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Ashford Hospitality Trust, Inc. (NYSE:AHT)

Q2 2012 Earnings Call

August 2, 2012, 11:00 a.m. ET

Executives

Scott Eckstein - Financial Relations Board

Monty Bennett – CEO

Douglas Kessler – President

David Kimichik - CFO & Treasurer

Analysts

Ryan Meliker – MLV

Nikhil Bhalla – FBR

David Loeb - Robert W. Baird

Will Marks – JMP Securities

Robin Farley – UBS

Operator

Good day ladies and gentlemen. Thank you for standing by. Welcome to the Ashford Hospitality Trust second quarter 2012 conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Thursday August 2, 2012.

I would like to turn the conference over to Scott Eckstein with Financial Relations Board. Please go ahead, sir.

Scott Eckstein

Good day, everyone, and welcome to Ashford Hospitality Trust conference call to review the company’s results for the second quarter of 2012. On the call today will be Monty Bennett, Chief Executive Officer; Douglas Kessler, President; and David Kimichik, Chief Financial Officer.

The results as well as a notice of the accessibility of this conference call on a listen-only basis over the internet were distributed yesterday afternoon in a press release that has been covered by the Financial Media.

At this time, let me remind you that certain statements and assumptions in this conference call contain are based upon forward-looking information and are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These risk factors are more fully discussed in the section entitled “Risk Factors” in Ashford’s Registration Statement on Form S-3 and other filings with the Securities and Exchange Commission. The forward-looking statements including this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company’s earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on August 1, 2012, and may also be accessed through the company’s website at www.ahtreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release.

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

Monty Bennett

Thank you and good morning. We are pleased to report a solid recovery in our RevPAR for the second quarter with growth, 7.3% for hotels not under renovations in our legacy portfolio, and RevPAR growth of 7.6% for hotels not under renovation in our Highland portfolio.

Additionally, our adjusted EBITDA of 98.4 million reflect a 10% growth over the prior year. On a capital market side of our business, we continue to be conservative with our conditioning and utilization. Our capital strategies include optimistically utilizing our preferred equity aftermarket offering, refinancings and asset sales.

With respect to transactions, finding accretive hotel investments is currently challenging for us. Although we are actively underwriting opportunities, the acquisition market is very competitive for high quality hotels.

At our current share price, we find it unattractive to pursue most investment in the United States or in Europe. Our share price will need to materially increase before potential acquisitions become attractive, especially those in Europe.

With among the high percentage of insider ownership of 20%, I can assure you that we remain [inaudible] focused on strategies to increase total shareholder returns.

Overall, lodging fundamentals remain strong, DS hotel market is performing exceptionally well despite the choppy global backdrop of a sluggish U.S. economy and the overhang of the dark clouds in Europe on many economic, social and political matters. All the data we’ve gathered supports our expectation of a prolonged, upward trend in lodging fundamentals that we believe is conducive for substantial long-term growth and appreciation.

In fact, PKF hospitality research recently affirmed its strong forecast of RevPAR growth, projecting RevPAR for U.S. hotels will increase 6.6 in 2013, and 7.8% in 2014. As a result, we are very bullish on the upside potential of this lodging cycle.

We believe this remains a very appealing time to invest in lodging stocks. We are still early in the cycle, perhaps about a third to a half of the way through, what we seek to be an extended period of growth.

Additionally, we expect history to repeat, mainly that this lodging cycle peak will exceed the prior peak in terms of RevPAR, EBITDA and hotel values.

A key driver for this healthy lodging recovery is the lack of new supply. Construction financing for lodging remains very difficult to obtain. While we have commented on this favorable demand, supply and balance before, the significance cannot be under estimated. The forecast for PKF in this regard have remained unchanged, projecting new supply growth for 2012, 2013, and 2014, a .5%, 1.0%, and 1.6% respectively.

New supply is expected to remain on average well below 2% annually, through at least 2016, which is less than the average annual change in the nations lodging supply, from 1988 through 2011.

For the foreseeable future, U.S. hotel demand is expected to significantly outpace available supply. If you consider that lodging is already reaching peak demand levels in many submarkets, the absence of new hotel rooms coming on in that market, should lead it to high room rates.

This drives better margins, performance as a flow through of average daily rates exceed that of occupancy gains.

