Q1 2020 Earnings Call

Greetings and welcome to the Ashford Hospitality Trust first quarter 2020 results conference call.

This time all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star Zero honor telephone keypad.

Please note that this conference is being recorded I will now turn the conference over to our hosts Jordan Jennings manager of Investor Relations. Thank you you may begin.

Good day, everyone and welcome to today's conference call to review the result for Ashford Hospitality Trust.

First quarter 2020 and to update you on recent calls.

On the call today will be Rabobank, President and Chief Executive Officer, Deric, Eubanks, Chief Financial Officer, Jeremy Welter, Chief Operating Officer, Arizona as long as noted that sustainability on this conference call on a listen only basis over the Internet redistribute yesterday afternoon, and unfortunately had been covered by the financial.

Yeah I.

At this time, let me remind you that certain statements Sunshine and this conference call contain or are based upon forward looking information and are being made pursuant to safe Harbor provisions under federal Securities regulation.

Such forward looking statements are subject to numerous assumptions and uncertainties and known or unknown risk, which could cause actual results could differ materially from those anticipated. These factors are more fully disgusting companies filings with Securities and Exchange Commission.

Before looking statements included in this conference call are only made I think they are the call and the company is not obligated to publicly update or revise them. In addition, certain terms used in the call or non-GAAP financial measures reconciliations of which are provided in the companys earnings release, and accompanying tables or schedule, which have been filed on form 8-K with <unk>.

He see on May 22020, and May also be accessed through the company's website at www Dot H.T. Riet dotcom.

With that is encouraged to review those reconciliations provided in the earnings release together with all information provided in the early on so unless.

Otherwise stated all reports results discussed in this call to care. The first quarter of 2020 with the first quarter of 2019, I'll now turn the call over to Ropey. Please go ahead Sir.

Good morning.

Welcome to our coal.

First I'd like to begin by expressing our sincere hope that you and your families are safe and doing well.

I thought you with everyone who has been affected by this health crisis.

These are challenging times for our country, the economy and of course hospitality industry.

Given these trying times I believe the appropriate starting point for today's call will be to update you on how Ashford Trust is navigate the Coke 19 and then.

After that Derek will review, our financial results and Jeremy will provide an operational update on the portfolio.

We are an unprecedented times and while our results in January and February continued the overall solid trends we've seen over prior quarters. We're now operating in a very different environment the impact to cobot 19 on the U.S. hospitality industry and our day to day operations have been profound.

Our response this crisis, that's been Swift and comprehensive as Weve focused our efforts efforts on providing safe environment for our guests and staffs are properties well at the same time taken aggressive measures to protect our properties and maintain our financial flexibility. So we can be in a position to return to profitability as travel resumes.

Given the economic impact this pandemics, we were required to make some difficult and painful decisions, that's precautionary measure and in conjunction with local state Federal guidelines, we have temporarily suspended operations at 23 properties and our remaining 93 properties have been operating at greatly reduced levels.

However, several of our assets are being used by local government agencies medical staffing organizations as well as hotel brands to support Cobot 19 response efforts. We're pleased to pleased to assist me his efforts through various initiatives more than 48, Ashford Trust hotels to provide a temporary logic for first responders health care professionals another too many residents.

Packet by the crisis.

When we first became aware of this virus in China in late January we worked quickly develop a comprehensive plan and keep the virus came to the U.S. that plane was quickly put into place when in late February early March it became clear that our business would be significantly impacted by the pandemic.

We worked closely with our property managers to cut costs in the maximize liquidity.

This is where our relationship with articulated property manager Remington really does set us apart.

It has been able to quickly cut costs in rapidly adjusted this new operating environment and were part of their efforts and believe it sets us up well to outperforms the industry recovers Jeremy will discuss this more in detail in his section.

We've also significantly reduced our planned spend for capital expenditures for the year spending our common dividend and reduce our corporate gionee by approximately 25%.

Gary will discuss this more detail around our liquidity shortly.

Beginning on April 1st we did not make principal or interest payments on nearly all of our loans, which constituted had a better the bolt such terms defined in our loan documents, we have been actively working with our lenders on our property level debt to arrange mutually agreeable forbearance agreement to reduce our near term cash utilization and improve our liquid.

We have had some success around those discussions, but the vast majority continue to be ongoing and we look forward to providing additional information as we continue to work through that process.

Speaking to the first time to present, you with Ashford Trust I couldn't be prouder with the effort in the performance of our team. During this time well we're closely monitoring this fluid situation have plans in place to reopen close properties as government edicts allow and business demand conditions improve our management team has had extensive experience in effectively navigating tough market environments and extend.

The downturns now each crisis isn't terribly different so we believe we have the right management team in place to protect long term values were assets and the company I'll now turn the call over Derek to review first quarter financial performance.

Yes, Rob for the first quarter 2020, we reported a net loss attributable to common stockholders at $94.8 billion.94 per diluted share.

For the quarter, we reported at the FFO per diluted share of negative 12 cents.

Adjusted EBITDA Ari totaled $47.4 million for the quarter.

