Good day, and welcome to the Ashford Hospitality Prime First Quarter 2017 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Joe Calabrese with the Financial Relations Board. Please go ahead, sir.

Thanks, Lauren. Good morning, everyone, and welcome to today’s call to review results for Ashford Hospitality Prime for the first quarter of 2017 and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Executive Vice President of Asset Management. The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet we distributed yesterday afternoon in a press release that has been covered by the financial media. At this time, let me remind you that certain statements and assumptions in this conference call contain or 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 disclosed in the companies 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 items used in this call are non-GAAP financial measures. Reconciliations of which were provided in the company’s earnings release and the accompanying tables and schedules, which have been filed on Form 8-K with the SEC on May 3, 2017, and may also be accessed at the company’s website at www.ahpreit.com. Each listener is encouraged to review these reconciliations provided in the earnings release together with all other information provided in the release. I will now turn the call over to Richard Stockton. Please go ahead, sir.

Good morning. Thank you for joining us. We’re pleased with our results for the first quarter and excited to update you on recent progress we’ve made on several fronts. During the quarter, we have strong performance as we reported AFFO per share of $0.46, 18% above the prior year and adjusted EBITDA of $23.7 million. Our RevPAR growth for all hotels of 2.5%, exceeded the industry-wide results for the luxury segment by 40 basis points. We believe these solid results reflect strength and quality of our portfolio and demonstrate our Asset Management team’s ability to drive results at our properties. As I mentioned on our last call, when I came on board, I immediately began an in-depth strategic review of the company, which resulted in our announcement in January of a revised strategy. As a part of that strategy, going forward, the company will focus on investing in the luxury chain scale segment. Empirical evidence has shown the luxury segment has a greater RevPAR growth over the long term and we are clearly aligning our platform with the luxury chain scale segment will help differentiate us relative to our REIT peers and should provide superior long-term returns for our shareholders. We said, we’re – we would pursue a new acquisitions in order to accretively grow our portfolio consistent with our stated strategy. Since that announcement, we have made significant progress in our acquisition strategy. In March, we announced an agreement to acquire the 80-room Hotel Yountville in Yountville, California for $96.5 million. This hotel will serve to boost the overall RevPAR of our portfolio with the RevPAR of $469 for 2016. The Hotel Yountville is our second acquisition in the Yountville market, which is one of the strongest and most desirable lodging markets in the country with very high barriers…

Thanks, Richard. For the first quarter of 2017, we reported a net loss attributable to common stockholders of $1.7 million or $0.07 per diluted share. For the quarter, we reported AFFO per diluted share of $0.46 compared with $0.39 for the same quarter last year. This result reflected an 18% growth rate over the prior year. Adjusted EBITDA for the quarter was $23.7 million. At quarter’s end, we had total assets of $1.5 billion. We had $865 million of mortgage debt, of which $48 million related to our joint venture partner’s share of the debt on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined debt had a blended average interest rate of 3.9% and was almost entirely floating rate. All of our floating rate debt has interest rate caps in place. We currently have approximately 42%, net debt to gross assets. As of the end of the first quarter, our trailing 12 months fixed charge coverage ratio was 1.9x. All of our debt is nonrecourse, property level debt and our next hard debt maturity is not until 2019. We ended the quarter with net working capital of $182 million. As of March 31, 2017, our portfolio consisted of 12 hotels with 3,657 net rooms. Our share count currently stands at 37.3 million fully diluted shares outstanding, which is comprised of 31.9 million shares of common stock and 5.4 million OP units. In our financial results, we include approximately 6.6 million shares in our fully diluted share count associated with our Series B Convertible Preferred Stock. With regard to dividends, the Board of Directors declared a first quarter 2017 cash dividend of $0.16 per share or $0.64 per diluted share on an annualized basis. This equates to an annual yield of approximately 5.9% based on yesterday’s closing…