Today, more specifically to our second quarter financial and operations performance, we reported AFFO per diluted share of $0.52 compared to $0.65 a year ago. As in the first quarter of 2012, a majority of the variation of performance is due to the favorable impact we experienced last year from interest rate hedges that we used to protect our cash flows during the economic downturn.

Hedge income for the quarter was 10.2 million less than the prior year quarter, impacting AFFO per diluted share by $0.12. With the economic recovery taking hold and the hedges burning off, as expected, we are seeing less impact from these risk management tools in our financial reporting.

Our new strategy, compared to our peers worked quite well from a financial and timing standpoint.

During the second quarter, we continued to achieve a strong hotel EBITDA growth with hotel EBITDA flows of 57% in margin improvement of 142 basis points for all hotels in our legacy portfolio.

As discussed earlier, we expect our cost saving measures will continue to facilitate strong bottom line performance as RevPAR continues to improve.

Regarding our Highland hospitality portfolio, we are very pleased with the value we’ve created in the past year, since our investment in this high quality collection of hotel properties. We’ve had great success in changing over management, improving operations, enhancing assets with capital expenditures and maximizing cash flow.

During the past quarter, RevPAR for all hotels in the Highland portfolio increased by 6.4%. We also achieved hotel EBITDA flows of 80% and hotel EBITDA margin improvement of 205 basis points. Hotel EBITDA for all hotels in the Highland portfolio grew by 11.3% in the quarter.

On the topic of dividends, we previously announced that our Board of Directors declared a dividend of $0.11 per-share for the second quarter 2012, which represents an annual rate of $0.44 per-share. This cover dividend is well above our peer average. Based upon yesterday’s closing price, the dividend yield is a very strong 5.8%, which is among the highest of our peer group.

In summary, our portfolio continues to perform well and our ability to execute our business plans remain strong. As we look ahead, we are excited about the prospects for continued industry wide RevPAR recovery. At the same time, we maintain our focus on risk mitigation and preserving financial flexibility to weather possible impact, short-term economic disruptions.

As always, the endgame for our strategies overall, is to create long-term shareholder value.

Now, before I turn the call over to David Kimichik to review our financial results, I’d like to highlight some additional information we provided with this quarters financial reporting. In fact, much of this new data is at the request of some of you on this call.

In this financial report, we’re including more detailed disclosure of our debt and [inaudible] and EBITDA by loan pool. We strongly believe that this recording on a loan-by-loan basis will greatly assist the market in better understanding the value of our portfolio, and the benefit of the structure of the nonrecourse loans we have in place.

Up until now, if one were to take the approach of applying a multiple to our entire EBITDA, and then backing out to our debt to calculate our share price, it may imply negative equity to various loan pools.

However, this approach underestimates the inherit benefit of our non-recourse debt. Consider the following, any grouping of assets that may currently appear to be under water relative to its allocated debt, does not necessarily have negative equity, given all of our property level debt and non-recourse.

I encourage our investors and research analyst to take the time to consider this additional disclosure of information in your analyst of the company.

With that, I will now turn the call over to [inaudible], to review our financial performance for the second quarter.

Unidentified Company Representative

Thanks, Monty. For the second quarter we reported a net loss to common shareholders of $13 million, 304,000, adjusted EBITDA of $98 million, 442,000, and a AFFO of $43 million, 985,000 or $0.52 per diluted share.

Headquarters and Ashford had total assets of $3.5 billion in continuing operations, and $4.4 billion overall, including our share of the Highland portfolio, which is not consolidated. We had $2.3 billion of mortgage debt in continuing operations, and $3.1 billion overall, including Highland.

Our total combined debt currently has a blended average interest rate of 4.9%, and we currently have 62% fix rate debt, and 38% floating rate. The rated average maturity is 3.8 years.

Since the length of this swap does not determine the underlying fixed rate debt per GAAP purpose, this swap is not considered an effective hedge. The result of this is the changes in market value of these instruments must run through our P&L each quarter as unrealized gains or losses on derivatives. These are non-cash entries that will affect our net income, but we add it back for purposes of calculating our AFFO.

The second quarter, it was a loss of $7.5 million, and for the year it was a loss of $17.4 million.

At quarters end, our legacy portfolio consisted of 96 hotels in continuing operations, containing 20,395 rooms. Additionally, we own 71.74% of the 28 Highland hotels, containing 58,000 net rooms in adjoint venture. All combined, we currently own a total of 26,195 net rooms.