At the end of the first quarter, we had $4.1 billion of mortgage loans with a blended average interest rate, 4.4% or loans were 9% fixed rate at 91% floating rate.

Our loans are all non recourse than we have no corporate loans were in the process of discussing forbearance agreement with our property level vendors. We have signed a few agreements in several more or in process as we disclosed earlier this week and an 8-K filing we did have one lender accelerate the loan on our embassy suites in New York Manhattan time square.

And use excess cash held by the lender to pay down their loan.

New York City is obviously subject to government mandated stay at home order.

At this hotel has remained open and is currently how the first responders in New York City Center of the Cobot 19 outbreak in the U.S.

Well the hotels not profitable currently we believe staying open providing a place it refuge for these workers is the right thing to do.

We continue to call on Congress, the Treasury Department and the Federal Reserve.

Assist the hotel industry during this crisis.

We ended the quarter with $386 million of liquidity, including cash and cash equivalents of $240 million unrestricted cash of $127 million.

The vast majority of that restricted cash is comprised of lender and manager held reserve accounts, we have been and continue to work with our property managers and lenders in order to utilize these lender and manager held reserves to fund operating shortfall at our hotels.

At the end of the quarter, we also had $19 million and do from third Party hotel managers. This represents cash held by one of our property manager, which is also available to fund operating costs.

As Rob mentioned in response to this pandemic, we have taken decisive measures to reduce our cash utilization.

We have reduced corporate you get a reimbursable expenses under our advisory agreement by approximately 25% on annual basis to further preserve our liquidity our board of directors suspended our common stock dividends, which will save approximately $7 million on a quarterly basis.

We estimate that our current monthly cash utilization or our hotel given their current state of either having suspended operations or operating in a limited capacity is approximately $20 million per month.

As I mentioned all of our debt is property level nonrecourse debt and the interest is currently approximately $13 million per month.

Our run rate for corporate DNA advisory fees is approximately $4 million per month.

We believe that hotel occupancy bottom in the middle of April.

Since then occupancy continues to increase on a weekly basis.

New bookings are positive, we're seeing pick up a room nights on a short term basis and the pace of that pick up is increasing almost daily.

We expect drive to leisure hotels to be among the first about back and we're already seeing this at our one Ocean resort Jacksonville, Florida, and our Lakeway resort in Austin, Texas, which bodes sold out last weekend.

We also expect those two odell to be sold out Memorial day weekend as well.

As of March 31st 2020, our portfolio consisted of 116 hotels with 24719 net rooms, our share count at quarter end stood at 124.8 million fully diluted shares outstanding which is comprised of 105.1 million shares of common stock and 19.7 million LP units.

During the first quarter, we refinanced the mortgage loans for the 226 room, a hobby on hotel in New Orleans, Louisiana, which had an existing outstanding balance of approximately $43.8 million floating interest rate of LIBOR, plus 5.1% and a final maturity date in June 2020.

The new non recourse loan totals $37 million and has a three year initial term with two one year extension option subject to satisfaction of certain conditions.

The loan is interest only for the first four years with 200000 dollar quarterly amortization payments a bit here.

The long provides our floating interest rate of LIBOR plus 3.4%.

During the quarter, we also sold the Crowne Plaza Annapolis generating approximately $5.1 million in cash proceeds.

This concludes our financial review and I would now lets turn it over to Jeremy to discuss our asset management activities for the quarter.

Thank you very comparable Revpar for our portfolio decreased 22.9% during the first quarter of 2020.

This decrease actually represents 1.7 percentage point in 0.6 percentage point outperformance is relative to our hotels competitive sets and said market change scales respectively.

During the first quarter hotel EBITDA flow through was 38%.

The ongoing coping 19 pandemic had disproportionately impacted the travel and tourism industry.

Prior to the Cobot 19 pandemic many of our hotels were performing well to start 2020 year to date February comparable revpar for the Hyatt Regency Coral gables in court Fort Lauderdale, Weston grew 26.4% and 15.6% respectively.

I, probably impacted by Miami hosting the Super Bowl.

On the back of the large Amazon citywide in January.

And hosting the MB a all star game in February comparable Revpar for Chicago's the silversmith grew 12.3%.

When it became apparent that the cover 19 pandemic was going to severely impact or hotels performance. We took swift action to put ourselves in position for long term success.

In March we reduced operating expenses significantly by 38.6% or $29.7 million relative to March 29 gene.

These decreases will be even more pronounced in the second quarter numbers. We've also temporarily suspended operations at 23 hotels.

These are unprecedented in difficult times.

Asset management property management and the brands are all working together.

We want to bring back as many associates as soon as we can win demand justifies bringing them back.

Our associates have been pushed hard working through a challenging situation.

Folks a bridging to the occasion and makes is proud to see how many how everyone has pitch in the health well being asked to do less or do more or less bags.

The following or a few of the many steps we've taken at our hotels to reduce expenses and generate revenue.

