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

Good morning, everyone, and welcome to today's call to review results for Ashford Hospitality Prime for the second 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 company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call and the company is not obligated to publicly update or revise them. In addition, certain 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 has been filed on Form 8-K with the SEC on August 2, 2017, and may also be accessed at the company's website at www.ahpreit.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 Richard Stockton. Please go ahead, sir.

Good morning. Thank you for joining us. For the quarter, a comparable RevPAR growth for all hotels not under renovation was 2.7%. Additionally, we reported AFFO per share of $0.50 and adjusted EBITDA of $30.8 million. We believe these solid results reflect the strength and quality of our portfolio and demonstrate our asset management teams' ability to drive results at our properties. In January this year, we announced a revised strategy with the focus of investing solely in the luxury segment as evidence is shown the luxury segment has had greater RevPAR growth over the long term. More clearly aligning our platform, with the luxury chain scale segment will have differentiators relative to our repairs and should provide superior long term returns for our shareholders. We said we would pursue new acquisitions in order to creatively grow our portfolio consistent with our stated strategy. Additionally, as part of that revised strategy, we identified four hotels, the Courtyard, Philadelphia; Courtyard San Francisco; Renaissance, Tampa; and Marriott Plano. Got them as designated as non-core to the portfolio. We stated that our intent is to either reposition or opportunistically sell these hotels. Since the announcement in January, we have made significant progress both in our acquisition strategy as well as our non-core hotel strategy. At the end of March, we completed the acquisition of the 190 room Park Hyatt Beaver Creek resort and spa in Beaver Creek, Colorado. This iconic resort fits perfectly with our luxury strategy and further diversified our portfolio by establishing a presence in the highly sought after vail valley market. The hotel which is solidly positioned at the top of this high barriered entry market given its premier location, first class amenities and excellent physical condition performs very strongly in the second quarter producing 19.7% RevPAR growth compared to…

Thanks Richard. For the second quarter of 2017, we reported a net loss attributable to common stockholders of $2.6 million or $0.09 per diluted share. For the quarter, we reported AFFO per diluted share of $0.50 compared with $0.60 for the same quarter last year. Adjusted EBITDA for the quarter was $30.8 million. At quarters end, we had total assets of $1.5 billion, we had $915 million of mortgage debt of which $48 million related to our joint venture partner 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 4.1% and was almost entirely floating rate. All of our floating rate debt has interest rate caps in place. We currently have approximately 45% net debt to gross assets. As of the end of the second quarter our trailing 12-month fixed charge coverage ratio was 2.0 times. All of our debt is non-recourse property level debt and our next hard debt maturity is not until 2019. We also ended the quarter with net working capital of $134 million. As of June 30, 2017, our portfolio consisted of 13 hotels with 3,740 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 included approximately 5 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 second 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 6.2% based on yesterday's closing price. On the capital markets front, when we completed the acquisition of the hotel Yountville we concurrently closed on a new $51 million non-recourse mortgage loan on the property with a 5-year term. The loan is interest only and provides for a floating interest rate of LIBOR plus 2.55%. This concludes our financial review. I'd now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Thank you, Deric. Comparable RevPAR for our portfolio grew by 2.7% for all hotels not under renovation during the second quarter. Year-to-date comparable RevPAR for hotels not under renovation has grown 3.5%. For the second quarter, comparable hotel EBITDA for the entire portfolio increased 2.9% or $1.1 million compared to the same quarter last year was strong 104% hotel EBITDA flow through. This quarter's best performing asset was the newly acquired Park Hyatt Beaver Creek which grew RevPAR by 19.7% driven by rate growth of 12.8% and occupancy growth of 6.1% compared to the same quarter last year. This robust RevPAR growth resulted in the property increasing share relative to the Colorado market by 1,310 basis points and relative to its competitors by 1,060 basis points according to Smith Travel Research. Directed monthly strategy shifts led to the strong growth. In April, we capitalized on the Easter shift from March as well as spring break weeks by driving rate growth of 29%. In May we increased occupancy by tracking discounted leisure business and lower rate in corporate and group business and in June we were successful in maximizing both transient and group rates as the summer travel season got underway. Not only did we increase the top line during the quarter, but hotel EBITDA flow through was a solid 68% and margins increased by 613 basis points resulting in a $248,000 increase in hotel EBITDA compared to the same quarter last year. Since our acquisition in the first quarter of 2017, the performance of this irreplaceable hotel with the premiere ski-in, ski-out location in Beaver Creek Resort in Village has been stellar. One of the biggest opportunities that has had is the ability to maximize occupancy during the off season. We're also looking at a number of opportunities to further…

Thank you. [Operator Instructions] And we'll now take our first question from Michael Bellisario with Baird.