During the quarter we took a $4.1 million impairment charge on the Hilton hotel in Tucson. We wrote down the value to the level of non-recourse debt on the property, and are in discussions with the lender on a possible [inaudible] or conventional foreclosure transaction.

We’re currently on a position in just one performing mezzanine loan, the Ritz-Carlton in Key Biscayne, Florida with an outstanding balance of $4 million.

Hotel operating profits for all hotels, including Highland was up by $10.7 million or 10.8% for the quarter. Our quarter and adjusted EBITDA, the fixed charge ratio for our credit facility, now stands at 1.48 times versus the required minimum 1.35 times.

As Monty mentioned, our quarterly results for adjusted EBITDA of $98.4 million exceeded prior year by 10%. You should note that we have begun adding back the non-cash stock based amortization expense in our calculation of adjusted EBITDA. We believe our prior methodology distorted our true cash EBITDA, and our current methodology of adding back this non-cash amortization expense is consistent with many industry peers.

We continue to show it as a deduct for AFFO purposes, and associated shares are reflected in our fully diluted share counts, once they’ve [inaudible].

Our share count currently stands at 85.8 million fully diluted shares outstanding, which are comprised of 68.2 million common shares, and 17.6 million OP units.

During the quarter, we sold 301,000 shares of our Series A and Series B preferred stock through our at the market program, for total gross proceeds of $7.4 million.

I’d now like to turn it over to Douglas, to discuss our capital market strategies.

Douglas Kessler

Thank you, and good morning. We remain focused on strengthening our liquidity and financial resources to provide insulation against possible short-term market fluctuations, while being ready to take advantage of any accretive investment opportunities.

There are an increasing number of hotels for sale, and the financial markets are more liquid. During the quarter, we successfully refinanced or sold 2012 maturity. The $167.2 million loan was refinanced with a new $135 million loan that matures in May of 2014, and its three one year extension option, subject to satisfaction of certain conditions.

The new loan provides for a floating interest rate of LIBOR plus 6.5%, with no LIBOR floor. Having addressed all of our 2012 debt maturities, we are all ready looking ahead at 2013 and are engaged in discussions with several lenders regarding the $101 million of loans set to mature in the first and second quarter of next year in the Highland portfolio.

We’re also looking at refinancing another loan pool in our legacy portfolio, well ahead of the maturity date, given a more favorable interest rate environment today, compared to when we closed on the original loan.

We see the financing market for high quality hotels, with strong sponsorship now attracting multiple bids from lenders.

Given the high debt yields on both these financing initiatives, we do not expect any paydown will be required. Again, these transactions are not for some time, but we wanted to give you an indication of our on-going proactive approach to staying well ahead of future financings, on assets that are core to our portfolio.

On the transaction side of our business, we are now actively marketing the sale of the Double Tree, Columbus. Regarding other asset sales, it is worth noting that we regularly receive interest from unsolicited buyers for many of our hotels.

We’re generally inclined to hold hotels rather than sell them at this point in the cycle for the following reasons. First, we expect to see improvement in net operating income at our hotels, which should lead to increased value.

We’re not solely focused on generating the highest internal rates returned, and instead are focused on maximizing the net present value of total dollars from our investments.

Second, we expect to see more capital flowing in to lodging investments, which will keep the market very competitive. This typically happens as the lodging cycle shows more sustained upside and stability, which tends to bring the more cautious investors back to the table.

Third, we do not see the immediate risk of cap rate expansion. As long as interest rates remain low and capital flows in to lodging are increasing, we believe cap rates will not rise dramatically.

Lastly, we expect to see the debt markets becoming more liquid for lodging. This will help to sustain the high returns for certain buyers seeking the benefits of leverage. Our assessments of these factors and others is fluid, and subject to change.

At this time, we believe we are in a good position to evaluate the increasing number of hotel investment opportunities. We remain very selective and disciplined. As I mentioned on our last call, we are primarily focusing our attention on full-service, upper upscale hotels, franchised with major brands and top markets.

Although we’ve talked about Europe, we simply continue to study and monitor the financial, political, and social dynamics. Given the European market uncertainties and risk, we have no immediate plans to enter this market unless conditions over there change, our stock price materially improves, and we are presented with a very attractive investment opportunity.

