Q3 2021 Ashford Hospitality Trust Inc Earnings Call

Greetings and welcome to Ashford hospitality Trust's third quarter, 2020 One results conference call. At this time all participants are in a 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.

And your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Jordan Jennings manager of Investor Relations. Thank you you may begin.

Good day, everyone and welcome to today's conference call to review the results for Ashford Hospitality Trust for the third quarter of 2021 and to update you on recent developments on the call today will be Rob <unk>, President and Chief Executive Officer, Derek Eubanks, Chief Financial Officer, and Jeremy Welter, Chief operating officer the results as.

Well I've noticed that the possibility of this conference call on a listen only basis over the Internet were distributed yesterday afternoon in a press release.

At this time, let remind you that certain statements and assumptions in this conference call contain or are based upon forward looking information and are being made pursuant to the safe Harbor provisions of the federal Securities regulations.

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 factors are more fully discussed in the company's filings with the Securities and Exchange Commission.

Before 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 measure reconciliations are 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 October 26, 2021, and May also be accessed through the company's website.

W. W. Dot H <unk> dot com each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release.

Also unless otherwise stated all reported results discussed in this call compare to third quarter of 2021 with the third quarter of 2020, I will now I'll turn the call over at Raw case. Please go ahead Sir.

Good morning, and welcome to our call.

I'll start by providing an overview of the current environment and how Ashford Trust has been navigating the recovery.

After that Derek Who'll review, our financial results and then Jeremy will provide an operational update on our portfolio.

I'd first like to highlight some of our recent accomplishments and the main themes for our call.

First we had strong hotel performance and solid earnings in the third quarter that exceeded both street estimates and our internal forecast.

Second our liquidity continues to improve and our cash balances building.

Ended the quarter with over $672 million of cash and cash equivalents.

Third we have continued to lower our leverage and improve our financial position.

Since its peak in 2020, we have lowered our net debt plus preferred equity by over $1 $1 billion. According to a decrease in our leverage ratio defined as net debt plus preferred equity to gross assets by over 13 percentage points.

Finally, even with an already attractive loan maturity schedule, we remain proactive in our capital markets activities and balance sheet management.

During the quarter, we successfully refinanced a mortgage loan for the Hilton Boston back Bay, which had a final maturity date in November of 2022.

And this financing addresses the always significant final debt maturity debt maturity in 2022, and we have made significant progress on refinancing our upcoming debt maturity at the Marriott Crystal Gateway City Gate Marriott Gateway Crystal City, and hope to have more information for you soon on it.

We are optimistic about the long term outlook for the company and by taking decisive actions to strengthen our balance sheet, we feel well positioned to capitalize on a recovery we are already seen in the hospitality industry.

Subsequent to quarter end, we announced an amendment to our strategic financing, which provides us with some flexibility to access undrawn capital if needed.

Even after we have paid off the current balance.

While our optimism remains we also must acknowledge some risks to the pace of the recovery to the ongoing variance with COVID-19.

In addition, we believe majority of our loans could continue to be in cash traps over the next 12 to 24 months or more and as a result, we will continue to focus on building our liquidity improving our capital structure in the months to come.

In regards to dividends the company and its board of directors previously announced the suspension of its common stock dividend.

Before the company did not pay a dividend on its common stock and common units for the third quarter.

We also did not pay dividends on preferred stock for the third quarter. However, the board will continue to monitor the situation and assess future dividend declarations.

We have significantly reduced our planned spend for capital expenditures this year.

However, given the sizable strategic capital expenditures, we've made in our properties over the past several years, we believe our hotels are in fantastic condition and are well positioned for the industry rebounds.

Let me turn now to the operating performance of our hotels.

The lodging industry is clearly showing signs of improvement revpar for all hotels in the portfolio increased approximately 166% for the third quarter with only seven of our hotels, having negative hotel EBITDA in the quarter.

This revpar result, equates to a decrease of 25, 6% versus the third quarter of 2019.

We remain encouraged by the continued strength and weekend leisure demand at our properties in the fourth quarter looks to be building upon our strong momentum with October numbers likely to outperform September numbers. So we are confident that the industry recovery is continuing to take hold.

We believe our geographically diverse portfolio consisting of high quality well located assets across the U S that are approximately 80% relying on transient demand will be in a position to capitalize on the pent up leisure and acceleration of trends in corporate demand.