Reduce staff through furloughs and layoffs to skeleton crews, we put a brief on employee hiring and are deferring new hires we're scheduling partial shifts when full shifts are not necessary and we have eliminated housekeeping service for sale.

We have eliminated the answer it transportation Airport shuttle service valet parking services Turndown service and all amenities did exceed brand standards, we suspended services at cost years lounges, and clubs and all spots and kids clubs.

We have blocked off and shut down floors and wings of hotels.

I've said, all their mouth, thermostats, interims and public spaces to temperatures to conserve the most power.

We've turned off in room, refrigerators, and unplugged kitchen back of house in office equipment.

We suspended services and many food and beverage outlets.

Canceled advertising, we've renegotiated pricing on where our canceling service contracts, where different numerous maintenance items, we're working diligently to collect cancellation fees or partner with group customers to rebuild their programs for later date.

We're participating hilton's 1 million think use and we have registered hotels with FEMA CLC hotels for how they login associations in California hotels for healthcare workers.

We are actively seeking how we can best partner with local in city groups to help in our communities and provide shelter for first responders and vulnerable populations.

I also want to highlight the extraordinary job Remington is done in responding to the pandemic and minimizing the financial impact owners, well, keeping associates and guess safe.

In the first quarter, our Remington managed hotels, but franchised an independent we're able to more nimbly response the crisis.

Comparable revpar at EUR 80, Remington managed hotels decreased 22.8% and hotel EBITDA flow through was 41%.

Both numbers outperforming our portfolio totals March comparable revpar decreased 58.4% 4.2 percentage points less than the upper upscale chain scale nationally.

Operating expenses are remedies managed hotels decreased 41.8% again outpacing our portfolio totals Remington was also aggressive in cutting the cost of shared services.

Remington also implemented it means that the model, which we refer to as a two to one model, which consists of two associates in the morning to any evening and one overnight with general managers in other executive staff covering front desk in overnight yes.

Well it is unknown how fast the recovery will be we believe the worse is behind us.

Here's the trough occurred in the middle of April incredibly we have hotels open and operating with eight to 10 ft eight at <unk> and in some cases, even less Matt.

As we look at our portfolio, we believe the fastest segments to rebound will be leisure and other transient business with group segment lagging in recovery.

It seems that larger box hotels will struggle more than smaller hotels, because it will be difficult for them to drive occupancy being large lots of rooms.

In addition to smaller hotels, having in a bad we believe hotels to drive Q markets, well experienced a quicker recovery as well and 20 I cant our portfolios group occupancy as a percentage of total occupancy was 19% well the transient segment accounted for nearly four times is made room nights were not relying on the group segment.

Our average hotel side, it's 213 rooms, and many of our hotels are smaller.

More than half the hotels in our portfolio have fewer than 200 ramps and many of them are in drive to markets, our portfolio will benefit from being well diversified and having it makes its lessors and full service hotels.

Our extended stay hotels for instance, our residence Inn are positioned it performed well during the recovery.

The Washington, D.C. market, where we have our high concentrations. He will also benefit from the inauguration next year.

Prior to the pandemic supply growth in our domestic markets was slow and we expect that tailwind to continue.

In addition to position ourselves for long term success, we have continued to prioritize doing the right thing, including beans, many partners and leasing space to the homeless as examples in Austin, Texas, We stand ready to eight and Muslim city contingency plans, while it Marriott Research Triangle Park, we have.

The leasing space to shelter the homeless for over a month.

During the last few years, we invested significant capital and renovating our portfolio to maintain competitiveness.

Get ahead to 2020, these investments will pay off and provide us with a competitive advantage well or industry weathered the storm.

And by the covered 19 pandemic. Additionally, our capital investment strategies will allow us to allocate capital more sure. The for the remainder of the year. These expenditures will primarily consist of completing the guest rooms renovation as Hilton Fort worth.

The guest rooms in public space renovation at shared in Ann Arbor, and the guest rooms renovation at W. Minneapolis.

I'll now hand, it back to Rob for some final comments before Q and <unk>.

Thank you Jeremy <unk>.

I wanted to make a few final comments before starting the Q and a portion of this call.

Well I've only been the president and CEO of Ashford Trust for a handful of days has been here at Ashford for 15 years and as a team we've had many successes in those years as well as our share failures and hard lessons learned.

But nothing compares the devastation we're experiencing today.

And then because impacting our shareholders our associates our guests our management team our brand partners, our lenders and all the other stakeholders of the company in ways. We couldn't have imagined just a few weeks ago.

But there are silver linings every crisis and blessing that can come out of suffering and leaders. Our organization are rising to respond to the chaos long hours, Sears determination and a real hope for the future.

Our associates the hotels across the portfolio are working hard to welcome back I guess safely with genuine hospitality and gratitude.

All of US had a better graphs today on what is truly important in life and has benefited from the reminder of how quickly tragedy can strike.

So hear me clearly on this.

We will get through this.

Promise you it will make that's a better company.

One that does give us a deep respect and thankfulness for all of our stakeholders.