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

Question-and-Answer Session

Operator

Thank you, Sir. Ladies and Gentlemen, we will now begin the question and answer session. (Operator instructions). Our first question is from the line of Ryan Meliker with MLV and Company. Please go ahead.

Ryan Meliker – MLV and Company

Good morning, guys. Congratulations on a great quarter. Just a couple of quick questions for you. First with regards to fundamentals in the quarter, you guys obviously had a material acceleration in [inaudible] growth in 1Q to 2Q particularly at Highland. I'm wondering if there were any one time items in the quarter that really led to the massive acceleration or if you could just give us some color on why things improved so much, whether it was just everything that you've done at Highland over the past year finally coming to fruition in this quarter? Thanks.

Monty Bennett

Sure, thanks, Ryan. Last quarter was a difficult one for us, and as you recall, on a phone call that we had with everyone, and that our annual investor day in New York. As we went through the results, we were a bit exasperated because we couldn’t find anything systemic about the performance. It was due to a number of one-time events whether it was all of the flight cancellations that did not occur in the first quarter of this year versus prior years. And therefore, there weren't as many distress days at our airport markets, to Nashville not having the same run up in demand as the prior year, downtown Nashville because during that time, there were floods out in the outskirts of town that drove all the business downtown. And we were hit by a number of one-time events in the first quarter.

So really here in the second quarter, there wasn’t so much of a one-time event that helped us. But there weren't all the one-time events that hurt us, that hurt us in the first quarter.

Another example is the Super Bowl that happened in Dallas the prior year. So the comparisons for the first quarter of this year hurt us.

So it was more just a removal of the kind of one-off events that happened in the first quarter.

Ryan Meliker – MLV and Company

Okay, that's helpful. And it gives positive signs for going forward too.

Second question I had was with regards to your new disclosures, and first of all, I think it's really helpful. Thank you. By any chance, are you guys planning to, or maybe you did and I didn’t see it yet, are we going to get a breakdown of which assets are enclosed in each of these debt pools?

Monty Bennett

At this time, we haven't decided to do that. We're trying to thread that needle of trying to have a little bit of information confidential from our competitors. At the same time, providing our investors with information they need to properly value us. So we think that this properly did thread that needle. So at this time, we don’t have any intention of listing the properties specifically as to which is in which debt pool.

Ryan Meliker – MLV and Company

Okay, fair enough, that's disappointing, but okay. Next question was with regards to a couple of the debt pools, if I look at the (inaudible) one and the UBS two and maybe the narrow two, three, and seven, if I look at the trailing 12-month EBITA relative to the book value you had on the books at the end of 2011, the book value looks incredibly light. Is there a particular reason why that might be the case and then we're talking trailing seven, eight times trailing EBITA's for those four or five portfolios?

Unidentified Company Representative

Ryan, this is Kimmo. Yes, the book value is relative to what we paid for the assets. And the results are the results going forward are looking back 12 months. You have results here. And it can be totally different from the valuation that is put on by the book method methodology.

Monty Bennett

The book value is, are you talking about gross book or net book?

Ryan Meliker – MLV and Company

I believe this was net book.

Monty Bennett

So this is after depreciation, so obviously that can change. Those Merrill Lynch pools were assets that we bought in 2005 I think. 2005 and 2006, so that's been quite some time since we purchased those assets, so we don’t see any – you know, it's just a change in the cash flows and the market values since that time with deprecation coming off of those assets over time. And CapEx added into it. I think it adds to the net book value. So we'll take a look at that and see if there's anything peculiar about those. But we don’t see anything that would require any further commentary other than that are what they are.

Ryan Meliker – MLV and Company

Sure, maybe good acquisitions when you made them. That's great. And then just the last minor issue, based on the renovation schedule you guys have in the back of your press release, it looks like you're going to have materially more renovations in the fourth quarter than the third quarter. Should we expect slower [inaudible] progress in 4Q than 3Q due to those rennovations?

Monty Bennett

As you know, we are hesitant to provide any guidance going forward. But if you look at our history, Ryan, this is typical of what we've done in prior years. We really try to put as many renovations in the fourth quarter and the first quarter of the following year as we can for obvious reasons. It's slower and there's less disruption. So I think that the first thing to do would be look at the level of renovations the prior year and hear those two and see if there's a material difference. And I wouldn’t think there would be.