We continue to be focused on aggressive cost control initiatives, including working closely with our property managers to minimize cost structures and maximize liquidity. Our hotels. This is where our relationship with our affiliated property manager Remington really sets us apart Remington was able to quickly cut costs and rapidly adjust to this new operating environment and the same way they were hyper responsive on the way down we expect them to be high.

Responsive on the way up mitigating cost creep as much as possible throughout the recovery. We're proud of their efforts over the past year and believe this important relationship has enabled us to outperform the industry from operation standpoint, Jeremy will discuss this in a bit more detail.

Turning to Investor Relations, we recently held a very well attended Investor day in New York. If you were not able to join US I encourage you to go to our website and watch the webcast for the remainder of the year and into 2020, we will expand our efforts to get out on the road and meet with investors communicate our strategy and explained what we believed to be an attractive investment opportunity to Ashford Trust.

We look forward to speaking with many of you during the upcoming events.

We believe we have the right plan in place to capitalize on the recovery as it unfolds. This plan includes continuing to maximize liquidity across the company optimizing the operating performance of our assets as they recover deleveraging the balance sheet over time and looking for opportunities to invest and grow our portfolio going forward, we will be laser focus focus focus on all of these I'll now turn the call.

To Derek to review, our third quarter financial performance.

Thanks, Rob for the third quarter of 2021, we reported a net loss attributable to common stockholders of $47 5 million or.

Our $1.70 per diluted share for.

For the quarter, we reported <unk> per diluted share of a 11 SaaS.

We are pleased to report that our adjusted EBITDA for the quarter was $46 8 million, which is the strongest number since the first quarter of 2020, and a 49% increase over the second quarter of 2021.

At the end of the third quarter, we had $3 9 billion of loans with a blended average interest rate of four 2%.

Our loans were approximately 11% fixed rate and 89% floating rate.

We utilize floating rate debt as we believe it is a better hedge of our operating cash flows. However, we do utilize caps on those floating rate loans to protect the company against significant interest rate increases.

Our hotel loans are all nonrecourse and as Rob mentioned nearly all of them are currently in cash traps, meaning that we are currently unable to utilize property level cash for corporate related purposes as.

As the properties recover and meet the various debt yield of our coverage thresholds, we will be able to utilize that cash freely at corporate.

We ended the quarter with cash and cash equivalents of $673 million and restricted cash of $85 million.

The vast majority of that restricted cash is comprised of lender and manager held reserve accounts at the end of the quarter. We also had $24 $1 million and due from third party hotel managers.

This primarily represents cash held by one of our property managers, which is also available to fund hotel operating costs.

We also ended the quarter with net working capital of $707 million compared to networking capital of $9 8 million at the end of 2020, which highlights the continued improvement in our financial position.

I think it's also important to point out that this net working capital amount of $707 million equates to almost $21 per share.

This compares to our closing stock price from yesterday of $12 97.

Which is almost a 40% discount to our net working capital per share.

Our net working capital reflects value over and above the value of our hotels as such we believe that our current stock price does not reflect the intrinsic value of our high quality hotel portfolio.

From a cash utilization standpoint, our portfolio generated hotel EBITDA of $62 million in the quarter. Our current monthly run rate for interest expense is approximately $11 million and our current monthly run rate for corporate G&A and advisory expense is approximately $4 million.

As of September 32021, our portfolio consisted of 100 hotels with 22286 net rooms.

Our share count currently stands at approximately $33 9 million fully diluted shares outstanding.

Which is comprised of 33 5 million shares of common stock.

And 0.4 million LP units.

In the third quarter, our weighted average fully diluted share count used to calculate <unk> <unk> per share included approximately $1 7 million common shares associated with the exit fee on the strategic financing that we completed in January.

Assuming yesterdays closing stock price of $12 97, and our equity market cap is approximately $440 million.

During the quarter, we successfully refinanced our mortgage loan for the 390 room Hilton Boston back Bay in Boston, Massachusetts, which has a final maturity date in November 2022.

This financing addresses our only significant final debt maturity in 2022.

Furthermore, the company was able to complete this financing with a best in class institutional balance sheet lender, the new non recourse loan totals $98 million at a four year initial term with one year extension option subject to the satisfaction of certain conditions. The loan is interest only for the initial term with quarterly amortization payments during the extension term it.