You mean that light I Wanna mention that once we make our way through covert 19, I anticipate the we will spend some time analyzing lessons learned from this crisis and over the past decade, and will likely update the strategy of Ashford Trust going forward. This could include changes to our leverage profile capital stack or liquidity profile.

Our investment strategy.

I would not be doing my job as the new CEO I Didnt take a hard look at our performance last years and take some steps that just a strategy, particularly in light of new strategies.

That concludes our prepared remarks, we'll now open up the call for acuity.

Thank you.

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Our first question comes from Tyler Battery with Janney capital markets. Please state your question.

Hey, good morning, Thanks for taking my question.

There's a couple from me and my first year round, one follow up on some of my comments, but you just made there and I appreciate its early maybe not a whole lot you can fabric.

And with this company for a number of years Im just in terms of reviewing the strategy I mean is anything and everything on the table here or there are few items, maybe you're focused on in terms of strategy company structure et cetera, just any any high level thoughts or driving you can tease out.

In terms of potential changes that we might expect going forward.

Yeah, I don't know if there's anything in terms of pure expectations, but I can't say that from my perspective anything and everything is on the table and that's the sort of situation that we're in.

You know I do think that we've gone into this crisis with too much leverage.

Something that I think Douglas look for opportunities and we as a company look for opportunities to de lever somewhat.

Going prior to this and had many we'd been unsuccessful due to just they'd be environment that we were in.

But you know in net crisis, that's something we've got to take no real look at at what I'm not going to be content with is no quote just survival that we set up this company with all nonrecourse debt for a reason we set up this company and building our cash balances.

For reason.

We all see didn't imagine be this sort of situation, but here we are.

And so what it does allow us a certain amount of a flexibility and in doing that I'm sure glad as I sit here today that I don't have bondholders for example.

So we've got to take an honest you know and honest look at that and what I like that I'm not going to be in tandem with is just making a through this crisis surviving.

And having a company that you know some investors may not think is investable and some and many think lot too much leverage I'm not okay with that I want to set up this company on the back side of all this to be able to grow.

It should be able to raise capital.

And should be able to flourish.

I'm not okay, continuing to be quote unquote in a box, we're not going to do that anymore.

So and then so that by definition that means everything needs to be on the table and.

Yeah, that's something that we've had.

Discussions with the board discussions with money very generally and I think everyone. It's important that it's going to take time to figure out once what that strategy looks like once we make it through all this we have a lot of things in front US right now we got to deal with.

But.

That's the situation we are today.

Okay perfect I appreciate that color and then just in terms of somewhat conversations you're having with your lenders can you talk a little bit more general about how some of those are progressing and you know any commentary in terms of helping us thinking about how we should handicap the range of outcomes here.

Sure those others, I'd say that kind of put into stages right. Now you know lenders are obviously overwhelms they've got a lot of loans coming back their way.

And then just off the trouble balance sheet lenders and for CMBS.

Lenders you know there little overwhelmed and no. One I think is really willing to engage on any serious discussions that quote unquote solved the problem right now everyone is just trying to postpone the problem.

And frankly.

No I pulled out hope that things will just get better.

And so as a result, mostly discussions that we're having our just on temporary forbearances and these are looking at things like three to six month Forbearances.

Deferring interest to a later date, sometimes it's spread out over time, sometimes it's paid back at maturity, sometimes it's paid that earlier than that.

You are getting access to Stephanie and other reserves to pay operating expenses.

Yeah, those are kind of the the main the main terms and frankly, we've had a wide variety of you know success with that we have signed up some as made good progress with others and there's other lenders are servicers out there that frankly been fairly difficult to deal with and you know and may even sometimes.

Be seen a snapback opportunity to get restructuring ease or other things and so.

And I I kind of put in light of we've had great working relationships with our brands for example, the brand to bend over backwards I think in terms of particularly our our friends at Hilton and Marriott Hyatt, where they're giving us access to reserves there.

Suspending brand standards, there, allowing us to operate in ways that were completely unimaginable, just a few months ago, and so kudos and credit to them because they've been a tremendous held during this time.

And lenders are by and large not taking that approach and it's been very frustrating, but we what we have to deal with and so so we're going to keep it's kind of choppy what on those and but I think today with a lender wants to.

Dig in and offer terms that just aren't acceptable then that's why we have nonrecourse debt and our goal is to keep as many of these properties as we can.

And to keep the portfolio as it is but there's obviously the outset opportunity that some of that will not happen.

And so we've got to no here internally, we've been working on your prioritizing our assets, which ones do we see that we have lot of equity value in as we sit here today, which ones do we think are going to recover in certain trajectory, which ones have reserves that we need more cash the properties I'm already sorts of things all these factors that we're going into.

And that will kind of leads to a I think a longer term.

Strategy of of of dealing with these assets.

And the debt in terms of what needs to be restructured what needs to be recut, what needs to be extended and so there's no. There's a lot of moving pieces, but as we sit here today were mostly focused on creating space to do that work and so that means working with our lenders to you.

Come up with kind of three to six month Forbearances.