Good morning everyone. First, I just want to dig into the Courtyard Philly rebranding a little bit. Can you maybe walk us through how you underwrite the expected returns on the renovation there? Maybe simply versus just selling the hotel, I know that was when you considered selling previously $23 million is a pretty big check especially relative to renovation that was done there just a couple years ago, I think that costed $60 million.

Sure, this is Jeremy. We look at it multiple ways, we do a pretty extensive underwriting and one of the things is we start with the brokers opinion of value of what the brokers think we could sell the asset for today and we look at a buy, sell based on that. And then we also do an analysis on the up-branding the additional rate, we did a market study with HBS and negotiated a pip pretty extensively with Marriot and then we go out and look at a 5 and 7-year horizon on what the expected upside is on an IRR basis, but we also look at accretion and dilution to stock price. So, we do believe this is going to be highly accretive relative to selling the asset, the incremental returns are very attractive. This is a great market long-term, there is some new supply that's coming in the market as you're well aware of. Most of that supply is positioned in the upscale segment that would be more competitive with the Courtyard. So up-branding into an autograph will more effectively competitively position ourselves in the market. One of the things that when you look at the analysis HBS did, we do feel like it's very conservative on some of the potential upside, there is another similar product in the market which is the Hilton's Curio and that runs at a very attractive premium to our asset. And we believe our asset is a much better asset, much better location. If you've seen the hotel, it's an incredible property. It's very unique, it's a former annex city of Philadelphia. So, it's got a very historic nature. Guestrooms have very high ceilings and it's much better than what's represented in a typical Courtyard product. So, we do believe by investing in a product we think there is upside in the current market especially when you look at where some of the upper upscale and luxury hotels, the premium is above our hotel. And in addition, we look at where the Westin rates and the Ritz Carlton rates were as well, which were at significant premiums to our Courtyard.

And then did I hear that correctly, you wrote $25 of RevPAR increase how much of that is rate occupancy? And then what kind of market share gains are you assuming there and how much ultimately does that fall to the bottom line in terms of EBITDA dollars?

I don't know if we are prepared to go through all that analysis right now. But what I can say is that it's primarily rate and the returns are attractive.

The returns on investing in an asset you already own at least as we look at it are significantly better than new acquisition. And I don't think that should come as much of a surprise. That's kind of what we expected to see out of the analysis and this absolutely fits that criteria.

Understood. And then one smaller one. What's the scope of the project at the pier house as you said - third quarter and fourth quarter renovation that was on the before?

Yes. What we're doing is we're basically renovating a portion of the guest rooms and we even have added it to the schedule just because we thought it was appropriate but it's not the entire guest rooms and what we're doing is we're doing the guest rooms in cycles and we're focused on the off season. So primarily in the third quarter, a little bit in the fourth quarter but we are trying to minimize displacement. And instead of just doing a renovation on a cycle of every 6 to 8 to 10 years, we change. We're just going to take a segment of rooms out of inventory and renovate the guest rooms. And if - little bit more uniquely we can do that pretty easily because its multiple buildings and previous ownership actually did have a similar renovation plan. We typically do not like to do that, but in a high occupancy market we do believe over the long term we can minimize displacement with that approach and continue to keep the property fresh.

Got it. That's fair. And then just lastly on the acquisition pipeline has your appetite changed at all given your stock price hasn't really moved since you last raised capital aren't you seeing anything different in the transaction market today as you look at deals?