<unk> for a floating interest rate of LIBOR plus three 8%.

Additionally, we have made significant progress on the upcoming debt maturity, the Marriott Gateway Crystal City and hope to provide you an update on our refinancing.

Our next hard debt maturity after the Merit Gateway is in June of 2023.

As we previously discussed we have been selectively exchanging our preferred stock for common stock as a way to de lever our balance sheet remove the accrued dividend liability and improve our equity flow through these exchanges, we have exchanged approximately 72% of our original preferred stock which.

Approximately $396 $5 million of face value and two common stock. These exchanges also eliminated a significant amount of accrued preferred dividends.

After taking into account the $200 million of new corporate debt that we closed in January and our cash balance at the end of the quarter, we have lowered our net debt plus preferred equity by over $1 $1 billion since its peak in 2020.

We have also been opportunistically raising equity capital to shore up our balance sheet improve our liquidity and to be prepared for potential loan paydowns needed to achieve extension tests or meet refinancing requirements. During the third quarter, we issued approximately $8 6 million shares of common stock for approximately $148 eight.

And gross proceeds.

Over the past several months, we have taken numerous steps to strengthen our financial position and improve our liquidity and we are pleased with the progress that we've made while we still have work to do to improve our capital structure. Our cash balances building, we have an attractive maturity schedule and we believe the company is well positioned to benefit from the improving trends we are seeing in the lodging industry.

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 Derek comparable Revpar for our portfolio increased 166% during the third quarter of 2021, while house profit flow through was a solid 48% were.

We are extremely encouraged with the continued acceleration of occupancy at our hotels with the third quarter outperforming the second quarter, 63% to 57% respectively. Additionally, we are outperforming the U S. Upper upscale chain scale in the third quarter occupancy by 700 basis points.

While the recovery continues we are seeing a number of hotels stabilized and performance metrics that exceed 2019, I'd like to spend some time highlighting some success stories.

Hi, Coral gables produced phenomenal results during the third quarter with hotel EBITDA exceeding comparable 2019.

Now more than $725000 that is a 163% increase the.

The performance premium is being propelled by additional occupancy that is driven by an airline contract that our team was able to secure early during the pandemic.

This increase in base business has allowed the hotel to shift our revenue strategies and be more proactive in pushing rate.

Resulting in a revpar increase of 25% over the third quarter of 2019.

Our latasha key West property has also done an excellent job exceeding 2019 results with hotel EBITDA, increasing 143% during the third quarter relative to 2019.

A lot of that success is attributable to the hotels topline growth with third quarter, revpar, increasing 7% relative to the comparable period in 2019.

Our M&A team identified an opportunity to capture additional business, resulting in booking a government training program.

Which added an additional 5% of occupancy to the hotel during the third quarter.

<unk> Nashville produced $6 8 million in hotel EBITDA during the third quarter, which exceeded the comparable period in 2019.

These results are on the back of the hotel selling nearly 22000 group room nights.

That can be a headline on zone.

This is one of the largest group passes and it has seen significant levels of demand.

One of the competitive advantages of our asset management team is how our structure is broken down by industry specific experts a property tax team has been extraordinarily successful this year.

Year to date through the third quarter and 2021.

We have saved $4 $5 million from property tax appeals, notably we have had a 92% success rate on our appeals this year.

To achieve these results and maximize our potential savings we have proactively reach out to local assessors in some stage before they issue values to start a dialogue and discuss items that we believe should be considered.

We found that using this proactive approach both remarks additional savings and build strong relationships with local assessors.

Moving on to capital management in prior years.

Proactive and renovating our hotels to renew our portfolio.

That commitment has now resulted in a competitive and strategic advantage as the market rebounds.

Not only are our properties more attractive to potential travelers, but we can also deploy capital more prudently throughout the recovery.

Thus far in 2021, the only major project that we have completed his ballroom renovation at the Ritz Carlton Atlanta.

Looking ahead major capital projects on the Horizon include a renovation of the public space and guest rooms at the Hilton Santa Cruz and renovation of the Guestrooms at the Marriott Fremont and renovation of the public spaces at six of our select service hotels.

Currently we estimate spending $40 million to $55 million in capital expenditures in 2021, which is significantly less than we have spent in previous years.