Okay, Great appreciate all that detail. Thank you that's all for me.

Yeah.

Our next question comes from Chris Woronka with Deutsche Bank. Please state your question.

Hey, good morning, guys, Rob or well welcome into the new new seat.

[laughter], Thanks, sorry follow.

Yeah, no great. Thanks, it's Rob.

Just a quick question a follow up on that Tyler's question I guess as you think about the.

New York City Embassy suites, and I think there was another one right Santa Cruz Hilton what are kind of the next steps there and what kind of how does that process kind of play out it seems like it's been a little bit more formalized now so so what can you just walk us through what happens.

Yeah no. It it's a good question I mean in some ways one cents nothing happens on its just terminology that's used and in many cases it can be unwound.

But there you know there wasn't acceleration.

And it just means that we.

I need to spend some time focusing on that and working with the various people that are in that capital stack. As you know there is a the reality is a bit being in New York City.

There's the pen the reality that you've had a governor cuomo put out is kind of moratorium on foreclosures no one really even knows what that means frankly on there's different cases that are going on.

You know in the state, but regardless is that foreclosures and that sort of process in New York takes time.

Yeah, we know that the the lenders know that Servicers know that and so it's something that we are it just means that we are actively working.

With them to come to a mutual solution and Union New York's in a in a pretty rough place right now and it's not exactly clear what the trajectory of recovery is going to be when will it seems to be a hot spot.

As Jeremy mentioned in his comments, we'd been this asset specifically has been housing a lot of first responders.

And in workers in regards to his pandemic.

It's not profitable you know it is it is losing money, but it is at least kind of covering the incremental fixed expenses that outbreak day incremental variable expenses as part of it.

But.

I'm hopeful that we will you know what we'd like to work something out <unk> acid that we recently purchased I'm.

There are only asset in Manhattan proper.

So what she's going to be a process of working with the various members the capital stack.

Chris This is Derek I'd just add that you are really the acceleration is just sort of the next step in the process. After there's an event of default and what would really needed to happen here was just got everybody hit the pause button because we were forced to close obviously several of our properties given government mandates.

And government orders and the Federal reserve gave guidance the banks, which obviously the as a borrower very appreciative of where they encourage banks to work with borrowers that have been impacted by the cobot 19 pandemic basically said like look look give give your bar some breathing room like Rob said, we just see some time to kind of work this out.

Unfortunately in terms of hotel lending World and hotel financing banks, only make up about 50% of the outstanding hotel debt. So theres another half the financing world out there that are not commercial banks that are governed in regulated by the federal reserve and Unfortunately, there was no single voice yet that has given those lenders guide.

So in terms of what to do and so as Ross, it's been a little frustrating because different lenders are doing different things to us to have alone be accelerated and take our reserve accounts and used to pay down alone.

For a hotel in New York City that as housing first responders.

Just the doesn't feel right and so we we've called on Congress, we call them. The Treasury Department call and Federal reserve someone to give some guidance to these other lenders that are not regulated by the federal reserve to assist hotel borrowers there a lot of borrowers that are just like us most most the hotel owners are.

You know individuals that own a small portfolio, maybe one asset maybe a handful of asset and they finance their assets through property level mortgages and so our industry has just been crushed and.

Really really need some guidance from our government officials.

In terms of how lender should be working with borrowers right now to make it through this crisis.

Okay, Great appreciate all that color and then.

Rob I think you mentioned, they're prepared comments.

A reduction in the advisory fee I guess with with Ashford Inc. is can you give us maybe a little bit more color on that and is that something as you know in your new role as the situation kind of put that back on the table in terms of maybe doing a second another amendment to the to the Master agreement.

Well I mean, I think at some point in time, you will you know there's going to will I mean, it's like you said well have to review everything to figure out well what is the best.

The best way to set up Ashford Trust for success on the back side at all this.

That mechanism there is a mechanism within the existing advisory agreement where.

The fees can be reduced by 10% year over year as stock prices and whatnot drop and so you will see and I've seen the the fees to Ashford Inc. a drop as part of all this and to the extent to this process that this crisis can.

Can you you continue to see probably year over year drops potentially.

But no I mean, we've got to think through Ah think through all the there's obviously great benefits that come from that relationship I mean, the ability to have that team that for example, Jeremy has at in asset management is definitely a massive benefit and we can we can do that because we also have you $2 billion of asset.

Actually gets too, but how is that it's a very remark.

And with the goal of continuing to hopefully grow over time.

There's also Ashford Inc. has services like pure which here in this environment.

There are quite a few asset that we have interest that have pure rooms.

Hi, good allergenic deep clean rooms that may be an offering that is a real strategic advantage for our hotels going forward and we're looking at ways to potentially rolled that out a in a bigger scale.

We have opened here for example, this was something that Ashford trust that we've been focused on.

The last six months prior to all this which is working on a true skip the desk process that frankly other than Hilton, which really only does that for certain elite members.

That doesn't hasn't really existed in a polished form in our industry and so that's something that we had already been rolling out at Ashford Trust independent hotels.