Thank you, Deric. Comparable RevPAR for our portfolio grew by 5.8% for all hotels not under renovation in the first quarter, outperforming the overall industry by 240 basis points and the luxury chain scale by 370 basis points. Comparable hotel EBITDA for the entire portfolio increased 2.1% or $723,000 for the first quarter with 50% flow-through. Our best-performing asset for the quarter was the Capital Hilton in Washington, D.C., which grew RevPAR by 19.2%, driven by occupancy growth of 6.2% and rate growth of 12.2%. This strong RevPAR growth resulted in the property increasing share relative to the market by 310 basis points. Not only did we increase the top line, but Hotel EBITDA flow-through was a robust 67% for the first quarter and margins increased by 535 basis points, resulting in a $1.4 million or 38.5% increase in hotel EBITDA. In January, during inauguration week, the property had very strong results as RevPAR grew 187% compared to last year on a 31% increase in occupancy and a 119% increase in rate. The Bardessono Hotel in Yountville, California also performed very strongly in the quarter. After producing 9.7% RevPAR growth during 2016, which was our first full year of ownership, the hotel produced RevPAR growth of 8.5% in the first quarter of 2017. The favorable dynamics of the Yountville market has certainly been a contributor to the Bardessono success and thus, we are excited about our announced acquisition of the Hotel Yountville. Another leading luxury hotel in that market. We will be appointing Remington to manage the hotel allowing us an opportunity for savings and synergies between Bardessono and Hotel Yountville to complex in multiple senior property management positions. This is an analysis to what Remington was able to achieve when they assume management of the Pier House after its…

[Operator Instructions] Our first question comes from Bryan Maher with FBR & Company.

Good morning, guys pretty solid quarter. A quick question on your acquisition appetite and kind of the outlook for how deep that market is, with the very high price properties on a per room base that you’re going after. How do you assess the opportunities there? And, particularly, ones where you can do what you’ve done in Key West and in Yountville where there is complexing opportunities?

Bryan, thanks for the question. Yes, we look at it, relative to our size, with 13 assets, as I think, I said in the past, doesn’t really take much to move the needle for us. So when you have a luxury hotel market that’s in the tens of billions of dollars, just in the U.S. where we’re focused, we believe, we can find those additional opportunities and I will say that at the moment, the transaction pipeline is a little bit lighter than we’ve seen, which raises the bar in terms of identifying them. But we are still seeing things of interest to us. And as I said, we don’t need to find many. We just need to look through more than perhaps we had in the past to identify them. But there are certainly things out there that we can do.

Is the complexing opportunities, high focus for you when you’re looking at these new opportunities? Or is that just a bonus?

Yes, I think that’s – I mean, Jeremy if you want to comment. But..

Yes, certainly, all things being equal, if we have hotel similar like Hotel Yountville where we can complex. We’re going to err on acquiring that hotel just because we’ve got a proven track record. But I think, when you look at a hotel like Park Hyatt Beaver Creek, we’ve identified a tremendous amount of opportunity in that asset, the list is long on the top line, the list is long on the operating controls and cost controls and best practices. And we actually have a long list of ROI availability as well with that hotel. So I think that any type of hotel that we came across whether or not its – one that we confer to Remington manage, one that we can complex with existing properties, or one it stays with the existing brand manage, I’m confident that our team can add value post acquisition, which helps when we underwrite the assets.

And then just lastly, from a geography and opportunistic standpoint, there is a handful of markets out there, I’m sure, you know, like Miami, New York City got oversupply, you’ve typically stayed away from New York City. But when we look at Hersha and they’ve been buying in South Florida and you commented last week that they believe that, that market is turning maybe bottomed in January. Are you guys willing to go into markets that are currently quasi-distressed where you can get an asset, with the goal of holding it for a year, three years, waiting for that recovery and maybe making some modifications to the property in the meantime? Is that something that you guys would consider doing?

Yes, I can tell you, as we are screening acquisition opportunities at the moment, that’s not been our focus. We do look very carefully at the proven operational performance of assets in our acquisition criteria. And we prefer situations, where we can grow that income base, to situations where we have a hotel that’s maybe not profitable and it’s more of a turnaround. I wouldn’t say we would rule anything out, but there would be a pretty high bar for us to get comfortable, that we’d be able to deliver that needed operational performance in the relatively near term, to acquire something that fits your description.

Thanks that’s helpful.

Our next question comes from Ryan Meliker with Canaccord Genuity.

