Joe Calabrese - Financial Relations Board Douglas Kessler - CEO Deric Eubanks - CFO Jeremy Welter - EVP, Asset Management.

Ryan Meliker - Canaccord Genuity Robin Farley - UBS Tyler Batory - Janney Capital Markets Michael Bellisario - Robert Baird Bryan Maher - FBR & Co.

Good day and welcome to the Ashford Hospitality Trust Fourth Quarter 2016 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Joe Calabrese with the Financial Relations Board. Please go ahead, sir..

Thanks. Good day everyone and welcome to today's conference call to review the results for Ashford Hospitality Trust for the fourth quarter of 2016 and to update you on recent developments.

On the call today will be Douglas Kessler, 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 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 or 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 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 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 February 23, 2016 and may also be accessed through the company's Web site at www.ahtreit.com.

Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. This communication does not constitute an offered by or solicitation of any offer to sell securities.

This communication relates to proposal which Ashford Trust has made for business combination, transaction with FelCor that is supported by Ashford. And furtherance of this proposal and subject to future developments, Ashford Trust, Ashford Inc.

and, if a negotiated transaction is agreed, FelCor may file one or more registration statements, prospectuses, proxy statements or other documents with the SEC.

This communication is not a substitute for any registration statement, prospectus, proxy statement or other document Ashford Trust, Ashford Inc., or FelCor may file with the SEC in connection with the proposed transaction.

Investors and security holders of Ashford Trust, Ashford Inc., and FelCor are urged to read carefully the registration statements, prospectuses, proxy statements and other documents that may be filed with the SEC if and when they become available, they will contain important information about Ashford Trust, Ashford Inc., FelCor and the proposed transaction.

Investors and security holders may obtain free copies of these documents if and when they become publicly available and other related documents filed with the SEC at the SEC's Web site at www.sec.gov.

Ashford Trust and Ashford Inc., and their respective Directors and Executives officers maybe deemed participants in this presentation of proxies in connection with the proposed transaction.

You can find more information about the Directors and Officers of Ashford Trust, Ashford Inc., and FelCor in the definitive proxy statements for their most recent annual meetings filed with the SEC. These documents are available free of charge at the SEC's Web site at www.sec.gov.

Additional information regarding the interest of such potential participants will be included in one or more registration statements, proxy statements and other statements or other related documents filed with the SEC, if and when they become available. I will now turn the call over to Douglas Kessler. Please go ahead, sir..

Good morning everyone and thank you for joining us. First of all, I'm enthusiastic about my new role as CEO and look forward to Ashford Trust future. Before I review our results for the fourth quarter, I would like to spend some time discussing our recent public offer to acquire FelCor Lodging Trust.

We have long thought that a combination of our two companies make great strategic and financial sense. In fact, we first approached FelCor in 2011 that we are met with resistance. It has remained on our radar and after the departure of their CEO last year, we reengaged with FelCor's board about a possible combination.

Since October, we have pursued in good faith an engagement with FelCor on a friendly basis with a hope that they reciprocate. We have been disappointed they have not been receptive to a combination that we strongly believe would result in significant value creation for both sets of shareholders.

As a result, we decided to take our proposal directly to shareholders. The highlights of our offer on the announcement day were as follows; $9.27 per share price based upon a fixed exchange ratio of 1.192 Ashford Trust shares for FelCor share, which equated to a 28% premium to the FelCor share price.

FelCor shareholders would also receive 20% ownership in our advisor Ashford Inc., along with warrants to purchase additional Ashford Inc. shares to enhance alignment of interest and sharing the performance of Ashford Inc. shares.

We believe the meaningful premium, the potential for significant future upside via stock for stock deal, a 138% increase in FelCor's pro forma dividend coupled with direct ownership and the advisor delivers compelling value and alignment to FelCor's shareholders.

It is also worth noting that there is approximately 67% across institutional shareholder ownership in the two companies which further supports the case for strong shareholder acceptance of this transaction.

What makes this an extremely compelling transaction for both sets of shareholders are expected operational and G&A efficiencies estimated at $18 million to $30 million annually with $18 million guaranteed by the advisor Ashford Inc. We have proven track record supporting what we believe is a better plan for FelCor's assets.

Our relative shareholder returns speak volumes. For Ashford Trust shareholders, we expect this transaction provide the same aforementioned operational and G&A efficiencies. Our success on operational improvements on prior transformational transactions such as CNL Hotels and Highland Hospitality is proof of our capability to create shareholder value.

We see this offer to be attractive pricing for high-quality historically under managed assets. We anticipate that there could be EBITDA multiple expansion due to higher RevPAR and increased common stock trading liquidity. We would look forward to applying our asset management team skill set to enhance the value of the portfolio.