Ryan Meliker – MLV and Company

Okay, and then last real quick question. It looks like in the first and second quarters, you guys actually were renovating the Hilton El Conquistador. Can you give us some color on how much money you put in and what the thought process is now that you're in the process of a potential [inaudible] foreclosure?

Monty Bennett

Sure, the amount of money we put in was too much. And we hadn't done it. You know, we did some work in the lobby areas. And that was due to some pressure from Hilton, who is a manager there and some requirements we had to meet with those guys. So and because it was in some of the public areas, we'll tend to mention that I put it on the schedule because there's potential disruption when you put in the public areas whether – while if you're taking some rooms out and you're otherwise not occupying them, there's not that much disruption. As far as the exact dollar amount of those renovations, I don’t know offhand, so we'll get that figure for you and share it with you.

But we've tried to market that hotel for sale for some time. And every time we get a buyer lined up, after a while, the buyer would fall out. I think we've tried it off and on for two years now. And have just been unsuccessful in doing that. Meanwhile, it's a cash flow negative. And we've also talked to Hilton about converting it to a franchise because we think Remington could run much better numbers. But the penalty they would require us to pay to convert it to a franchise was just too expensive.

And then here recently, we had some floods out at one of the golf courses where it caused a material amount of damage. And so we're just done. It's we believe hurting our numbers because it's factored into our future 12-month EBITA projections that you guys put out there because it's negative. And just like all of these other additional disclosures that we put on the release is that if you have a property with a lower negative EBITA and you've got a debt balance, then we believe the market assigns negative equity value to it.

So while in a different form or different life, we'd love to put a bunch more money into it and hold it for the long term, we just don’t think that it's right for our platform anymore. So again, we've been trying to get rid of it for some time, but just haven't been able to sell it. And the price we were going to sell it at wasn’t that much more above the debt. So we just got to the point where look, let's just take it for the debt and be done with it.

Ryan Meliker – MLV and Company

Fair enough. Well, thank you guys for answering all my questions and congratulations on a great quarter.

Monty Bennett

Thanks, Ryan.

Operator

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

Nikhil Bhalla - FBR

Good morning. Just a question on Conquistador real quick. The thing called mount EBITA is $1.4 million roughly. Would the forward numbers be much worse than that?

Monty Bennett

I don’t have that forecast. But remember, you've got FF&E reserves that come off of that as well. And so from a cash flow standpoint, it's just something we don’t want to continue to carry. And again, the amount that we were marketing the property for two years above the debt was just, I don’t know, $3, $4, or $5 million. So to hand it back to the lender is we think a wise decision considering the fact that the cash flow on it has been negative after that reserve.

Nikhil Bhalla - FBR

Right, so just to follow up on that a little bit, what I was really trying to understand was that if you were to think EBITDA for 2012 and 2013, this is accruing 12 month numbers like $1.4 million negative. And going forward, the impact would have been much more if this asset would have probably stayed on. But removing it obviously helps more than the value we see on a trailing 12 month basis. Is that right?

Monty Bennett

If I understand your question, by having negative $1.4 million come off our EBITA stream and forecast, even if you assumed for the next 12 months that it was about the same, that's about a negative $12 million of value with $20 million of debt. So that the net negative to our platform is $30 million of value, which is what, $.40 per share. So the way the market values this is by handing that property back alone justifies that difference in overall pricing.

So we just thought it was a best decision. We just didn’t want to hang on. We've hung onto it for too long already.

Nikhil Bhalla - FBR

Sure, that makes sense. And one final question on just a Crystal City market, in 1Q, you had some significant back there. Are there any improvement in that market after the base realignments and all that stuff?

Monty Bennett

The base realignments is an ongoing process. And it's going to be tough for us in that market for a little while. The [inaudible] process is one that's going to displace three million square feet of meeting space. If my numbers are right, about a million of it has been back filled already. But there's two million that's going to be in the process of being vacated and going to be back filled over time.

Most of that high quality space is owned by Bernado. They own a large percentage of it. And we're in touch with them. And they are very aggressive about releasing it to other government agencies or contractors.

Also the impact that we face there is the new Renaissance that was built. And that's in the market. And that's close to stabilizing. So at the very least with the lack of the Renaissance affecting our business, number one, that helps. And then number two, as this office space gets back filled, then we'll expect increases there.

