel in Dallas for $1.1 million. The loan had previously been fully written down, and we recorded a credit of $1.1 million to impairment charges.

Also, our hotel suites in Auburn Hills, Michigan is currently under contract to be sold. This hotel is located in a non-strategic market, and requires near-term capital expenditures. Although the contract is not yet hard, we elected to write the asset down to the estimated fair market value, and took an impairment charge of $12.1 million.

I would now like to turn it over to Douglas to discuss our capital market strategies.

Douglas Kessler

Thanks. There is an increasing amount of domestic and offshore capital seeking investments in the lodging sector for several reasons, including

expected out-performance compared to other real estate segments; inflationary hedge; discounted values; and anticipated favorable financial supply and balance for several years to come.

Buyers are now adjusting to seller expectations, which is resulting in cap rates for recent transactions ranging from 2% to 6% on current income for all hotel types. While we have recommenced looking at transactions and analyzing the dry powder we have for such opportunities, it is likely that any potential investment will have to be very strategic and unique in nature for us. We called it through our share repurchase strategies, we have been essentially acquiring hotel assets at significantly better value over the past couple of years, than what we see today. We are extremely pleased with the growth forecast of our buyback strategy, along with the immediate and longer-term impact this will have on shareholder stock price appreciation.

We continue to access capital in an environment that is showing increasing signs of liquidity. As we have discussed before, our goal is to push out loan maturities to better coincide with the recovery and market values to facilitate future refinancings or sales. During the second quarter, we restructured a loan to $156.2 million secured by the Hilton Ohio and the Capital Hilton, that extended a 2011 maturity to 2013, eliminated coverage guests and reduced our cash management provisions.

We also restructured a $52.5 million loan secured by the JW Marriott San Francisco, that was set to mature in 2011, with a full extension to 2013, eliminated the coverage test, and kept the rate at 375 basis points over LIBOR, in exchange for paying down the loan by $5 million. Even though we have a few loans coming due over the next several quarters, we continue to engage with lenders and servicers to restructure and extend loan maturities to add to the $0.5 billion of loans we have modified or refinanced since early 2009.

For example, we commenced discussions on a credit facility that does not mature until April 2012, just to see if an early restructure makes economic sense with the goal of adding maturity in a way that could also benefit the banks in the line.

As Monty mentioned earlier, our interest rate strategy is clearly having a positive benefit to our results. On a trailing 12-month basis, we have been able to save $61.6 million in interest expense. Based on the structure of our hedges, rates could increase by another 45 basis points from today, without any significant change in the benefit we receive. As long as LIBOR remains below 3.2%, an almost 11-fold increase from its current level, we will continue to receive positive benefits from the strategy through March 2013.

As of June 30, the market value of our swap and related financial transactions is $124.9 million. It is important to keep in mind that our interest rate strategy was initiated to offset the weakness in the economy by capitalizing on the correlation between RevPAR and LIBOR. Today, we are experiencing the positive benefit of both trends, with RevPAR increasing, and LIBOR remaining at historic lows.

We are monitoring the Fed's comments and economic projections closely. Recent Fed and economist indications suggest the timing of rate increases could be extended, resulting in added benefits from our strategy. We still expect that when interest rates increase over time, it is highly likely that RevPAR would similarly move upward. The strategy will then have accomplished the objective of providing a cash flow hedge.

Lastly, subsequent to quarter end, we participated with Prudential real estate investors in a discounted percentage of a partial interest in an existing mezzanine loan tranche associated with JDR's 2007 privatization of the Highland hospitality portfolio. Ashford's investment was $15 million. This new investment, which has more senior in the capital stack, is a strategic complement to our existing joint venture investment made with Prudential in 2008.

In summary, we believe we are executing well operationally and financially. We remain proactive and strategic in our efforts. And even more so now, we are completely aligned with our shareholders to enhance our share price, given that management and insiders own 20% of the company.

That concludes our prepared remarks. And we will now open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And our first question comes from the line of Patrick Scholes with FBR. Please proceed with your question.

Patrick Scholes – FBR

Hi, good morning. I wonder if you could give us a little more color on – you did 195 basis points of hotel EBITDA margin increase on basically 4% RevPAR growth, which, you know, on the surface, sounds impressive. How was that accomplished, you know, was there any sort of comparable issues that made that number, the 195 basis points look inflated at all?

Monty Bennett

Sure, this is Monty. If you look at our earnings release, the second last page details exactly what part of the P&L those benefits came from. And, you know, there was, I would say some savings that are kind of consistent over time and some pops, if you will. For example, and the lease is another section, which is 56 bps under 195. We had a couple of items in there.