Before moving to Q&A I'd like to reiterate how optimistic we are about the recovery of our portfolio in the industry as a whole.

During this last quarter nearly all of our hotels, where GOP positive in a number we're outperforming the comparable period in 2019, we fully anticipate that this momentum will continue data from Smith travel research suggests that the top 25 U S markets are expected to have 32% revpar growth in 2022 compared to all other markets in 13.

<unk>. This is fantastic news for our portfolio given that 56% of our hotel keys fall within these markets that concludes our prepared remarks, we will now open the call for Q&A.

Okay.

Okay.

Thank you.

Like to ask a question. Please press star one on your telephone keypad.

For me still indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Our first question is.

I am here with B Riley Securities. Please proceed.

Good morning, guys. Thanks for taking my questions.

Getting out with the large cash or do you have basically accumulated over the past.

Six to nine months.

How do you think about deploying that.

Opposed to holding cash and they know that there are reasons to hold cash, but as it relates to maybe a making hole on the preferred accrued dividends, which I think is $20 million, which is maybe 5% of what you have in cash.

Taking care of Oaktree, and then bigger picture.

Maybe peeling away at some of the portfolio of financing such that you come to an agreement with the lenders and I know Theres oaktree.

Obstacles in here.

But making it such that you can peel away the assets in the portfolio financings that you really want to keep.

Being able to sell the ones that you really don't want or you can take advantage of buyers in the marketplace and then may be hitting new fresh debt on those assets you really want to keep how are you thinking about that with all of your cash.

Yes, that's a good question, Brian I think you are.

<unk> at the exact thing that we're thinking through right now which is we do have these kind of structural obstacles that come from this strategic financing and in the various make holes, which do overall incent you to sell closer to those <unk>.

Ending of that make whole period.

Which is going to be I guess 15 months from now.

But it is something where we have had initial discussions with several of our lenders.

On alternatives.

Alternatives around that to see if there are certain assets that if we did sell them.

Even though.

Currently those pools don't meet the tests required whether it's by debt yields or coverage ratios in order to normally extract them are those possible to do now so those are conversations.

Currently underway.

And I do think as you said, we've got to we obviously are looking for ways to go on the offense with our capital as opposed to just being on the defense, but we also have to look at all of the cash needs that we have which do include obviously paying off the strategic financing.

Bringing.

Bring our preferreds current which would lead us to also need to bring the strategic financing current as well. So if we're going to make the call it $20 million preferred payment to catch people up we also need to catch up.

<unk> payments on that that's another 30 something million dollars.

And then we've also got some capex that is starting to ramp up over the next two.

One month to 24 months. So we do have some cash needs that we have to be thoughtful of and in the back for mines, obviously be cautious to the extent that we don't know exactly what this recovery looks like and are there other variance or other things and what is the return to office pacing look like after the new year. So we're trying to be.

Full round all of those different items. One thing I think is encouraging is starting to see the healing of the debt markets.

And we obviously did our bank based financing, which we thought was a pretty attractive terms. We are working on our gateway deal that hopefully we'll have something to talk about soon on that.

But as we're starting to see quotes are particularly on the <unk> side.

In the hospitality there've been a few bigger deals and a little bit higher end deals, but that will start to spread and so I think one thing that we'll be looking at particularly maybe as it gets into the new year is are there ways to start chipping away at some of these refinancings and pairing those that maybe with some asset sales of what we.

Don't think our long term strategic assets.

But there is like I said, a handful of levers that we've got a pool, but we're very very focused on and looking at those alternatives.

Great and just as a follow up I think Jeremy mentioned, 40% to $55 million of Capex for 2021.

And that you had already done the ballroom renovation in Atlanta, how much is left at the 40% to $55 million due in the fourth quarter of this year and what do you think that there might be in 2022 and is there deferred capex you know from the past.

While the 24 months that might make that higher than maybe you previously might've thought and that's all for me.

Yes, I'll take that we're probably.

Close to $20 million that we hope to be in the fourth quarter. So it just it's always timing is kind of tough because.

We've got a lot of renovations typically in the fourth quarter and it just depends on when we when we actually pay out all of our vendors and so im not sure if we're going to hit.

$55 million, which was the top end of the range I think thats, probably unlikely as there's going to be probably closer to $40 million and I think.

To date, we spent.

About.