Over the past several months.

That's a I think a key advantage and to what may be a contact list.

Environment for our hotels and operating environment going forward.

So that's a big strategic advantage I guess I did see that's more other peers on other calls were mentioning that well that's something we've been doing something that we've been already rolling out prior to all this.

And so there's there's some great key advantages and obviously the relationship with Remington and Premier where we just frankly can control those costs.

You know better and manage it better.

You saw the speed and it was brutal.

A little too experience.

Going from.

In one literally in a period of a few days going from operating.

Our board to Furloughing are laying off.

At that it was kind of 80% and then 90%, 90% plus of associates across the portfolio that was heart wrenching and but we did it several weeks ahead of most other people in most other groups and it's because we saw the devastation coming and had no you know in terms of 10 no choice.

And so there's just gray advantages so.

Finally, so those are all the different aspects that were going up to considers we figure out what's the best structure and the best.

The best opportunity for trust over the long run.

Okay very good appreciate all that color thanks, guys.

Our next question comes from Bryan Maher with B. Riley FBR. Please state your question.

Good morning.

Robert for Gary can you talk about the potential to have the government come in and do some kind of back stop on the CMBS in port closures and what type of.

Timing is involved in that what's the status of that and he specifically as lobbying for that.

Yeah, Hey, Brian a this is there a I'll address that.

You know the age in L.A. American has felt lodging associations really done a great job spearheading ought to AG advocacy for our industry.

You know something that that I've had personal conversations with several federal reserve folks about that I think would would be great is that the federal government could just backstop a refinancing program for any hotel loan that was performing and current prior to the declaration of a national emergency.

That's because the reality is if you've got a hotel mortgage today are pretty much every hotel in the country would be in default every hotel than in the country and that's the way that lenders could get made whole update through commercial banks could up could basically sponsor a refinancing effort, where banks would refinance existing loans that were current prior to that.

National Emergency.

Previous lenders get paid off that capital you recycle back into the economy and borrowers able to hold on to their assets and give some given some breathing room to to make through this crisis. So that the proposal that that's that's out there.

Likelihood of that I don't know I know theres. Some bills that have been proposed increase in Congress recently.

Regarding declaring the pandemic available for business interruption insurance and that's something that's been kicked around on a retroactive basis the company's could.

Go back and get coverage through the federal government for any business interruption that can be claim as a result of the.

As a result resulted the pandemic because most of business interruption policies have specific exclusion score for Pandemics. So I know, there's some some things working the likelihood of that Ah I don't know.

But clearly there is a need for it.

And you know our industry has just been crushed I know hotel industry leaders no met with President Trump and by spreading depends I think the second week of March and we were hopeful that the PPP FDA program.

I would be able to assist.

Hotel owners like Us and.

Unfortunately, with the changing of the guide into that program, we were unable to.

Keep those bonds and access that those funds.

The main street facility, that's been announced.

Will not work for the reads given the.

Requirement to not use that money to refinancing existing loans. So there's there's still a need and we're optimistic and hopeful that our elected officials will come up or something.

Yeah, I mean, we.

I'll add a couple a couple other points on that Brian is that the one we have to operate as if we assume nothing's coming right. So it's not like we have to where just kind of sitting here today our tons, hoping that helped them. So we have to move forward as if we don't there are I guess, a couple of things I'll mention Derrick.

Touched on your there there is kind of a little bit a groundswell movement that we.

Come in contact with a bunch of small.

Kind of small CMBS borrowers I think they started a group called hotels together got Dot Org, which is trying to had these.

Certain standards and guidelines, particularly for CMBS, but other lenders I think they're calling it kind of their fairness and lending standards.

Because it is kind of seen that in our experience lease my experience has been the last few weeks is that you get the CMBS got in particularly it would actually welcome some sort of guidance from the federal government or the treasury either I reserve the FDIC whomever in order to kind of give them cover because these guys are.

Were very nervous about.

Taking steps and then in the in the low likelihood situation that things come ranking back quicker they look silly and made a bad decision.

So I think they would welcome Matt.

And then there's also as Dick mentioned at the single the workplace Recovery Act, which is getting some traction that we've heard through.

Certain members of Congress that.

That is more or less a business interruption insurance type structure.

So again I think both of those would be very very helpful for us in our industry, but likelihood is yes, I would imagine likelihood is low given just the reality is that we're dealing with but maybe one of them gets get some traction.

Yes, just two quick ones from me the 23 hotels that are still close how soon do you think it does reopen in is it more of a government mandate thing or is it a lack of demand versus the cost associated with reopening.

Yeah. There are a couple of them that were still kind of.

That were government mandated or monro counting down in key west they're going to be opening up on June 1st. So that was one that was closed down due to the government.

Most of the others are more demand.

More demand driven so you're going to see a wave of them.

A good amount of then will be coming back on June 1st.

And then you do have a few kind of laggards that just based upon typically maybe they're bigger assets or had demand generators that are urban that may not be coming back that could be a little bit later, maybe everywhere from mid June two sometime in July.