On the leaser side, we had equipment leases at one property that stopped and were fully paid off, and so that was favorable year-over-year. We also had two ground releases that last year, at this point, were over-accrued, and so the comparison this year is favorable. And we also had some expenses in the first quarter that were run through the financial statements, and that should have been capitalized. And so, those were reversed. So, those were kind of, I don’t know, one-time pops.

If you look at property taxes, there is a good benefit there. How we generally book our property expense is we put in an amount that is consistent with say, the prior year or with what we are assessed, and only upon the actual return of cash dollars after our appeals, do we adjust the numbers. And so, we have got some positive impacts here in this quarter, because we have received some refunds for 2009 taxes. No, while that is some sense, counted one time pop, we do hope that over the next several quarters, as we continue to get the results back from 2009 appeals, and 2010 appeals, that we will have those sprinkle into our results for a number of quarters, but you just don't know until it happens. So I would say that those are kind of some of the one-timers.

Patrick Scholes – FBR

Okay, great. I appreciate the color, thank you.

Operator

Thank you. (Operator Instructions). And the next question comes from the line of Andrew Whitman with Baird. Please proceed with your question.

Andrew Whitman – Robert W. Baird

Good morning, guys. I guess, Doug or Monty, I just had a couple of questions on the mezz loan here on Highland. I guess kind of starting out with some of the economics and then maybe moving into a different strategy questions on that, can you just talk us through, on the economics, with what the coupon is that you are currently incurring, maybe defined it as on the face value, and then assuming you bought this at a substantial discount to PAR and what that means on the income today?

Monty Bennett

Sure. This is Monty. We did buy it to a discount to PAR. And as you can imagine, the season in which the sum was ordinarily made, the current pay on it is quite thin. We are in a joint venture in there with Prudential, and out of respect for the joint venture, I am just not going to get into too much specifics on that part of the note, but it is a position senior to our existing position, and we blocked that note as kind of a defensive and offensive play. We factored in some mezz positions, where we are wiped out, and that is not going to happen on this situation. When I say that I mean that we are going to fight and do everything we can to make sure that doesn't happen, because it was a good-sized investment for us, first time around; we invested $17 million to $18 million in mezz six and I think we should put in another $15 million. So, it is a nice portfolio, and we want to make sure that we get all of our money back.

Andrew Whitman – Robert W. Baird

Okay. I think you mentioned it in the prepared comments that you had a partial interest. Is that partial interest describing the venture that your partial interest in the venture or is there other people besides the venture that are in your mezz four position along with you?

Monty Bennett

Both.

Andrew Whitman – Robert W. Baird

Okay. So there is other partners. So, on the mezz floor position, how much does your venture own it? Are you a majority owner as debenture in the venture?

Monty Bennett

We are a majority owner, our venture is a majority owner.

Andrew Whitman – Robert W. Baird

Okay. That makes sense. Can you give us a sense about, just on the LBO, I guess, in 2007, kind of where your last dollar was in the capital stack at that point in time or maybe kind of where your last dollar would put you on a per-key basis?

Doug Kessler

You know, I do not have that information right here in front of me. Once you call back, David Kimichik and Hilda will dig up that information for you.

Andrew Whitman – Robert W. Baird

All right. And I want to do one more, I guess, on this one. And just understanding how, and this is just trying to understand how these things work. Because this is mezz and there is the secure debt in front of you, if this is an offensive move, you kind of alluded to this being an offensive move. How does that work when there is secured debt, and (inaudible) with some of those ones go bad. How does the mezz holder fall in when you have got a position on a portfolio, how does one bad secured loan allow you to get access as an unsecured claim on a portfolio?

Monty Bennett

Well, I know that you would probably do not want this answer, but it depends on almost every financing. You know, typically, there is a first mortgage lender, and then there is several tranches of mezz lenders. And in this case, there is eight tranches. So, it has a lot to do with what the value of the portfolio is. We feel very, very strongly about the value this portfolio is at or above the mezz four tranche, and the questions that you asked depend upon, a lot upon what (inaudible) agreements among those players, between the mezz players and the first, so it can get pretty technical and complicated, but everyone generally is different. So we feel very positive about our position and I think that we are going to come out very well.

Andrew Whitman – Robert W. Baird

Okay. And then one final question on Auburn Hills. Are you expecting any net cash proceeds on that sale?

Monty Bennett

We are. The property is currently unencumbered. So, what we sell it for is what we will put in our pocket.