Given the larger scale of the combined company, we anticipate having greater negotiating leverage with brands and vendors to drive portfolio value as well as enhanced access to capital markets. All these mutual benefits raise the question we have heard from several investors and analysts.

If the industry doesn't consolidate with these Dallas space two platforms here now then when and where? I want our shareholders to know that everything that we are doing here in regards to this transaction is focused on creating value period.

We see that value can be captured by the current shareholders of Ashford Trust and at the same time maximize value for the current shareholders at FelCor. We suspected over the years there has been significant value leakage at FelCor.

We have seen it at a distance as a peer company in the industry and now feel it directly as one of the top five shareholders of FelCor. We believe this transaction is the best way forward for FelCor.

We expected our proposed transaction stops the value leakage from the historically poor capital allocation and balance sheet management track record in numerous ways.

First, we believe that our significant premium of 28% is a highly attractive price and well above historical average premiums per REIT stock-per-stock transactions, which are more typically in the 10% to 15% premium range.

We put our best foot forward right out of the box to communicate to the FelCor board and now with shareholders publicly a full and fair offer that is serious and attractive. We are quantitatively driven here at Ashford Trust and the numbers speak for themselves on this proposed transaction.

We simply do not see what strategic decisions FelCor can make over the next few years as a standalone company to exceed the returns associated with this premium alone not even including the sizable operational synergies and benefits that should come with improved size, scale and liquidity.

Second, we believe our stock for stock offer maximizes the proceeds that a buyer can provide to FelCor shareholders and removes potential value leakage that could come from a cash offer.

If a cash buyer purchases the company desires to increase leverage to achieve the return hurdles, we anticipate they could possibly be forced to pay a make all provision of approximately $140 million. That is an estimated dollar per share value leakages from FelCor shareholders. Our offer is intended to prevent this from happening.

Third, we believe sub-optimal asset management execution as called this value leakage. Just take a look at the announced full year 2016 hotel EBITDA multiples -- hotel EBITDA numbers.

Ashford Trust achieved total EBITDA flow throughs of 56% for the year, while FelCor achieved EBITDA flow throughs of just 16% that is 4000 basis points of flow through difference.

As we noted it in our investor presentation from earlier this week since 2010, our average annual EBITDA flow throughs are approximately 2000 basis points higher than FelCor.

That is significant value leakage that FelCor shareholders seem to be experiencing in those assets and significant potential value creation for combined company under this management team.

It's further worth noting that the data we have seen shows that over 80% of FelCor's institutional shareholders own positions in externally managed lodging REITs with advisors such as Ashford Inc., and over 90% of them have ownership in an externally managed REIT, which we conclude demonstrates broad acceptance by their shareholders of our existing structure.

Fourth, we believe we can stop the value leakage that comes from poor capital decisions. We do not think that FelCor strategy to redevelop the Nicker Barker and buy other New York City assets several years ago as proven to be successful. We strive to make sure that our capital investment efforts are disciplined.

We question their track record of managing their capital structure. They are unable to pay the preferred dividends for years. They issued large amounts of dilutive equity during the financial crisis. All of these decisions have combined and compounded.

Over the past 10 years, our capital allocation decisions have allowed us to be one of the best performing lodging REITs outperforming FelCor by approximately 184% and our lodging peers by 44%, decisions matter, how you spent precious investor capital matters. We believe that our proposed transaction will enhance rather than lead value.

Fifth, academic studies and industry data suggests that larger market capitalization companies traded higher valuations. We anticipate that the combination of the two companies will lead to a stock with materially better liquidity, which we believe could lead to a higher valuation.

Our goal is for the FelCor Board to appropriately consider our proposal and recognize the benefits of this offer for their shareholders. However, given the Board's current unwillingness to engage with us, we have also nominated our own competing slate of highly qualified and Independent Directors to stand for election.

We believe our nominees who elected will evaluate all options to maximize value at FelCor and will be prepared to engage with Ashford Trust in a more meaningful fashion in accordance with their fiduciary duties.

Our actions and 4.5% ownership of FelCor demonstrate our strong conviction to advance this combination to create significant shareholder value. We posted a presentation on our website that addresses the compelling strategic operational and financial merits of this transaction and I encourage you to review it.

We are pleased that FelCor sent out their release this morning, highlighting their primary concerns with the proposed transaction. We've heard these concerns several times, have provided solutions to each one of them and have been unable to advance further with their existing transaction committee.

We're also pleased that FelCor choose to disclose their primary concerns because we hope investors can now see how solvable these concerns are and why we believe there is an easy path to consummating this transaction. The concerns of their board seem to be more on form rather than substance.