Close to plus $15 million now next year.

We haven't put together our capital plans, but I would say that theres not a lot of deferred capex, we've gone through our portfolio and in pretty good detail and there's not a ton of renovations that we see.

For next year.

Thank you.

Thanks, Brian.

Our next question is from Tyler Batori with Janney Montgomery Scott. Please proceed.

Hi, Good morning. This is Jonathan on for Tyler. Thanks for taking my questions first one for me really continuing to be strong in the quarter and I'm curious if that's all from leisure travel or if there's been some pick up in corporate that's impacting that positively.

And then maybe bigger picture can you provide any additional color on how you're thinking about rates long term, particularly with business transient becoming a more meaningful contributor presumably in the future.

Yes, let me there are some interesting stats that are popping out in.

In the quarter in regards to kind of corporate versus.

Leisure travel and its really looking at the weekend versus weekday disparity because obviously historically speaking you typically having a higher occupancies or I guess, similar occupancies, but higher rates on the corporate side.

And right now it's at the in versus the opposite where we're seeing both higher occupancies.

On weekends bye.

By a decent amount, but then youre, having also a rate premium as much as 20% to $30.

On the.

The weekend leisure so it's it's a unique scenario that I don't think we've ever seen before in our industry. So right now we think out of our occupancy probably only 5% to 6% of that is corporate transient. So it's still a very small percent of our overall occupancy.

So I'd say right now it's still the majority of the rate gains there is actually driven by leisure not corporate.

And I'll give you a little bit more specifics so in the in the third quarter. Our ADR for we can travel was up 12%, which is pretty impressive.

Revpar was up 5%, so where we're seeing the declines as Rob mentioned is a weekday travel and traditionally Tuesday, Wednesday, Thursday was always bread and butter of this portfolio.

But the business transient customer has been a little bit slower to come back, but we're seeing that accelerate each month.

Specifically, we're down about 60% from 2019 in our business transient segment and then looking into group.

In 2022 were actually pacing ahead, and ADR about 3%.

That's a comparison and thats, 3% increase over 2019.

That compares to 2021, which our ADR.

<unk> 2019 was down 19%, so theres, a pretty big Delta that we're able to kind of push rate in certain segments that we haven't been able to do.

Coming out of the pandemic, so I think thats, a really positive sign and I think thats. What is one of the maybe underappreciated opportunities in the industry for investors as they look at recovery is typically if we had this sort of occupancy losses, our rate would have collapsed and youre typically digging yourself.

Out of this ditch of rate.

So that it takes it's not until you're several years into the cycle before year rates are at a comparable in competitive level will in this situation rates are already close to or in some cases higher than they were in 2019 with significant occupancy losses still existing and so that gives us pricing power that.

Is it makes us obviously very bullish and obviously being able to push rate is highly profitable. So I think there is.

That shouldn't be lost on investors are the opportunities of a being able to push rate.

Okay, Great I appreciate all that detail and then any update you guys can provide on the labor headwinds that seem to be impacting the industry.

And then any noticeable difference or using I should say post labor day, and then how are you thinking about balancing labor going forward and into the future and other cost pressures.

This trend continues to ramp.

Yes, I'll take that so on the cost pressures.

We're still seeing cost pressures.

But the majority of the pressures, where we really saw the wage increases was was in the second quarter. So.

We're still seeing some wage pressures in the third quarter, we still expect some in the fourth quarter, but it is coming down pretty significantly when you look at.

Percentage percentage increases in terms of the open positions it hasn't been a problem yet in terms of impacting our revenue and what I mean by that is that we haven't had to take out rooms, and put them out of service or anything like that because we can't clean them.

And part of that is just because occupancy is still a little bit lower than what we'd like to see.

But we do have open positions I think it's about we're running about 13.5% or so in terms of the open positions at our properties and that is down from previous months, but it's not down dramatically and so hopefully.

We will see more of an acceleration then that we actually saw after after labor day in terms of <unk>.

Filling those positions.

Very helpful. Thank you and then last one if I take turning to get sorry, Jeremy you provided some helpful thoughts on the ADR in 2022, but I'm curious.

If you have any additional color on demand or future bookings and pointing to and how that's been progressing.

Any color you can provide there.

Yeah. So so as we sit right now the group room revenue compared to 2019 for 2022.

Is down 24%.