I will say the transaction market in terms of opportunities that we see attractive is a bit thinner that it has been. I think there are sellers out there that are seeking prices that don't look affordable to us and when I say affordable, we do have available cash, we have a credit facility, I don't anticipate needing to go to the equity markets to fund acquisitions. But there are things that we can do to build a portfolio based on our available liquidity.

Thank you. That's all from me.

And we'll now take our next question from Chris Woronka with Deutsche Bank.

Hi, good morning guys. Could you give us a little bit of detail whatever you can on kind of how the property is the Bardessono and the Yountville are sold distributed in terms of the mix of kind of OTA and other?

Yountville at this point is not really applicable because we're going to reposition the mix. But the Bardessono I mean that is one of our lowest OTA mix of properties that we have. So, it is significantly lower than -- in regards to the independence. Specifically, our portfolio runs about 10% to 12% OTA and Bardessono is right around that level and its independent. So, we think that's very attractive for that property and then we anticipate bringing the mix down in Hotel Yountville over time as well.

Okay. Great. And then maybe just an update on market conditions on the sale side, I know there is a few hotels that you are either kind of marketing or considering options for is that given the comments, the acquisition side is kind of tough right now. Does that help you on this position front?

Yes. I would say, that is what we are seeing. We are you know since we've announced that we've got the Marriot Plano legacy in the market, we've seen a tremendous amount of interest in the asset from all types of buyers. So, there are private equity funds out there, there are family offices, there are high net worth individuals. There are other REIT's kicking the tires, so we're encouraged that our process has been broad enough to achieve market pricing. And hopefully we'll have an update on that in due course.

Okay, great. And can you just remind us, I was looking through my notes couldn't find it. How long is the management or the franchise contract is that Sofitel in Chicago running for?

It's long term. It's a long-term agreement and it's got very brand friendly performance termination clauses. We've looked through it pretty extensively. It is one of the typical thing, has the initial term plus some renewal options.

We do believe, I can say that it's underperforming and been very disappointed in the results. There has been a tremendous amount of turnover in the property and it is a top focus priority of across all of our assets. And so, we are spending tremendous amount of time in the property. We are going to be doing a renovation in the fourth quarter. I do believe that the product is not nearly competitive to its competitors set this point and so that the renovation is certainly overdue with that and some of the strategies we have in place we do believe that we can optimize the performance of the asset. It was a stronger brand, I think that would be more attractive unfortunately this is not one of the options that we have at this point.

Okay. Very good. Thanks guys.

And we will now take our next question from Ryan Meliker with Canaccord Genuity.

Hi, good morning everybody. I just had a couple of things I wanted to touch on. Jeremy, I'm wondering if you can give us some color at all on what are your expectations for the San Francisco market are coming out of the Moscone Center renovation? We keep hearing mixed signals from different people some think that 2018 is going to be a great year, some think that the back half of 2018 is really what's going to be driven in a positive and it's really 2019 that's going to be the year that moves the needle. I know you guys don't have a lot of exposure, but you do have the Courtyard there that obviously was impacted pretty materially this quarter. Can you give us any color on what we should expect for San Francisco?

Yes Ryan, I have seen some of the mixed signals you've read as well. So, I find it interesting, I can say to that the way we look at is 2019 is the year. There is no question about it, it's going to be significant uptick in the citywide pace. There's some good demand generators that continue in that market. But I don't see a huge uptick in 2018 versus 2017 versus the Convention calendar itself. I am happy to share that information with you which is you probably have access to it. But specifically, for our hotel, I think 2018 is going to be a better year, because we won't be under renovation the entire year and so we've got a significant amount of displacement that we're experiencing right now. It's primarily because the renovation but it's certainly also because of the Moscone and what's happened is that during the second quarter our rate was down, but I think around 9% at Courtyard, San Francisco may be 8% and a big part of that is because of the mix of group that we have in our hotels. Actually, one of the hotels, we have a group rate premium versus the transient segment. But specifically, when you look at our property all the demand generators going around our property, I think that we are very well positioned to capture it on the upside both in terms of the renovated Moscone as well as just more demand transient demand within the market. I don't know if you've been there in a while, it's becoming somewhat of the Silicon Valley area of San Francisco with a lot of technology companies located very close proximity to our hotel.