We believe our 28% premium offered is attractive and above historical premiums for stock-for-stock re-mergers. So if the issue is not price, then what are their concerns, let's walk through them one by one as we've already done with FelCor and see if we can perhaps make some progress in this transaction by discussing them publicly.

Number one, they seem to argue that the price we're offering is so attractive that it is dilutive to Ashford Trust owned shareholders. As we'd explained many times to our own investors as well as to their transaction committee, we look at every transaction fundamentally on a leverage neutral basis.

We believe that is the best way to look at the underlying merits of a deal without being skewed by the impact of leverage. On that basis, we believe this is accretive to both stock price and AFFO per share for our shareholders. This transaction is a deleveraging transaction for us.

It should drop our net debt to EBITDA by over one turn and we'll reduce our net debt to gross assets. It should put us towards the lower end of our targeted leverage range and we like that because of that deleveraging it maybe slightly dilutive to AFFO per share but less than they claim.

And while we believe that investors care about AFFO per share, we believe they primarily care about total returns. And from a total returns perspective, this transaction is highly accretive to everyone involved, so their first concern is easily answered. Number two, they argued that external management fees will negate synergies.

FelCor has a current total of G&A run rate of approximately $32 million. We estimate the base management fees paid to Ashford Inc. will be approximately $18 million and estimated incremental G&A cost of $3 million, a total of approximately $21 million that is potential G&A savings of $11 million.

When you include potential operational synergies, we believe they are between $18 million and $30 million of total G&A and operational synergies as part of this transaction. Ashford Inc. believes so strongly that it can achieve at least $18 million of various G&A and operational synergies that is willing to guarantee them for year.

These synergies will need to be repeatable savings, now one-time savings as we told FelCor's transaction committee. Also they claim Remington our affiliate property management company will be taking over management contracts giving Ashford Inc. additional fees in the future.

Our understanding is that nearly all their properties are brand managed and as a result, Remington will not be taking over management of those assets. In the end, we are confident that we can run the FelCor platform for materially less than what their management team can today. So their second concern is easily answered as well.

Number three, they argue that Ashford Inc. profits disproportionally compared to Ashford Trust and FelCor. As we just previously noted, we believe Ashford Inc. can run the FelCor platform for materially less than they can today.

Not only can we run it for less, but we believe we can run it in a far superior manner given our historical track records both from a shareholder return perspective and an operational perspective. In the transaction proposal, FelCor shareholders would really receive 25% ownership in Ashford Inc. plus additional warrants.

So any increase in the value in Ashford Inc. would directly benefit FelCor shareholders. For them to say that “neither FelCor nor Ashford Trust shareholders would be compensated” is both false and disingenuous. We believe strongly that there should be alignment between the REIT and its advisor and our proposed structure accomplishes this quite clearly.

Their third concern is easily answered as well. Number four, they argue that the combined company will have “extremely high leverage.” As I mentioned earlier this is a deleveraging transaction for us. We believe that running a lodging REIT in the 55% to 60% net debt to gross asset range makes both strategic and financial sense.

Our track record proves this. FelCor says that the leverage of the pro forma company would be contrary to their stated strategy that we believe our structure will generate better returns. In the end, we believe that investors care more about producing value and shareholders returns and less about what is your exact leverage level.

In addition of slightly higher leverage is such a problem for REIT investors why do nearly two-thirds of their institutional shareholders currently own Ashford Trust stock. Their fourth concern is easily answered as well.

Number five, their final concern is that there is disproportionate governance and that the pro forma company will have only three FelCor Board Members. Our belief is that three Board spots is quite generous given one, we are paying a 28% control premium for the company, and two, the underwhelming track record of FelCor's Board of Directors.

Their final concern is easily answered as well. In sum, we find all five of their concerns easily answered, which is why we felt such a frustration at their refusal to engage further and unwillingness to even share property level information after signing an NDA or to move forward to create value for both shareholders.

We are hopeful that now this debate is in the public. Their investors can help the FelCor transaction committee understand that there is a very clear path to get a deal done and they should be fully engaged with us to do so. We also hope that Steve Goldman taking over a CEO that FelCor would be more willing to constructively engage with us.

With that said, I'll now like to discuss our results for the fourth quarter. Our fourth quarter RevPAR growth for all hotels not under renovation of 3.2% was inline with the overall industry performance and we delivered solid comparable hotel EBITDA flows of 51%. We also saw our comparable hotel EBITDA margin expand by 46 basis points.