That being said, that Merit Gateway is still a very popular spot for conferences because it's right there on the Metro line. And people just love that for a conference. So it's going to be a challenge in that market as well as it is for the overall BC market for the next year, maybe two.

Nikhil Bhalla - FBR

Got it, thank you very much.

Operator

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

David Loeb – Robert W. Baird

Yes, Monty, while you were on Brack, what do you think about per diem and do you think those two interact in any way?

Monty Bennett

We spent a lot of time talking about that. Obviously, the per diem talk is worrisome. I think it's important for the government to cut back. But it seems like they're more focused on cutting back the .02% of the federal budget that's on travel rather than everything else on the budget.

So it's going to be what it's going to be. And we're going to manage the process much like you would, David, in that we'll have to look at each property, how much government business it gets, how much CRC business it gets, cost reimbursable contractor business that also gets government rates, and then make the best decision for each property.

But clearly, the lowering of those rates is not good overall. Who knows, maybe we'll get a little bit of benefit in that some of the business will get pushed out of the downtown area of DC and out to Crystal City because some properties there won't want to take it anymore. We'll just have to see. And it's going to be a property by property basis.

If you look at our assets in DC, that's the biggest area of our exposure for our company. And it's really divided up into two areas. We're kind of in the downtown area as it were, the city center area where we have three assets. And then the Crystal City area where we've got those three assets. And Crystal City is affected by Brack.

The other assets down in City Center, the Capital Hilton had gone through renovation and is through with all that. And the Churchill and the Melrose had been going through renovations. And through a lot of it all, we might do some more in Churchill next year.

So we've got a lot of dynamics happening for each property. So it's going to be kind of a complicated question. For example, the Melrose has been renovated substantially above where it was before. And because of that, just about every piece of business we had in the property will no longer come to the property at the rates we want to charge. But we might have to charge low rates for a while until we can fill it up. So maybe that's a better discussion on an acid by acid basis.

David Loeb – Robert W. Baird

Okay, but so far at least, you're not planning for kind of a CBD market wide reduction in demand that may lower the floor in the kind of base level demand level that might limit pricing?

Monty Bennett

When you say prepare for, there's really not much to prepare for. If business falls, we are always very flexible on the labor side to control our costs to cut them. So we need about 15 minutes notice in order to do that.

And on the yield management side, we also react very quickly. And we're still preparing ourselves for that possibility.

Just like the big question mark we've got across the country with this fiscal cliff issue coming up. If that happens, if those taxes all go up and it's sucks $350 billion a year out of our economy starting January 1st, that is going to be an impact everywhere. And we just have to be prepared for it.

Now we all hope that something will be done about that. And that's our base case that Congress will do something about that. But we've got to be prepared in case it doesn’t happen or for a potential slowdown in demand growth.

David Loeb – Robert W. Baird

That makes sense. Back to your comments about the common stock and the price being so low that you would not be particularly motivated to make acquisitions either in the U.S. or Europe. Is it at a point where you would consider buybacks?

Monty Bennett

Historically, below $8 has been an area where we've considered buybacks. And so for the first time, we're starting to run that analysis again. The tradeoff that we've got internally is, how much cash we want to keep on hand versus the buybacks. It's economical we believe to do buybacks. But we want to keep some cash on hand for potential opportunities or any variation that occurs in the marketplace and just a matter of conservatism. And so that's the debate we're having back and forth internally.

David Loeb – Robert W. Baird

And then in terms of on the flip side of that, you are selling preferred shares. What's the use of proceeds for that? Is it essentially to fund your principal payments?

Monty Bennett

We sold some. We're not in the market now selling them. We had that just to bolster our cash position. And that's really no other purpose to do that. It's just very expensive for us.

David Loeb – Robert W. Baird

Sure, and one final question. As I look at the amount of renovation that you've done in both the Legacy and the Highland portfolio this year, as you look at them to 2013, is it likely to add a little bit relative to the level of spending in 2012?

Monty Bennett

We haven't done our CapEx plans yet for 2013. But off the top of my head, I'd say that there would be less on those plans for 2013 than for 2012. Now realize that because we typically internally approve our CapEx plans pretty late in the year and we like to do renovations during the slow time of the year that a lot of the say 2012 renovations that we plan don’t occur until late in the year.

But that being said, our overall 2013 plans at this point and time I would think would be dollar amounts below the 2012 plans.