Andrew Whitman – Robert W. Baird

Great, thanks. That is it from me, thanks.

Operator

Thank you. And our next question comes from the line of Smedes Rose with Keefe Bruyette Woods. Please proceed with your question.

Smedes Rose – Keefe Bruyette Woods

Hi. Is this $5.1 million of assets held for sale on the balance sheet, is that the Auburn property or is that related to something else?

David Kessler

No, that is it.

Smedes Rose – Keefe Bruyette Woods

Okay. And then, I guess, you know, you mentioned in your remarks, Monty, that you have some over-exposure to underperforming markets. And I am just wondering know that the transaction market seems to be picking up a little bit, or firming up. I mean, is there any interest for Ashford over some period of time to try to shift this portfolio out of some of those markets? Seems like you have a lot of Southeast exposure and maybe into, you know, kind of unfortunately the markets that everyone else seems to be in, are you happy with your portfolio right now?

Monty Bennett

That is a good question, and that is one that we have been ticking around here. You know, in the past, we found that our portfolio as ready closely merit of a national stash. You know, one month will be above, the other month will be below, but over time, just right on. This is the first time I can recall that we have had several months where it has been below. And so, that has been troubling for us, because we, by design, wanted our portfolio to track some of the national stats.

So now, we are sitting here and thinking, wealth of just our portfolio, we don’t want to adjust our portfolio and then the minute that we do adjust it, then it starts to revert back to the major markets that we are over-concentrated in outperform. And so then we are shooting ourselves in the foot. So now really what we have got to try to understand is how much do we think those markets that we are under-represented in are going to outperform going forward, if at all. And again, our experience is that it is nat spec. So it is kind of a complicated question for us.

And then there is getting rid of existing properties in this market is not so attractive. And then generally on the buy side, when we buy, you have to raise equity to buy, and our stock price is not as attractive as we want it to be in order to raise equity to go buy. And then, we also want to overpay when we jump in these new markets. So it is an excellent question, it is an answer that kind of confounds us, because we do not want to jump out there and do something and be worse off. So, you know, I would say that we will probably just wait a few quarters, and see if this is something that we think is longer term, and if it is, then we will devise a strategy to go rebalance our portfolio, and in the meantime, we will hope that it is just a short term blip.

Smedes Rose – Keefe Bruyette Woods

Okay. And then, could you just also comment, I guess on your interest in continuing to repurchase stock and also maybe some color on the dividend or potential dividend?

Monty Bennett

Regarding repurchasing stock, well, you never say never, you know, we don't think that we are inclined to be out there, buying stock, the price has run up to a level that at least, the way we look at it, we don't see it as accretive. So, you know, at these levels, I would say that it is very unlikely that we will be buying back the new stock. Regarding dividends, we are just going to stick to our pattern. In the December of each, we outline our dividend policy for the coming year. This past December, we said that we would most likely not be paying any dividends this year, and in December this coming year, we will talk about 2011.

Smedes Rose – Keefe Bruyette Woods

Okay, thank you.

Operator

Thank you. And our next question comes from the line of Will Marks with JMP Securities. Please proceed with your questions.

Will Marks – JMP Securities

Thank you. Hello, everyone. And as a follow-up to I think the first question that was asked on the roughly 4% RevPAR turning into really good margin expansion of 200 basis points almost. How should we – you gave some indication of some one-time issues and then continued it on the press release. But how should we look at that for the second half? Do you think you can achieve a 200 basis point margin improvement in the second half?

Monty Bennett

You know, I probably would just probably my first answer in that some of those are one-time issues, especially the ones in the list is another category. On the other section of property taxes, we hope to be receiving more refunds going forward, which would provide a positive benefit there. But we just do not know until it comes, and you know, you could probably handicap it as well as we could, but you just don't know what these taxing authorities will do. So, I would say probably with those property taxes appearances, you know, I would like to think that there are going to be some more positive variances, but I just do not know.

Unless those other expenses in the operating side, when we were really cutting back expenses to last year because of the downturn, as we worked with some of our management, some of our properties, we were having a challenge with one of our managers on the slick service hotels in order to get their costs in line and it took a while to get them there, maybe the third quarter or so. And therefore, some of the cuts that were put in place were put in place in the third quarter and the fourth quarter. And so, now we are still seeing some of the benefits of those cuts. So those will generally, I would hope to still see some of those benefits in the third quarter, but then, they should start to cycle out as we anniversary past those initial cuts.