So there are few laggards into July but most of it will be opened in the next 30 days.

And Rob when you sit here today, you know being the new CEO and with the challenges that you base here.

With everything that's going on with the lenders in CMBS or what have you. How do you envision this portfolio looking in size a year from now is it 50 hotels is 70 Odell.

Hotels, you know just a best guess I mean, I know, it's usually uncertain time, but how are you thinking about this business a year from now.

Well I mean, if I look at.

So there's a couple of factors. One is you know when we look through what we what happened to financial crisis I.

I think we ended up getting back three hotels, we was.

Hilton they'll come keys to door in Tucson at Chicago O'hare Hi.

Weston and a a hyatt in in Michigan and a in a given dearborn.

This is materially worse than that situation.

In what we're seeing how far underwater certain assets, maybe so in one sense I would say it probably be more than that.

At the same time, what I just don't know is.

It's the kind of phrase right you are.

If I I all your dollar. It's my problem, then Oh, we have million. It's your problem. There's some of that that may happen with these with these lenders because they're so underwater. So many problems and so we just don't know how difficult they're going to be in how willing to work with us they are.

We also have priorities and keepers and things and assets that frankly, we had to hand back I would be okay with that others all of those so.

So I just don't know what the with the lenders are going to Dubai, I, just don't control that but from a.

Depth of problem situation, it's definitely much more severe than the financial crisis and so.

I would anticipate that we're definitely at risk due to hand back a few.

Okay. Thanks, that's all from it.

Thanks, Brian.

Thank you just a reminder, Atossa question Press Star one on your telephone keypad.

Sure move your question from the Q Press Star followed by the number to.

Once again, the queue up or question press Star one on your telephone keypad.

Our next question comes from Michael Bellisario with Baird. Please state your question.

Good morning, everyone.

Hi, Mike.

Just a couple of questions were more along the same lives of the debt modifications.

You mentioned, you're still making a few.

Principal and interest payments can you tell us, which loans, which mortgages. Those are and then why did you choose those properties.

Yeah, I don't know I'll go to the detailed which ones, but what I can tell you there are a handful of ones where either we're in the midst of.

Either renovation that has.

Certain funds that we want to make sure our where we'll be able to get access to.

Yes, or they're just certain discussions with lenders that make it.

Ill make us more necessary to.

To be kind of current in order to deal with them.

But it's very limited I mean, the number of loans that were current on as we sit here today is extraordinarily small so its mostly just about either the type relationship or maintaining access a certain.

Reserve accounts that.

That were important for kind of normal operations or renovations to keep telling.

Okay. That's helpful. And then maybe a more technical question for dark, but I guess, what can be negotiated or modified with the service or when you're going through these forbearance agreements I guess can you extend the maturity date or is it really all about the smaller items and kind of the current pay items.

That Rob mentioned earlier.

Like I can take that too I mean, I think you know once you're dealing with this special.

Most things can be changed I mean, they have their.

The rights the abilities to do quite a few types of modifications, including extensions changes in rate.

He is in a variety of terms there are certain things structurally.

But they may not be able to do.

To give an example, one thing that we had as an ask.

Early on in some of our forbearance discussions was taking deferred.

Interest and putting it onto the the back end as an addition to principal payment a yet maturity.

As we discovered that's not something structurally it's very easy to do within the CMBS.

Our image. So there seems like that that are just more difficult.

Sure I think is less about.

What they're capable of doing and more about what they are willing to do in the right now.

Again, I don't think people.

People have the you know the servicers and lenders have yet come to acknowledge the reality in depth of this crisis and the fact that I don't think there will probably be one forbearance of three to six months that will likely suffice to solve the problem and I think.

That's the case almost universally across every hotel level.

No. One is is is ready to solve it and that may just have to come through.

Continued pain and just watching a slowly crawl back.

And so.

So I just don't know when those legitimate discussions will there will be ready to have I don't know thats. After forbearance 2.0, you know as people still realize here in a couple of months that Ah theres still assets that have.

Still low double digit low double digit 20, 30% occupancy.

And there are still you know treading water and still underwater.

Is it then you they kicked the can out just another three months or six months, we do this again.

But at some point in time.

I fundamentally every hotel alone in America will likely need to have some sort of restructuring of something.

And I just don't know.

When that will happen, obviously, where we would love to that to be happen sooner rather than later I think the lenders are by and large in servicers are hesitant to do that because they just.

That's a lot of work that's a lot of symptoms risk that they're taking because they just don't know the trajectory of recovery and they again, they don't want to look silly as if they.

Gave us the borrower.

Really friendly deal and then you look back and say well that was.

Stupid, we gave them too much.

They're just not ready to do that yet so.

So it's not just us and I think it's the case that every loan every hotel Latin America is going to have some sort of need to be extended.

Some sort of of restructuring done.

That makes us and then just on your $127 million of restricted cash how much of that is held by lenders how much is held by.

Your matters I think that the Remington portion and then how would you get access to that money as you're not making your monthly mortgage payments that I can just kind of walk us through the mechanics of that where that money health specifically.