We're very pleased with these results and believe they speak to the quality of our portfolio as well as our asset management capabilities. This management team has a long track record since our IPO of creating shareholder value. And over the years, we have worked on various ways to maximize the value of our existing assets.

We're also looking for accretive hotel investment opportunities and maintaining capital markets discipline. Shareholders benefited from our effort since our IPO given that Ashford Trust has achieved an estimated 186% total shareholder return compared to 108% return for our peers as of yesterday's close.

Key to that outperformance is the exceptionally high level of alignment that is created by our 18% insider ownership, which is the highest in the hotel REIT space and more than 8x the peer average. Again, add to the incentives to create shareholder value and outperform our peers that are structured into our advisor agreement with Ashford Inc.

and it's easy to see why we think our management structure and management team are competitive advantages for our platform and our key to the shareholder value that we have consistently created for our investors.

Our strategy remains unchanged and in an effort to create shareholder value we will continue to focus on acquiring upper upscale full service hotels, opportunistically execute on our sale of our non-core select service properties continue to target net debt to gross assets of 55% to 60% and targeted cash and cash equivalents balance between 25% to 35% of our equity market capitalization for financial flexibility as we believe this excess cash balance provides an edge and on certain economic time as well as providing dry powder to capitalize on attractive investment opportunities as they arise.

As part of our refined investment strategy, Trust previously announced you with opportunistically divest of its non-core select service assets over time. In the fourth quarter of 2016, we completed the sale of three more non-core select service hotels for an aggregate value of approximately $49 million.

In early October, we closed on the sale of the 162 room SpringHill Suites Gaithersburg in Gaithersburg Maryland for approximately $13.2 million. The consideration received from the sale was a combination of cash and approximately 2 million Class B common units of the company's operating partnership.

The company also paid off approximately $10.4 million of debt associated with the property. Also in October we completed the sale of the two hotel portfolio comprised of the 151 room Courtyard Palm Desert and the 130 room Residence Inn Palm Desert for $36 million.

The portfolio had an existing debt balance of approximately $24 million that was assumed by the buyer. After debt assumption and transaction cost, the net proceeds were approximately $11 million.

Since the announcement of our disposition strategy, we have closed on the sale of nine non-core select service hotels for approximately $210 million, resulting in a pay down of approximately $153 million of associated debt.

Operationally, we are pleased with the strong performance we are experiencing at our Hyatt Savannah property as well as a couple of our more recently acquired hotels. The W Atlanta downtown, W Minneapolis, Le Méridien Minneapolis.

While Jeremy will provide more detail on this in a moment, the performance of these and other assets as well as the low exposure to high supply markets including New York, Miami, Houston and Seattle further speaks to the benefits stemming from the quality and diversity of our portfolio.

Looking ahead, there seems to be anticipated strengthening for U.S. economic fundamentals in a more positive outlook. Against, this backdrop, we are committed to maximizing value for our shareholders as we focus on generating solid operating performance, continuing to be opportunistic on transactions and proactively managing our balance sheet.

I will now turn the call over to Deric to review our fourth quarter financial performance..

Thanks Douglas. For the fourth quarter of 2016, we reported a net loss attributable to common stockholders of $57.3 million or $0.61 per diluted share. For the full year of 2016, we reported a net loss attributable to common stockholders of $88.7 million or $0.95 per diluted share.

For the quarter, we reported AFFO per diluted share of $0.16 and for the full year of 2016, we reported AFFO per diluted share of $1.51 compared with $1.44 for the full year of 2015. This result reflected a 5% growth rate over the prior year.

Adjusted EBITDA totaled $84.1 million for the quarter and adjusted EBITDA for the full year of 2016 was $431.1 million, which reflected a 6% growth rate for 2015. At quarter's end, we had total assets of $4.9 billion. We had $3.8 billion of mortgage debt with a blended average interest rate of 5.4%.

At the end of the quarter, our debt was 15% fixed rate and 85% floating rate all of which have interest rate caps in place including the market value of our equity investment in Ashford Inc., we ended the quarter with net working capital of $525 million. As of December 31, 2016, our portfolio consisted of 123 hotels with 25986 net rooms.

Our share count currently stands at $115.1 million fully diluted shares outstanding which is comprised of 96.4 million shares of common stock and $18.7 million OP units.

We have 19.4 million OP units but as a result of the current conversion factor being less than 1 for 1, these units are convertible into approximately 18.7 million shares of common stock. With regards to dividend, the Board of Directors declared fourth quarter 2016 cash dividend of $0.12 per share or $0.48 per share on an annualized basis.

Based on yesterday's stock price, this represents a 6.5% dividend yield of the highest in the hotel REIT space. The adoption of a dividend policy does not commit the company declare future dividends and the Board will continue to review the dividend policy on a quarter-to-quarter basis.