In spite of an.

Priest ADR slight increase in AUR, which he.

As a very healthy positive sign.

I don't think we'll actualize there, we're seeing pick up and we're getting a lot we're seeing that the lead times for bookings.

<unk> continues to be very compressed versus what it was in.

Before the pandemic and so I would anticipate that that 24% will continue to come down each quarter.

And so we'll actualize somewhere.

Much less than that but again, if that that same while it's down 25% right now and should compress again the ADR on that is still up 3% of our 2019. So again it plays into that broader rate story, which is a positive for us.

Okay very helpful. Thank you for all the color that's all for me.

Our next question is from Chris <unk> with Deutsche Bank. Please proceed.

Yeah, Hey, guys.

Thanks for taking the questions.

I guess, maybe for Jeremy Jeremy can you talk a little bit about where leisure rates are versus corporate either now or third quarter versus historically and I guess the question is when you remix a little bit next year, its obviously going to be very additive because youre going to have.

More occupancy but rate is there.

A widening gap between what you guys see as leisure in court.

Corporate negotiated rates.

Yes.

Please check and see if you have the speaker line muted.

Okay, Hey, Chris no.

A little technical difficulty for a minute I apologize for that.

When we look at when we look at leisure and the best way to look at this probably right. Now is just to look at our we can rate increase.

We're up 12% in the quarter and ADR and our weekend rates from 2019 all of these numbers are compared to 2018.

Weekday travel is down 12%, so it's definitely what the spread of ADR is definitely.

Continue to occur, but what we are seeing is that business transient actually is picking up more gains than than leisure segment, but it was down so much more than lasers, you know and so even though we're container larger gains in.

And our business traveler, its still still off quite a bit from 2019.

Okay.

That's helpful. Thanks, Jeremy and then.

As mentioned a lot of progress on property tax Appeals I E.

Is that going to help more in 2021 or is that more of a 2022 event in terms of how youre going to book the expenses or any refunds.

Yeah, I think it can help them both years I think that we're going to see savings in both 2021 and 2022.

Okay very helpful. And then also you may have mentioned it earlier, but trying to get a sense for.

Select service versus full service operationally because some of your full service hotels.

You don't have a ton of resorts and some of them are in the more suburban markets.

Not a ton of Citycenter. So is there any sense you can give us for how.

You are full services performing versus select service and kind of those outer markets.

Yes, it really I'd say in some ways, it's less dependent upon full service versus select service and it's really more market by market.

I mean, because even the select service properties that we have in certain.

Certain msas are underperforming.

Limited service assets in other markets. So I think the better way to look at it is where are your markets.

Forming and right now the the weak markets continue to be the Bay area.

Chicago, Philadelphia, Minneapolis and.

And around New York and those markets are just having a harder time, particularly because of there.

It's been answered because there's been a debate I think in the industry.

Our various mandate and other COVID-19 prevention mechanisms going to cause a travel or performance in certain markets to help it or heard it deep.

Feel safer and so they are willing to go or is it they are seen as a hindrance and I think what we're seeing right. Now is the markets that performed stronger tended to be in markets that had less COVID-19 restrictions. So, particularly for example, the Nashville assets that seem to be an asset where once the COVID-19 restrictions.

And mandates were removed and it was an attractive leisure market that hotel has started to kind of unleash and really perform well.

I don't know if its as much limited service versus full service as it is market by market.

Sorry to add one little comment on that is it I was pleased and surprised with how well.

Our Boston assets did in the quarter. So it is good to see.

Some markets urban markets that I would have otherwise anticipated it to be a little bit slower to recover recover pretty pretty significantly and so I think youll see that in some of these other markets that have underperformed. Its just a matter of time that you're going to see a massive bounce in the bay area and in some of the other urban locations that are.

<unk> performed pretty significantly.

Got it very helpful. If I could sneak one last one and it's a question about the labor you guys talked about but are you seeing any differences in the open positions geographically is this more of a problem in.

Urban or.

Northern half or southern half of any kind of color you can give us on where the shortages R. R.

Yes, it's interesting as in some ways, it's hard to tell because in those markets that are urban is that that also tends to be where we're having lower occupancies and so in some of the markets like.

The New York MSA or in D C.

Or in the Bay area. It Hasnt really been a significant issue because we're still operating at lower occupancies than we like.