Okay. That's helpful. Thanks Jeremy. And then with regards to the hotel Yountville, you gave some good prepared remarks and some of the challenges that you face this quarter with the hotel Yountville. How quickly do you think those challenges go away is this something that we should start to see much better results in 3Q or is that really more of a 2018 story?

No, they're very starting to go away. It is anytime you have independent operator and you acquire a hotel the functions of the hotel, the GM had already left before we even started diligence. The key revenue people were in the process of leaving and left before we went hard on the asset. Normally that's not a huge problem, because we tend to be very very quick to close in those situations. This asset was a little bit more unique. And if you recall or if you know anything about the asset, there are some additional keys that were built by the previous owners and those keys were correctly zoned for full rebuilt and we did not want to close on the asset until we had the appropriate city approvals. And in a town like Yountville, that could take a very very long time. However, we had a pretty strong relationship with the city because we had recently received some approvals to add three additional keys at Bardessono. So in this case, we received the approvals within 60 days, which I think is remarkable. However, you know 60 days is a very very long time to go without the appropriate team place and so they said us, cards that were dealt to us when we acquired the hotel in mid-May. We're very very challenging and we are doing the best we can to mitigate the challenges and so we're seeing the results improve right now.

Okay. That's helpful. Thanks. I appreciate that Jeremy. And then Richard maybe kind of a big picture question for you. You guys issued equity earlier this year, you bought a couple of 5 start type properties stock hasn't really moved in the way you would have hoped for as you've diversified your exposure. I am curious, I know in the past you've talked about the need for added liquidity that doesn't seem to be in the cards right now at least in terms of stock liquidity. How do you think you get the stock to evaluation that really reflects using the portfolio value without outright selling?

Thanks Ryan for that question. You know you are right, I mean this is not an attractive price for us to issue equity so that's not under consideration. We're spending our time focused on working in the non-core assets as we've identified in January and we made already very good progress on that initiative. There will be more to come on that front and I think you we'll emerge having dealt with that non-core portfolio and even a higher quality set of assets that will even further differentiate us from our peers. And at some point, we would hope and expect the equity pricing to reflect that and for now, that's our intent. In terms of added liquidity, to the extent we sell assets our plan is to recycle that capital into a newer or rather new but higher quality assets. So, we've got certainly a lot of wood to chop and plenty to work on to get to the vision laid out in our strategy plan.

Thanks Richard. I appreciate those comments. So, it sounds like you're going to try to continue to improve the portfolio quality whether it be by pruning assets or acquiring other or acquiring other high-quality assets. I guess do you think that doing that can be EBITDA and FFO accretive are you able to sell some of your non-core assets at pricing that is compatible to where you'd be buying what you would being higher quality asset that's always a challenging thing to do. So, I'm curious if improving the portfolio quality it's going to erode FFO per share or EBITDA.

Yes. I think that comes with the territory to some degree that if you're selling lower quality assets they're looking to trade at higher cap rate than the higher quality assets. Right, so that will be part of our evolution. I think the silver lining to where we are trading now is that the multiples on those metrics are so low frankly there's plenty of room for them to move around. I don't think our shares are trading in respect of typical multiple metrics because they're in some ways detached from the rest of the comp set. So, I think what the market really wants to see is a way that we can differentiate ourselves in our story and by having the best quality portfolio in the business is our way to do that. And then any intentions to get recognized for that through the evaluation metrics over time.

Okay. That makes sense. Thanks Richard.

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

Great. Thanks for taking my questions here. So maybe a quick one for Richard. Just wondering maybe some general comments on your outlook for the luxury segment and maybe any relevant trends you think are worth calling out and your view on the consumer here and maybe view on corporate trends. I'm not sure if you have any high-level thoughts that you can share on second half of the year as well, that would be great.