On the capital markets front, in early October, we refinanced four mortgage loans with existing outstanding balances totaling approximately $415 million. The previous mortgage loans that were refinanced had final maturity dates in April 2017 and the JP Morgan Chase Marriott Freemont loan with the final maturity date in August 2019.

The mortgage loans were refinanced through a new, one new mortgage loans totaling $450 million with a two-year initial term and four one year extension options subject to the satisfaction of certain conditions.

The loan is interest only provides for a floating interest rate of LIBOR plus 4.55% and contains flexible release provisions for the potential sale of assets.

The next non-extendable debt maturity of the company is $16 million that matures in June 2017, after that there were no other non-extendable maturities for 2017 and only $197 million that matures in 2018.

Additionally, in mid-October, we completed an underwritten public offering of 6.2 million shares of 7.375% series G cumulative preferred stock at $25 per share. We are currently holding the proceeds from this capital raise consistent with our higher liquidity strategy. This concludes our financial review.

And I would now like to turn it over to Jeremy to discuss our asset management activities for the quarter..

Thank you, Deric. Our RevPAR growth of 3.2% for all hotels not under renovation for the fourth quarter outperformed the upper upscale segment nationally by 260 basis points and our competitors by 210 basis points. RevPAR growth was negatively impacted by the Jewish holiday falling in October of this year compared to September in 2015.

For the full year, the company grew RevPAR by 3.2% with EBITDA flow through of 56%. First, I would like to recognize the outstanding performance of the Hyatt Regency Savannah during 2016. For the year, the property had RevPAR growth of 12.5% with 6.2% occupancy growth and 5.9% rate growth.

Even more impressive was the 1740 basis point outperformance relative to its competitors. The resulting increase in rooms revenue translated well to the bottom line with property posting 52% EBITDA flow through for the year.

We are also excited to be undergoing major lobby renovation and food and beverage repositioning that will enhance a property uniquely positioned in the market with one of the best locations and some of the most spectacular views overlooking the Savannah River.

And the third and fourth quarters of 2015, we acquired the W Atlanta downtown hotel, the W Minneapolis Hotel, the Foshay, and the Méridien Chambers Minneapolis.

With the change in ownership and with the same property management teams in place including General Managers, these three managed properties have experienced a substantial increase in profitability. This current managed portfolio achieved 174% EBITDA flow through during its first full year under our ownership on 3.3% RevPAR growth.

This RevPAR growth equated to 190 basis point gain versus competitors. Additionally EBITDA margins increased 343 basis points for this group of properties. This outperformance is a direct result of our teams timely implementation of several value added opportunities at these three hotels.

For example, a representative value-add opportunity at the W Atlanta was the replacement of the management company for the on-premise digital billboard sign which resulted in increase in the sign utilization levels from approximately 25% to nearly 100% in 2016 and more than quadrupling the 2015 revenue with another estimated incremental 200,000 expected in 2017.

Another example was renegotiating the parking contracts at W Minneapolis and W Atlanta, which further enhanced EBITDA at these properties.

The performance of these properties further validates the Ashford Asset Management team's ability to add considerable value following acquisitions even in situations with existing brands and managers remain in place.

In the third quarter of 2015, we completed the conversion and renovation of the Crowne Plaza, Beverly Hill to the Marriott Beverly Hills.

Receiving award from Marriott International for renovation excellence with more rooms available and the ability to drive higher rate during the Marriott conversion, the property realized 18.1% occupancy growth, 31.2% rate growth and 54.9% RevPAR growth in its first full year under the Marriott flag.

Even with Q3 and Q4 of 2015 Marriott comparables in the data, in 2016, we continued to ramp our performance as the property gained an impressive 3760 basis points in market share versus a tracked scale. Taking into account food and beverage, parking and ancillary revenues, total revenue grew 51.7% and EBITDA increased $4.3 million or 62.3% in 2016.

These impressive achievements highlight the success in overall capabilities of Ashford's industry leading asset management team and I want to point out that this team has been able to produce RevPAR gains relative to our competitors for the Ashford Trust portfolio for three consecutive years.

This is a significant achievement considering that during that timeframe there have been extensive renovations at numerous properties as well as multiple new acquisitions. Nearly four years ago in July 2013, we created a separate revenue optimization team with dedicated personnel focused on revenue strategies.

Not only has the overall portfolio gained market share relative to its competitors for three consecutive years, but also both the [indiscernible] managed and brand managed portfolios have gained market share for each of those years. That concludes our prepared remarks. And we will now open the call up for your questions..