Will Marks – JMP Securities

Okay. In terms of the top line, to appreciate that input on the margin, on the top line, if we look at the third quarter and fourth quarter, you know, it seems like July has been a fairly strong month, with decent RevPAR growth and you know, almost I think the second quarter. How should we be looking at, what are you seeing from your portfolio in the third quarter so far?

Monty Bennett

Well, we just don't give guidance, so we are not going to comment on the results so far in the third quarter, but I think the overall macro view holds true, which is, you can see that we are over-concentrated in some markets, none are concentrated in other markets, and generally, we keep up with our competitive set in those markets, so you know, a decent proxy is to look at where our properties are located, and see how those markets are performing.

Will Marks – JMP Securities

Do you see a similar breakdown in terms of seasonality in 2010 or 2009?

Monty Bennett

We have got a seasonality table in our relations well, and we don't see any reason why seasonality would be different.

Will Marks – JMP Securities

Okay, great. That is all from me, thanks.

Operator

(Operator Instructions). And our next question comes from the line of David Loeb with Baird. Please proceed with your question.

David Loeb – Robert W. Baird

We are double-teaming you this morning, thank you for that.

Monty Bennett

I noticed that.

David Loeb – Robert W. Baird

Yes, and I really do appreciate your candor on Andy's question, I know it is a complicated topic. I wanted to go a little deeper on what Smedes asked, really just about capital allocation, broadly. You have got a lot of cash on the balance sheet, you got cash flow coming in, you will have some select asset sales that will produce some proceeds. How do you look overall at capital allocation? It sounds like the stock is not necessarily something you are going to focus on, but as you look at the line balance or other uses of cash flow, how does that enter into the whole thought about the line renewal issues and things like that and, and just kind of the overall, how you look at capital allocation today?

Monty Bennett

Sure. As far as use of proceeds, I would say that, you know, the biggest items on our list as far as use of proceeds is our line and paying that down, as well as, you know, maybe acquisitions under the right circumstances, with probably more emphasis, well, definitely more emphasis on the line pay down, as far as use of capital. And then also sprinkled in there, we have got the CapEx, which we skimmed up just a little bit over the past couple of years, and we probably want to start loosening the reins on that. Again, we didn't get very far behind at all, but we have got a little bit of catching up to do on the CapEx side. So probably some use there as well.

David Loeb – Robert W. Baird

Well, it does sound like a little bit of a shift relative to the line, because you drew that all down and have held on to a lot of cash. Are you thinking of using your existing cash to reduce that, does that enter into the discussions with the existing vendors about renewal or new line?

Monty Bennett

There is a shift. You know, we are through a period where we think that the, it seems like at least that we have hit the bottom as far as the ministry come back. So, you know, our concerns about the banks being able to provide the cash when we call it, those concerns have upgraded. And you know, when you are up there and you do not know where bottom is, it can be very scary. Well, it seems like the industry has hit bottom and things will be going up from here. So, we are definitely feeling a little more relaxed and our attitude toward that has changed.

David Loeb – Robert W. Baird

Okay, and Doug, just in terms of options put in line, this I promise is my last one. As you look at secured versus unsecured, I guess you have unencumbered assets that you really can't encumber because of the limits on the current line. What is your thought about secured versus unsecured going forward? Or is it really just too early for you to be making that call?

Doug Kessler

Obviously, we have a very attractive line that has a maturity date in April of 2012. So we have, you know, the benefit of extended period before we actually have to address it, but as I mentioned in my comments, we believe, if you have seen us, to be very proactive in looking at opportunities with our line, the current lending environment is one that is more focused on secure-type assets. We have the ability to pledge some of our unencumbered hotels, we have three such hotels. So, you know, I think most lines today that are being extended encompass some form of a pledge of unencumbered assets, some form potentially of a pay-down. So we are going to evaluate what we think is in the best economic interest for the shareholders, bearing in mind that we have time, but we also want to do something that we think is in the best interest of the banks that we are close to. So it is a fluid dialogue. We have commenced those discussions as I have suggested, and will hopefully have more to say about this perhaps in the coming calls.

David Loeb – Robert W. Baird

Okay, great. Thank you.

Operator

Thank you. And there are no further questions at this time. Mr. Bennett, I will now turn the conference back to you to continue with your presentation or closing remarks. Thank you.

Monty Bennett

Thank you. Thanks everybody for joining the call today, and we look forward to talking with you again on our next quarter's call.

Operator

And ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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Source: Ashford Hospitality Trust, Inc. Q2 2010 Earnings Call Transcript
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