Yes sure. There are couple of things. First of all, I don't know that the luxury trends are all too dissimilar from the other chain scale segments at the moment taken as a group. We're looking at a circumstance where we've got supply coming in 2018 and the rest of this year that its more or less in line with historical trends. There are certainly some markets that are being hit with more supply than others and we're fortunate not to be in those markets. Most of our markets are more in-line with historical trends and the overall forecast. But it's clear that we're coming out of recovery, the pace of RevPAR growth is slowing in recent forecasts are 2.5% or so, 2% to 2.5% for the next couple of years. That sort of RevPAR growth, we believe we can still make money. I think there's been some reaction in the market that is looking at that as particularly as negative or sluggish and frankly with the operating leverage we can get out of our assets we can still make some decent returns in that environment. So, we are I guess I'd say cautiously optimistic that the lodging market will remain healthy, but clearly the pace of growth is lower than it has been. But we also don't see any particular storm clouds on the horizon no reason to raise any alarms at this point.

Okay, great. And then maybe a follow-up on some of some of the questions on acquisitions. Can we talk a little bit more about your views on buying a branded asset versus an independent property? I'm not sure if you have maybe a preference on that, and then can you also touch on how you're thinking about balancing your leverage target with growing the portfolio as well?

Sure. On the branded versus independent in some ways we are ambivalent. If you look at our pipeline, it consists of as many as of one as the other, I think what we need to scrutinize in each case is in the case of a branded acquisition what are the terms in that management contract and are we underwriting it carefully enough? But we don't have to see that as a detractor of value frankly. You have to have someone manage your property at the day of the day and if it's a good manager and one that we know well, we feel like we can work with them to help drive performance. And in terms of independent hotels, we have seen very good experience plugging Remington in where we can and having them deliver really strong close and so in cases especially where we can realize some synergies there and as in what we've done with Yountville. We think that that's even better, right but those opportunities aren't necessarily easy to find and we are first and foremost driven by the strategy of having the highest quality portfolio in the business and then secondarily focusing on whether it's branded or independent and then all of that kind of works into our underwriting model and our returns analysis and hopefully in some cases will allow us to be more competitive than others. On the second question which is the leverage target. As I said, we've got these for non-core assets. We've announced our intentions on 2 of them. Any assets that we sell the intention is to recycle that capital into new acquisitions. So for the time being, that's our plan and that will keep our leverage at its current level.

Okay, great. Very helpful.

And we'll now take our next question from Brian Maher with FBR Capital Markets.

Good morning. Just a couple of quick questions. On the La Jolla lease extension, I think I heard you say that there was no increase to the base or minimum rent but was there any upfront cost to extend that?

Yes, we paid a one-time payment of $500,000 initially when we started discussions the city requested close to $4 million. So, we're very pleased that we were able to negotiate that to just $500,000 for an upfront payment which you look in amortized over the life of the lease it was a pretty low upfront cost.

Okay, great. And then in Chicago, is there any recourse in that agreement for underperformance that could get you out of that management contract?

It has a typical performance termination provision. But the hotel, and hotel is failing from one of the metrics but the other metric it's fairly well into the money which is the RevPAR index. RevPAR index probably is 500, 600 basis points for a consecutive 2-year period of which I don't foresee happening nor do we necessarily want that to happen. Although we'd like to get out of the contract. I do think the hotel probably has a good 500 to 600 basis point upside in terms of where it should be comparably position from a RevPAR index standpoint, and so we're focused on that?

Okay. And then lastly in quest at the Pier House one of your competitors acquired the Ocean's Edge property in Stock Island, are you seeing which opened about I don't know six or eight months ago. Are you seeing any impact to Pier House from that property?

Not really. I don't see any impact. Pier House, we had some good rate growth in there in the quarter and so we did substitute some occupancy to continue to push rate. But we had an increase of $20 of ADR in the quarter and it runs at high occupancy. I think that you can look at the market and if you know the market, Key West is where you want to be within that market and our location is one of the best locations.

Yes. Thanks a lot guys.

Thanks Bryan.

And ladies and gentlemen, that concludes today's question and answer session. At this time, I would like to turn the conference back over to management for any additional or closing remarks.

Well thank you all for joining us on our second quarter earnings call. And we look forward to speaking with you again on our next call and also, I hope we're seeing you at our Investor Day on October 3 in New York. Everybody have a nice day.

And ladies and gentlemen, that concludes today's conference call. We thank you for your participation.