Thank you. [Operator Instructions] And we will now take our first question from Ryan Meliker from Canaccord Genuity..

Hey, good morning, guys. Thanks for taking my questions. I had two those I was hoping to touch on. First of all, Doug congratulations on the promotion to CEO.

I'm wondering that with the new title and in the new role, if you are going to take any closer look at the incentive fee structure and obviously you guys, recorded an incentive fee to Ashford Inc., this quarter I think most of us missed it, it's probably our fault.

Then, we missed it, not really think how much the stock can run up in the fourth quarter. But, if I look at the stock up 23% in 2016 that's a year after it was down 40% in 2015 and on a two year basis down 26% which is largely inline with the group.

Are you thinking about any call opportunities there for AHT, it seems like that might make sense to look at things on more than just one calendar year basis, any thoughts in the new role Doug?.

All right. Thanks for the congratulations, I appreciate it. In terms of the agreement that we have with Ashford Inc., you are correct that the calculation is done on an annual basis with no longer term period view to that calculation.

As you also know over at Ashford Prime the agreement between Ashford Inc., and Ashford Prime pursuant to discussions between the Independent Directors of those boards reached some changes to the agreement which is subject to a forthcoming shareholder vote.

And if that is passed by the shareholders then it maybe worthwhile for the Ashford Trust Board of Independent Directors to engage with the Ashford Inc. Independent Board of Directors and evaluate what types of potential changes they make sense. Clearly, we have structured that concept around the transaction with FelCor.

And we believe and we have stated that the expectation would be within a year of the transaction closing that we would seek to negotiate some similar changes between Ashford Trust and Ashford Inc. that Ashford Prime was able to achieve..

But, if I recall correctly, the Ashford Prime changes don't include any type of change to the -- I guess period for the incentive fee calculation or potential call back provision, is that something you would look to do at AHT?.

That would be something perhaps for our Board to take under advisement. We were very open to receiving feedback during the process for Ashford Prime based upon feedback that we received from the research community as well as shareholders.

And obviously, while Prime and Trust are similar they are also different and so to the extent that we go through that process that the Trust Board and the Ashford Inc. Board, we will take into consideration input from shareholders to come up….

Got you..

Go ahead..

No. That makes sense. And I guess just to -- as a follow up to that.

If for one reason or another the FelCor deal does not go through, would the Ashford Trust Board still be interested in having those same discussions with the Ashford Inc., Board or is it 100% contingent on the FelCor deal?.

The Ashford Trust Board hasn't commented on that. Obviously, they will be looking closely at the outcome of the forthcoming vote between Ashford Inc., and Ashford Prime, when that shareholder vote takes place. And we'll be looking closely at the results of that..

Okay. Now, that makes sense. And then, just with regards to the FelCor offer, since you guys have made it public and are starting to address some of these concerns publicly.

Not asking for public negotiation if you will, but is the offer that you put up there open to some adjustments particularly open to a potential cash component and a reduced stock component, it seems like the stock is the biggest hang up that FelCor has and obviously you've highlighted why they shouldn't be so concerned about that, but maybe reducing the exposure of stock might make a big difference..

Well, based upon their response today which seems cold water on perhaps our stocks performance and their stocks performance given that we are both down materially, it didn't seem like it had to do with the amount of the offer seem to have to do with some structural components and early in our discussions with them, they strongly encouraged us to propose stock and that's what we have done.

We are opened to engagement and discussion and that's the purpose of what we are trying to accomplish here.

We believe a deal makes great sense for both set of shareholders, but in order to get to a deal we have to get pass some of the issues that I think we gave very clear crystal answers to today that really have no barring on the economics of this opportunity for both sets of shareholders.

Once we get pass that, then I think we're happy to engage in productive dialog on the real economics behind this opportunity, but having said that at a 28% premium compared to most M&A REIT transactions that average between a 10% to 15% premium, I think it's hard to disagree that this is a full and fair price for the opportunity..

No. That makes sense. And then I guess along of those lines with regards to the FelCor dynamic, one of the points that they address is, they claim that the external management fees would be in excess of $25 million.

If I'm doing my math correctly that's nowhere near to value, am I right?.

Yes, you're correct Ryan, that's an extremely high number and I don't know how they're getting that number..

Right, I mean, I think the base is, when its closer to $10 million or so, it seems….

Hey, Ryan. The incremental base advisory fees would be about $17 million to $18 million based on the value of the equity, value of the preferred and….