And then again some of these other markets, where the economies have opened up a little bit more it's been a little bit easier to get people in so what I think is still left to be seen as when some of these when D C and New York and Minneapolis in the Bay area start really starting to push occupancy a little bit more what happens then.

I think our guess is that it's going to be a better situation than it is now and that it'll probably be a somewhat difficult but not.

Not overly difficult, but it's hard to know right now we just didn't and sometimes you don't really know until youre out pounding the pavement trying to round up new associates and employees at the asset.

I'd add to that Chris is that it is a.

Pervasive issue across the country in terms of labor shortages, but.

There is a difference between the states that.

Stop the enhanced benefits before relative to other states and so I can use maybe Nashville as an example that in in June of this year, we were very concerned about being able to ramp up in staff up given the massive acceleration of staff snapback of.

Occupancy when that market opened up we were just.

With the demand, but very concerned about the ability to service the property when those benefits did run out it was about three week lag time and were able to fill a good amount of those positions but.

But we still are running a little bit higher open positions across the board, even our hotels at that.

Have ramped up so it's a pervasive issue, but youre seeing a lag time on the market that.

<unk> kept the enhanced benefits in place if that helps.

Yes, yes very helpful. Thanks, guys I appreciate it.

As a reminder, the star one on your telephone keypad, if he would like to ask a question. Our next question is from Michael Bellisario with Robert W. Baird. Please proceed.

Thanks, Good morning, everyone.

Great.

But I want to go back to the balance sheet I guess.

First part of your question is what do you think you'll have enough cash on hand is there a number that you guys have in mind that you're targeting as you think about that.

Issuing shares and raising cash and then the.

Second part of your question is in any tightening incentives for you to get the preferred accrual and the Oaktree Pik paid back sooner rather than later aside from the obvious accrual that's occurring.

Yes, all right. Good question. So for the first one let me at least one point out that.

While we did raise some capital in the third quarter. It was substantially less than we did in the second quarter.

And so there is a given where our share price is and we are obviously very cautious on what is that share price and where we're raising capital at to be very thoughtful around that so there is obviously some trends there that you can look at.

But it's hard to come up with the exact number but there is there are goals that we're trying to accomplish and the goals are for that we're trying to accomplish is one we are going to pay off the strategic financing and that could be as much as call. It $300 million that we need to pay off at some point in time here.

We do need to bring these preferreds current that's our preference.

In order to do that as long as we have the strategic financing there is that'll be at $20 million payment, we will need to bring the strategic financing current as well and that's another call it $30 million.

And then we also have these other kind of capex needs. So we do have some some capital needs that we have I think it really is going to depend upon what happens here over the next few months in terms of the return of business transient and what the recovery looks like and our goal is to.

<unk>, a certain amount of cash so that to the extent that for the reason theres. Other risks in this recovery other variance that we're still has ample capital to weather those storms. Because this has been a very uncertain time at the same time, if the winds blow in our direction that we will pivot very quickly and as we sit here now.

Our underwriting many assets in many acquisitions to be ready to see and pivot towards going on offense.

As soon as we feel comfortable with the capital that we have so I can't give you an exact number but what I can tell you is we obviously have slowed down the raising of our capital and are keeping a close eye on the on the trajectory in terms of the preferred.

We also have our preferences to.

To pay it off soon.

The important factor that we are trying to get to is getting back to what's called <unk> III eligibility shelf eligibility and in order to do that we do need to have those preferreds current and that in order for that to happen, we would need to complete that by the end of this year and then once our 10-K was filed which is probably.

February of next year than we would have that eligibility.

That's our intention thats, our preference, but again that's still TBD.

<unk> by us by the board.

Got it.

Refers our current you're also then presumably paying the quarterly dividend on those two that right that would reside yes that would be we would then be paying those on a go forward basis, and we would be paying the strategic financing basically on a client basis as well.

Got it and then just on acquisitions that you touched on it a couple of times, but.

Fast forward is it six months or is it more like 18 or 24 months. When you think you'd be in position to grow the portfolio again, and then what what do at least as you sit today, what do the target assets and markets look like.

Good question I mean, I hope, it's I hope, it's something that comes with the new year and I think that's what our deal world that the that the recovery continues to take hold and as we're getting into next year that we can pivot to go on offense, because we are seeing a lot of opportunities.