Yeah. So I'd say the vast majority that is held by the lenders and lender held reserves.

Marriott Bill does hold some of those up any reserves.

And that's obviously just part of the negotiation with the forbearance.

Because it is it is held by the lender there are specific requirements in the in the loan docs in terms of getting reimbursed when we spend those capex dollars to get reimbursed from those but up obviously now we're trying to get access to those to use those funds for operating shortfall, which all of the brands have really.

Waived their requirements of of the even having any reserves add any cash within an existing reserve can be utilized to fund operating shortfalls.

Now, it's just a question of getting there with the lenders and that's a discussion that were.

Kind of having at the moment, yeah, and that's kind of the probably the key part of all of our forbearance agreements is being able to get access to those that that the reserves and I think I mean generally speaking the lenders I think our amenable to that it's just what are the other you know what are the other kind of requirements are asked.

[noise] or terms around that that make it.

More difficult to to work on but but we're getting there and communication is you know.

Active with with the lenders and so were just kind of chopping away and making progress on it.

Got it has just.

Last one from me on your preferred what's what's your latest thought on why you might still or maybe not pay this coming quarter dividend and kind of Where's your head at in terms of has that piece of the capital stack today and that that quarterly cash outflow.

Oh good question the the decision to to pay the preferred in the first quarter was made for a pretty specific reason for us at that time.

Ashford Inc. had started the Ashford securities platform and was.

Setting up in this case was brain mark to do an offering that was out in the.

Public market that we know that free might announced was going to be kind of a non traded preferred paper.

And that was something that at some point time down the road could be interesting a part of the capital stack or in some way to raise capital for Ashford Trust.

And so as a result since at that time.

We didnt know what the trajectory was here at Ashford Trust.

And that was potentially valuable capital raising option, we didnt want to do anything.

Here in the short term to kill that.

Option down the road map to is to suspend payment on preferred obviously would be a detriment to that strategy and the story now as we sit here today the world has changed.

As we sit here today the board is clearly aware of.

The cash needs, we have the business and the environment we're in.

They have not declared a or or not declared.

Dividends thatll be decisions, they make going into that as they normally do in the second quarter.

But they are clearly aware of the current environment. We're operating in some sure they will take that into account as considering what what to do going forward.

Thanks for all the color appreciate it.

Thanks to our next question comes from Robin Farley of you'd be US. Please state your question.

On the <unk> any talking about the expectation that leisure business to come back first can you.

If I kind of what percent of your businesses leisure and what percent is also.

Tried in business versus flying at.

Those percentages and then just lastly, I guess is the idea of selling assets in this environment would that just I guess not not address any issues with due on those properties given their rates. It like a distressed sale is that so that's kind of not not on the table at this point.

Well that's your question I mean, I'll, let me answer the second one first.

I mean as they you know as we sit here today.

We actually a.

Couple of months ago did kind of dangle out there a couple of assets to kind of see what was market pricing out there and those assets came in I think generally maybe 40% off of what we thought kind of pre pre koby 19 values were on and that was pretty significant.

And in something where we Didnt think that was a reasonable.

Reasonable number and so we kind of moved on from from those alternatives.

As we sit here today, you know there there may be a time, where asset sales do you make some sense there may be times, where there there may be assets, if we do.

End up wanting to hand them back we're working with the lender to team up for sale or maybe part of a restructuring of certain loans, we will see but.

And there's always that there's always a price right. There's always someone comes in with an offer that's.

Good to say no to that's always possible. The reality is that with with our loans by and large in default across the portfolio.

It's unlikely that to the extent that we sold an asset that any of those proceeds net proceeds would come to us it likely go to the lender just to pay down debt.

Again, maybe part of what we have to do in order to get the capital structure and a place over time to where we needed to be but as we sit here today.

Our focus is clearly on.

Managing our costs working with our lenders to kind of solutions.

And as we make progress down that if theres, an asset sales that can make sense to help that and help position of portfolio, we'll do that.

In terms of the.

First question.

Oh, and I will say I don't know I've seen data that specifically breaks up drive to versus fly to.

I don't think we really track that.

Like that was we did mentioned we are about 80% transient and with a little bit of contract, but we are presumably a predominant.

A a.

A trend the in house.

And we do have a pretty wide a mix of both limited service.

In full service assets.

That our transit houses so.

At least as we look to the portfolio there are let's call it.

If you take most of our limits service product.

When you add some of those other located.

Full service assets I'm going to say you probably have.

I don't know 50 to 60 assets.

Maybe half the portfolio that have a material amount of drive too.

Traffic.

And so it's it's substantive.

It's definitely I think more than the vast majority of our peers in the industry, who tend to have that's more urban more urban more big box type type product. So.

So I think we're we're pretty well position from from that perspective.

Okay, great. Thank you.

Thank you there no further questions at this time I'll turn it back to management for closing remarks.

Thank you for joining today's call and we look forward just speaking with you next quarter.

Thank you. This concludes todays conference all parties may disconnect have a good day.