David Loeb – Robert W. Baird

Great, thank you very much.

Operator

Thank you, our next question is from the line of Will Marks with JMP Securities. Please go ahead.

Will Marks – JMP Securities

Thank you and good morning. I had a question, this is kind of a tricky one, maybe it borders on guidance, but the equity in earnings of unconsolidated JV, I mean it's such a volatile line. Is there any way that you can kind of help us look at that for the year?

Monty Bennett

I'll have to think about that, Will.

Will Marks – JMP Securities

Maybe I'll call you back.

Monty Bennett

Yes, why don’t I think about that and we'll talk later today. Giving guidance, we're not going to give forward guidance. But if there's a way to help you better understand what has happened and you can make some predictions based on that, maybe we could give you that guidance. But I'll think about that.

Will Marks – JMP Securities

Okay, unrelated, a kind of big picture question, which you've certainly addressed on the call, but maybe I'll take it a step further. And that is just I think you made it clear on why dispositions may not make sense right now. You're not seeming to be in favor of that. But on acquisitions, how are you thinking about this in terms of your capital structure and leverage because on the surface, your balance sheet is a little bit stretched. But you've certainly got through the last downturn pretty well. So any comments on that would be appreciated.

Monty Bennett

Sure, we think that our leverage levels are fine. From a private market, companies are clearly more leveraged than we are. Although public market companies typically are less leveraged. But we think we're in the right spot for where we are on the cycle.

That being said, we are naturally deleveraging through amortization on our loans that have been picked up over time, and cash traps in a number of our loans, but have picked up. So we're deleveraging regardless.

So when we look at future acquisitions, that funding would ultimately largely come from common raises. If you dissolve the credit line, then we would also replace it with common because we're not looking to leverage up. And the price of our common is just too low right now. So it just makes it challenging for us to consider something like that.

Then over in Europe, not only is our numbers, our stock price low, but over in Europe, the right time to get over there is once they solve their problems but the economy hasn’t recovered, and pricing hasn’t recovered, that's a good time to get in. But they haven't solved their problem. They're still kicking the can down the road. And they have not comprehensively addressed their structural problems over there. And until they do, it just doesn’t seem to be smart to jump over there and buy some assets because the problem solving is a political solution. And it's very hard to predict politically when something is going to happen or not going to happen.

We still research over there, and develop contacts, and we want to go over there one day. But that day might be – first of all, our stock price has to move materially and they've got to solve this problem. And it could go on for years for all we know. So we'll just do our research, and be prepared, and one day, we might be over there. But it looks like it's quite some time off.

Will Marks – JMP Securities

Okay, thank you very much.

Operator

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

Robin Farley – UBS

Thank you, I just want to clarify, you mentioned you haven't decided on 2013 renovations yet. But just for the projects that you have already announced and are under way, I see the schedule by quarter for 2012, but will most of those projects be done by 2013 or will there still be quarters of 2013 that will be as impacted as the quarters you've had?

Monty Bennett

Robin, we're just going to have to probably get back with you on that because I just don’t have all that information here in front of me. In fact, let me ask Kimmo here, when do we usually let loose our 2013 schedule? Is that in October or is it? So in our next earnings call, we typically will forecast all the way into next year. As far as trying to get some information before that, we'll just have to get back to you separately.

Robin Farley - UBS

Okay, that's fine, thanks. And then most of my questions were answered and I guess giving your comments, you probably answered this. I mean overall, it sounds like this year, you would expect a net sell of assets rather than a net buyer, is that fair to say?

Monty Bennett

We've got this one asset that we want to sell or give back to the lender in Alcon. And then the Doubletree at Columbus, we're in the process of trying to sell. So those are the assets that we've targeted as selling. And right now, we don’t see how or why we would be buying anything. So yes, it would be a net sell position because two out the door, and we don’t see any coming in right now.

Robin Farley - UBS

Okay, great, thank you.

Operator

There are no further questions at this time. I would now like to turn the call over to Mr. Bennett for closing remarks.

Monty Bennett

Thank you all for your participation today. We look forward to speaking to you again on our next call in the next quarter. Thanks again.

Operator

Ladies and Gentlemen, this concludes the Ashford Hospitality Trust second quarter 2012 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 454983. ACT would like to thank you for your participation. You may now disconnect.

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