Our spending you always sit in our dealer meetings every week and are looking at opportunities and there's a lot out there which is exciting.

Just needed to.

Accomplish a few other things first but I think the assets will be comparable and similar to what we've done historically over the last three to five years is that they'll predominantly full service assets.

There'll be most likely franchised assets, where are affiliated with Remington can really add value and pull a lot of levers.

Mostly be affiliated with Marriott Hilton and Hyatt branded.

So I'm sure we will have a mix of independents.

And there'll probably be.

Predominantly transient base demand, that's what we do well.

Unlikely that we'll be buying huge urban big box assets, that's never been what we've.

Flourished at.

And they will continue to be I'd say, well diversified across top 25 top 30 top 40 markets.

Theres just a lot of great markets out there that we think we're underappreciated buy ins.

Institutional investors on Wall Street that we have been invested in and are performing well now and we think those markets continue to exist.

So I think it will be assets that feel similar to acquisitions that we've done in last few years like la Posada, Santa Fe or the Hilton Alexandria old town.

<unk> Andrade, Virginia or.

The Hilton Santa Cruz that assets been performing great. So those are the types of assets that we'll be doing.

Got it thank you.

We now have a follow up question from Brian about her with B Riley Securities. Please proceed.

Yes. Thank you just to be clear on getting back to the S. Three eligibility you Rick.

Wired to pay.

Current on the preferred which I think he said it was about $20 million $30 million for Oaktree that bring you current but you're not required to pay off oaktree to be as that reality is that correct Thats correct. There was a provision in our our loan agreement that.

Obviously typically in a strategic financing like that typically a lender is not super thrilled about leaking cash flow out to our.

A junior junior.

Alrighty.

But obviously the strategic importance of <unk> eligible eligible is important to us and so the negotiated deal with.

With them was that we were able to pay that pay the preferreds current bring them current and continue to keep them current as long as one we maintain a certain amount of liquidity in cash our balance sheet, which we obviously meet today and that we effectively pay them current.

As well as opposed to picking them or having them accrue. So that's the stipulation in it.

We're allowed to do that starting in December of this year.

Got it and then more of a big picture question I mean look we all know for the past 15 years that Ashford has preferred to do floating rate financing versus fixed rate, but in the world that we live in today with no material concerns on inflation and the potential for interest rates to push higher over the next couple of years as you.

Finance debt over the next let's say 12 to 24 months is there any thought process with <unk>.

<unk> to start to layer on some more fixed rate debt.

It's a good question.

I guess, we're always open to considering things that might be a better structure.

Just that in our experience and analysis over time.

You are almost always better off being a floating rate hotel owner.

Now the question is is there something different today than there's been before and obviously youre looking at whether there is risk to a hyper inflation or other inflationary risks where it.

It would be a negative.

It's something we will look at Bryan.

But given the flexibility that exists within floating rate debt and the fact that we typically have to buy caps on them any way so to the extent that there is a significant move in rates, where we're protected from that perspective.

We just find that pairing your assets and liabilities and the other benefits of floating rate debt typically.

Typically benefit the portfolio. So I think we're willing to spend some time to really think about it and look through it but if I had to put money on the table right now I would say, we still anticipate being predominantly floating rate debt.

Right I mean, I get that but you guys also ran a higher leverage than everyone else and it didn't kind of work out of or a pandemic scenario and to the extent that we do have some hyperinflation and interest rates were to spike and I know that there's a huge amount of debate over that.

It just seems to me that the institutional investor community might feel better and maybe even assign you a higher multiple.

With at least some respectable component of fixed rate debt versus clothing, I just think it.

I understand all of the studies, you've done, but it seems like it could be a multiple overhang for your valuation.

To continue down that road in a hugely uncertainty.

Interest rate environment, So just kind of throwing that out there, but you know it will be interesting seeing what you do and I think if the answer is hey companies that have a higher fixed rate component get significant multiple premiums well that also is an important factor to consider I haven't seen.

Data or analysis to support that within the hospitality side, but if that is indeed, the case and Thats, obviously, a very important factor for us to consider as we're as we're contemplating it.

Thank you Andrew.

Thanks, Brian.

We have reached the end of our question and answer session I would like to turn the conference back over to management for closing remarks.

You for joining us and we look forward to talking with you all on our next earnings call.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

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