Hey, good morning guys. So I just wanted to kind piggy back a little bit off what Bryan was asking with acquisitions. First of all, I think, the Yountville deal makes a lot of sense and seems right off the fairway similar to the Pier House in terms of your ability to really push margins and drive revenues in excess to what other guys might be able to do. I also understand, in your response that there is – it doesn’t take a lot to move the needle for a 13-hotel portfolio. So you might be able to find more of those things that can be meaningful. But, I guess, how do you reconcile the fact that it doesn’t take a lot to move the needle, with what you guys have said in the past, which is that you feel like the biggest driver of your valuation discount is your lack of liquidity and trying to grow the scale and liquidity of the platform, it seems like you wouldn’t be doing more acquisitions to get to that scale and liquidity level that you feel like is needed to drive the appropriate valuations you have at the right cost of capital, relative to where you are today?

Thanks, Ryan. I think that’s a great question. Our approach thus far, as you’ve seen, has been one-off incrementalism. I think we are very carefully assessing each move and attempting to grow the portfolio through some targeted acquisitions. We don’t have a kind of big-bang solution that we’re actively considering. So at the moment, if we can keep up our acquisition pace, in a small way, I think that’s the best solution to generate shareholder value and prove really to the market that we can deliver on what we said we want to do. And I think once the market sees the results that will come through on Hotel Yountville and the Park Hyatt Beaver Creek, that will inspire a lot of confidence. And hopefully, that will be reflected in a stronger valuation of our shares. But we’ll have to see about that.

That’s helpful. And I think, it does make sense, but it takes time. But, I guess, that’s okay. I guess, the second question that I have for you and this is more just trying to get some feedback from you. One of the questions we’ve heard a lot from investors is, how do you justify an external growth strategy, which seems to be pretty focused on external growth and acquisitions? When you have a cost of capital disadvantage, not just relative to your public market peers, but it seems relative to private investors today as well. I understand you have some advantages that you have with the Remington affiliation and being able to find the right assets, but at the same time, we’re getting that question that doesn’t an external management or an external growth strategy, warrant a valuation discount when you have a lower cost of capital? What do you have to say to people that think that?

Yes, I think what we would focus on is, and what we’re intending to do and what we’re doing right now, we certainly announced these two acquisitions, we think, are accretive to shareholder returns and when we discussed that at length. But as we look at our growth going forward, first of all, we’re at our target leverage. So anything that would involve using our significant amount of cash from the balance sheet would purely be short term in nature. But now we have our plate full, we have these two new acquisitions that we’re focused on. We have got a lot that we can do to generate value there and so that’s occupying our time. In addition to the fact that you remember in January, we identified four assets as being non-core and we are very actively engaged in our strategies on those assets, which include potential upbrandings and that involves both working with the brand, but also designing and budgeting and actioning a capital plan, as well as considering the sale of assets, and to the extent we’re able to sell assets, that capital can be recycled into other assets that more clearly fit our strategy as we outlined in January. So there’s plenty to do that would suggest that external growth, while it’s you’re right, it’s out there in the future, isn’t our immediate focus, given what we have on our plate and hopefully, through the execution of these internal strategies, we will see some improvement in our cost of capital that allows us to do more.

That makes sense. One more – one last quick one here. So you talked about potential for renovations and repositionings, but you also talked about the fact that you guys are at your target leverage. If you do decide to move forward with some of those upbranding assets where you’ll have to put some material CapEx into the properties. How would you fund it? Is that going to come from asset sales or some other means?

Deric, you want to talk about that?

Yes, I mean, obviously, Ryan, we got a lot of cash on hand. So reinvesting in our assets is something we continually do any way and if there is a CapEx opportunity to reposition some of those no-ncore assets to a higher quality product, we’ve got the capacity to do that.

Yes, Ryan, these assets have great cash flow and traditionally, have had relative to our peers, low CapEx requirements, as a percentage of both revenue and EBITDA.

Thanks, Jeremy. That’s it from me. Thanks guys.

Thanks Ryan.

Our next question comes from Tyler Batory with Janney Capital Markets.

Great. Thanks for taking my questions. I just want to follow up on some of the other questions here. Do you guys have a target size for the portfolio in the near term? Does that influence your decision whether to sell or renovate some of these non-core assets?

Yes, I’ll take that. The answer is absolutely not, I don’t think, we are trying to achieve a certain size for the sake of it. I think we are very actively scrutinizing investment opportunities that we believe will be accretive to shareholders and we’ll only move on those when we have that very firm belief. So by not having a target and in no way means we’re not focused on increasing the size of the company and liquidity, but we’re only going to do it subject to the options that in alternative become available to us. Certainly, that’s how we think about our growth strategy, but certainly, directionally, we do think it’s important to increase the liquidity in the shares and certainly, the capital raises that we did, both the common and preferred in the last quarter, helped with that. Our liquidity is up substantially and we will continue to grow the property, but only in the right way.