In recall this, our current structure has a step down fee arrangement within Ashford Hospitality Trust, over a certain total enterprise value, the fee drops and so we would cross that initial threshold here and so both platform stand a benefit effectively from a reduced fee based upon increased scale which when the agreement was reached between the platforms in Ashford Inc.

that was a built-in concession given by Ashford Inc. recognizing that the incremental profit margin on scale is sizable and so that the fee should be commenced or certainly reduced..

Okay. That makes sense. And just one last thing here on the FelCor opportunity. It sounds to us like the FelCor Board and management are not receptive to this which is obviously why you guys are going public.

If you guys do and then moving forward the proxy contest that you've started, can you give us an idea of how much of that it might impact G&A at Ashford Trust?.

It's not an excessive amount of money just depends on what the legal costs are along the way and we can't anticipate that.

We think that the small amount of dollars to proceed with this relative to the overall big picture gain here and the 100s of millions of dollars is absolutely the right thing to do and you could frame it and we spent capital chasing after acquisition opportunities and we use that capital judiciously to chase, so we think at the right opportunity.

So this is the same type of approach. We have to spend some diligence dollars here some effort dollars here to pursue an acquisition opportunity that we think is very advantageous to our shareholders and their shareholders as well..

So, does that mean that any dollars you spend in terms of -- took deal costs or proxy costs you then do an add back into adjusted EBITDA and adjusted FFO?.

Yes, Ryan. We would view those cost as obviously non-recurring cost that we would adjust in our adjusted EBITDA and adjusted FFO tables..

Okay. That's helpful. That's all for me. Thanks guys..

Thank you, Ryan..

[Operator Instructions] We'll take our next question from Robin Farley from UBS..

Hi. This is a question actually about the results in Q4, it's just looking at the hotels under renovations versus your comparable hotel fit. And obviously the hotels under renovation would underperform the comparable hotel set, but it seems like there was sort of bigger underperformance in Q4 versus that we saw the first three quarters of the year.

I was just wondering if you could give color, was the sort of extent of the renovation disruption worse in Q4 for some reason or just because the sort of full comparable hotel set didn't outperform the way the hotels not under renovation did?.

Yes, Robin. All renovations aren't equal and so when we do the disclosures sometimes rooms renovations versus lobby renovations. And sometimes we find that lobby renovations can be more impactful, but and you are not taking rooms out, but generally rooms do displace more revenue.

I think the bigger overall, look here is that when you don't even adjust for the renovation activity we still gain market share 40 basis points against the comp set and 30 basis points against the track scale. So we did a great job in spite of the renovations and still gained market share just when you don't even account for the renovation activity..

Okay. Great. Thank you..

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

Thanks, good morning.

Congrats to Doug on the new role, and then I appreciate some of the additional commentary you gave on the FelCor transaction, maybe a big picture question here, I know you guys don't give guidance and obviously we've heard from a lot of your peers this week, but you've been outperforming some of those peers on a RevPAR basis, so Doug just wondering if you have any general comments on how you are thinking about RevPAR in 2017?.

We won't give guidance but we certainly can state that we believe that the diversity of our portfolio is advantageous to us at this time relative to the composition of our peer group portfolio. Our footprint is broader. Our asset base is more comprehensive in terms of the chain scale segments and locations and so.

At a time where the more consolidated strategies and some of these urban markets may have made sense earlier in the cycle that's unusually where right now all the new supply seems to be coming in. So our supply impact situation is a bit mitigated by the footprints that we have today.

And moreover, I think the key is that our asset management team does a phenomenal job. We believe they're best-in-class. They get very granular both at the top-line as well as bottom-line to maximize flow through on these assets. And this is a pennies business, you have to go after every possible scrape that you can get.

And I think even the example that Jeremy highlighted on our earnings call related to the billboard sign into the W Atlanta is an example of that. So that's how we generate this kind of performance and that's what we hope to do going forward.

And my general macroeconomic comment, I think there is a lot of expected enthusiasm about where the economy is headed whether it's due to the potential tax law changes or infrastructure growth, whatever it is I think people have an eye on the potential economic expansion.

I'm obviously as we get deeper into this administration and their economic plan, people will start to want to see proof of that and provided there is proof of that then our view is this could be more of an extended cycle. So Jeremy I think also has a comment as well..

It's just couple of comments. When you look at our portfolio mix, group can be anywhere from 22% to 25% and without giving guidance, I can tell you the group outlook for 2017 is very healthy for the Trust portfolio.

And one other dynamic is that when you look at the market, as Doug mentioned, our largest market is Washington DC, I think what the change in administration, and we have already seen it, is giving away a lot of new demand in that market. So I think that bodes well for the Trust portfolio..

Okay, great. It's very helpful.

And then on the FelCor proposal, it sounds like you maybe offer using limited information, how comfortable are you guys with the bid and some of the estimates that you put out?.