Okay, great. And then could you just comment on what you’re seeing with valuations maybe any move in the cap rates over the past couple of months?

Yes, I think the evidence would show the cap rates a little bit softer than they were a year ago. What we’ve seen in – we don’t have ongoing valuation or appraisal processes, right. But instead what we see is what’s happening in the transaction market and that – I’ve noted it’s a little bit lighter now, but that said, there is a lot of capital that’s out there, that’s able to act on the available opportunities, which I think is providing support to the investment market going forward. So we’re not anticipating any significant change in cap rates. That said, we’re not in that business, right? We’re in the business of operating our properties and delivering the best possible values to the bottom line.

Okay. Great, that’s all from me. Thank you.

[Operator Instructions] Our next question comes from Chris Woronka with Deutsche Bank.

Good morning, guys. The last couple of acquisitions you’ve done – have obviously been in the resort area and just kind of curious to whether that’s something you are going to kind of continue your favor over urban upper upscale luxury, or whether that’s just more function of opportunity and whether you think the opportunity set on resorts is larger and whether there is another reason you might favor those?

Thank you. It’s a great question. And it’s not by design. The two acquisitions, that were – we closed one and closing the other, happened to be resorts, but it’s not because we’ve decided that, that’s our strategy. As you think about typically the luxury chain scale segment, there is only certain markets that can support those types of properties and those RevPARs. They tend to be CBDs and resorts. And we will be quite happy to continue acquiring assets in CBDs. We haven’t made any sort of judgment on that. But then again, we’ve got a set through the available opportunities and see where we can generate off-market deals and if those are CBDs, we’re certainly happy to pursue them.

And I’ll just want to jump on that. When you look at last four acquisitions, you look at Bardessono, that was run by a small impaired management company. We knew that we could add tremendous value to that asset. So a lot of what we targeted was not just the RevPAR, but to value add. And when you look at the last three acquisitions, Ritz St. Thomas, I’d put that in the off-market bucket that was not widely, broadly solicited by Marriott. We bought that directly from Marriott and then Beaver Creek and Hotel Yountville as well were more opportunistic transactions. So I think it shows our ability to identify transactions in a less competitive bidding process.

Okay, that’s helpful. And I want to ask you on the – come back to the ROFO assets with trust. Now that maybe there is some clarity on the FelCor situation. I mean, do you guys sense from your side that maybe there is any more – was it impossible to kind of negotiate anything during that process? Or do you think maybe there was a greater chance that someday they decide to bring one or more of those assets for you guys to look at?

Yes, Chris, it’s Deric. As a reminder, the way the ROFO process works and is spelled out in the ROFO agreement is that, that process really starts with Ashford Trust deciding to sell those assets. So that would be the first step in that – in sort of going down that path and, I think, that’s something that, so it’s not really Prime’s decision to pursue those. It’s really Trust making the decision that they want to sell those assets and then, obviously, Prime has a right to make the first offer.

In terms of the FelCor portfolio, you probably know better than I do. I haven’t spent a ton of time on it, but there is really only a handful maybe one or two assets that will really fit our strategy and to the extent that they would be seeking to sell those, perhaps we would have a look. But nothing – there’s certainly nothing in the works on that.

Right, got you. Okay, very good thanks.

[Operator Instructions] Our next question comes from Michael Bellisario with Baird.

Good morning everyone. Just want to know if you’ve given any more thought to resuming the share buyback, I think, kind of piggybacking on Ryan’s question. Your biggest hang-up previously was the limited share liquidity, but that’s picked up a bit post offerings, any new thoughts there on that topic given the discounted valuation?

Yes, I’ll give my point of view and Deric you feel free to chime in. We’ve got $10 million, remaining on our share buyback authorization. And you’re right, while the liquidity has improved in the shares, I think we’re still pretty far off from where we want to be. And at the moment, we are thinking that the negative impact of reducing liquidity would offset the positive impact of that little bit of share buyback authorization we have remaining.

Yes, I would just add, Mike, that in our Prime’s history as a public company, we’ve really tried twice to buy back our stock, pretty aggressively and each time, it’s made the problem worse. And so we’ve really come to the conclusion that while you’re correct, the liquidity has gone up, we need to continue to increase that and that’s something that we’re probably more focused on, then continuing with the buyback. We’ve tried it and just doesn’t hasn’t seemed to worked.

Fair enough. And then just maybe taking a step back to focus on the strategy for a second. How long are you willing to – or the share price to recover valuation to improve before maybe really think about growing the platform more, potentially reevaluating the strategy eventually?

Yes, how long is a piece of strength. That’s – even we have to continue to assess all the variables over time and we will adjust our strategy tactics in accordance. I don’t think there’s an answer to that question.

It sounds like you’re plan right now is to, as you mentioned before, continue to selectively look at acquisition opportunities and kind of stay the course?

Yes, that’s right. I think, as I said before, we’ve got a fair amount of internal work that we can do to generate value, including executing on our recent acquisitions and focusing on our non-core assets, which involve the combination of upbranding and potential sales, proceeds of which can be recycled into new acquisitions. So I don’t think that’s wasting us and there is certainly plenty to do to deliver value here in the short term, we believe.

Thanks.

We’ll take a follow-up question from Ryan Meliker with Canaccord Genuity.

Guys, just one quick one. This is probably more for Jeremy than anybody else. I know you guys don’t issue guidance, but I’m just looking at 1Q, you obviously had the big benefit from the inauguration in D.C., San Francisco was pretty soft in the quarter, especially at your Courtyard. We’re hearing from across the board is that San Francisco is going to be worse in 2Q. It was 1Q, your kind of best RevPAR growth in the year, just based on what’s going on across the your markets. Is that your expectation? Or do you think that things might pick up again after 2Q?

That’s another way to ask for guidance, Ryan. But...

Well, I’m not looking for specific numbers, just give me an idea of where the trends are would be helpful? What you are...

The trends, when you look at just kind of the first quarter, we did have some heavy renovations, specifically in San Francisco. That’s going to continue throughout the year. So if the market gets a little bit softer, I’m not sure that you’re going to see much more incremental impact with that asset, because it’s run at high occupancy on the available inventory that we have left, that’s in-service. But when you look at the trends we saw in the first quarter within the Prime portfolio, negotiated rate – negotiated volume is flat. But you look at the other segments, and it does include both leisure and business transient demand. It was pretty strong in the quarter. And so where we had a little bit of weakness in the first quarter, and not a lot of weakness, but maybe a half point down in occupied room nights, was group. And when we look at that group a lot of that was in specifically in San Francisco. So I think, you’re seeing health and strength in the transient demand, if it’s holding up and then you look at some of the particular assets, that we’ve got, particularly with Hotel Yountville come to mind and some of the strategy ramps in place, I think that there is some value added on the top line that Remington will deliver. And specifically, within – with St. Thomas, which we’ve been battling Zika now for over a year, Zika is still there, but I think, it’s kind of seen a level set of the market on that and I don’t think that you’re seeing as much headwinds on a year-over-year comparability basis, but it’s still – it’s a start from that. So I think, that there is a lot of good individual stories within our portfolio and I think that you’re also seeing some good trends in terms of the health of the transient demand over the course of what we saw in the quarter. Hope that helps.

No, that’s really helpful. And that’s fairly good color on San Francisco, so I appreciate that. But just a follow up with that, I guess, in terms of citywide events some things along those lines, there is nothing else that you see in the back half of the year that’s going to be a big tailwind like you saw in the first quarter from the inauguration? Is that fair? I didn’t hear any of that.

I mean, a tailwind? I don’t necessarily want to comment on that, but I think, that we are seeing – but what I can say is that, when you look at our entire asset management portfolio, we are seeing a very strong group bookings over the long term, particularly in 2018. And so, I think there is strength in terms of the – what we’re seeing and what we’re hearing from our managers in terms of group bookings.

Okay, great. Thanks I appreciate Jeremy.

That concludes today’s question-and-answer session. I’ll turn the conference back to management for any additional or closing remarks.

So I think that’s all we have. So thank you all for joining us on our first quarter earnings call. We look forward to speaking with you all again on our next call. Thank you.

And that does conclude today’s conference. We thank you for your participation.