But we're very comfortable based on the information that we received. We'd looked at their public data. They've given us some limited information as part of the signing of the NDA. But it really wasn't what we're looking for, was a typical and customary information like property P&Ls.

The benefit that we have here is that our assets are profitable in many ways and we can look at the publicly available information and compare and contrast on market comps and operating comps within our existing portfolio to arrive at our estimates for savings. Flow through is a flow through and it's pretty easy to evaluate the difference.

Even to the point that we made in our conversations that if we're only partially right, which we think we won't just be partially right, but even partially right there is a tremendous amount of value-add here. Moreover to the extent they would share property level P&L information with us, engage with us.

We may find that there is even more to the upside here. So we believe that based up on the information that we have and this has been done with a thorough amount of diligence going back to October in conjunction with our own internal team, our advisor, UBS and our law firm Cadwalader that we're very confident in what we have on the table right now..

Okay, great. That's all from me. Thank you..

And we'll take our next question from Michael Bellisario from Robert Baird..

Thanks. Good morning everyone..

Good morning..

Just had a question on the $18 million of operating synergies, I know you haven't had a chance to look at all of FelCor's property specific data, but is that number -- is that based on a comparable analysis where your portfolio is currently operating versus where FelCor's is currently operating, that's really just a high level estimate, correct?.

Yes. This is Jeremy. It's a combination of the G&A savings which is fairly easy for Deric and his team to calculate and look at their run rate, the G&A cost and then look at what our incremental cost would be and you can calculate the G&A savings.

On the operational side, it's the merit of -- I would say quite of bit things using their publicly available information, using our benchmarking that we can do with our comparable hotels, using our track record of looking at acquisitions we've made over the years including brand managed acquisitions, I think we just quoted that the most recent three brand managed acquisitions we delivered a 174% EBITDA flow through in the first year.

And as we start with properties and our team just does an outstanding job.

But we went over this in the call, I think earlier this week and we went through the different components and the different ranges in which we think their savings will come out and so I think we feel very confident that we can deliver the savings especially when you look at the flow through they had, I think somewhere in the range of 16%.

Our brand managed full service hotels in Ashford Trust for the year was over 70%, I think was technically 72%. So that's phenomenal flow through that we were able to deal with all brand managed assets and so this is a team that has a track record of adding value in any asset to that grows our way..

Got that. It makes sense. And just clarify, you brought up G&A, but that's a separate topic, right, this is just $18 million at the property level, I just want to clarify that..

No, $18 million to $30 million that is a component of G&A and property level savings and we think the G&A component is somewhere in the….

And it's a $11 million right out of the gate..

Yes. So then the balance is operational savings..

Got it. That makes sense. And then just one kind of housekeeping item for Deric.

On the incentive fee recognition when Prime recognized their fee a year ago in the fourth quarter they added back two-thirds of it to be recognized ratably over the next eight quarters, is something changed on the accounting front that you're not doing that at Trust for the fourth quarter?.

Yes. When we did that last year we received the comment from the SEC that they did not like the way we did that when we tried to match up the cash payments versus the GAAP recognition.

And so for GAAP purposes, Trust had to recognize the 100% of the expense in the fourth quarter, but you're correct that will be paid over a three-year period, so from a cash standpoint, the payments that will go out over three years..

That's helpful. Thank you..

Management given the upcoming conference call for Ashford Inc., we have time for one additional question. Bryan, please go ahead with your question..

Thanks. Glad I made it in. I saw in your comment that FelCor was kind of steering you towards stock versus cash that's pretty interesting since cash is basically cleaner. But, I wanted to follow-up on one of Ryan's seven questions.

When it comes to cash, are you not ruling that out and how I think about this is, if you're truly going to potentially sell this three New York City assets, there is $500 million in cash right there, which would be close to half of the market cap of FelCor that you could immediately work to delever, is that something you guys would actually consider?.

I think until they started engaging with us, we have come up with what we think is a very attractive proposal for them. And if they want to engage in discussions around a deal then we're already seated at the table. So, happy to discuss things with them. We follow what we believe, they suggested we should do, so at this point we're waiting for them.

We're waiting for engagement from them at this point..

Right. But if you're going to go hostile on them and you think you might be able to sway more buy side to side with you if there was a meaningful cash component, isn't that away of maybe addressing that without levering out Trust further..

It would be. It potentially could be. I think that until we hear feedback from them as to any changes to our proposal this is our offer..

Okay. Thanks Doug..

Fine. Then thank you everyone for joining today's call and we look forward to speaking with you again on our next update..

This concludes today's call. Thank you for your participation. You may now disconnect..