Q1 2022 Ashford Hospitality Trust Inc Earnings Call
Greetings and welcome to Ashford Hospitality Trust first quarter 2022 results conference call at this time, all participants are in a listen.
A question and session answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Jordan Jennings manager of Investor Relations. Please proceed.
Good day, everyone and welcome to today's conference call to review the results for Ashford Hospitality Trust for the first quarter 2022 and to update you on recent developments.
On the call today will be Rob.
And Chief Executive Officer, Darren Eubanks, Chief Financial Officer, and Chris <unk> Senior Vice President.
President and head of asset management, the result, as well as notice of necessity at this conference call on a listen only basis over the Internet were distributed yesterday afternoon in a press release.
At this time, let me 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 provision 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 to Scott and 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 measures reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on form 8-K with SEC on May three 2022 and May also be accessed through the company's website at www dot.
H T REIT dotcom.
Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release also unless otherwise stated all reported results discussed in this call compare the first quarter of 2022 with the first quarter of 2021, I will now turn the call over to Rob Payne. Please go ahead Sir.
Good morning, welcome to our call.
Start by providing an overview of the current environment and how Ashford Trust has been navigating the recovery.
After that Derek will review, our financial results and then Chris 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 saw sequential Revpar improvement each month as we moved through the first quarter and that improvement has continued into the second quarter.
Second our liquidity and cash position continue to be strong we ended the quarter with approximately $609 million of networking capital, which equates to approximately $17 per diluted share.
With Yesterdays closing stock price of $7.32. We believe we are trading at a meaningful discount to both our net asset value per share and our net working capital per share.
Third we have lowered our leverage and improved our overall financial position.
Since its peak in 2020, we have lowered our net debt plus preferred equity by over $1 billion. According to a decrease in our leverage ratio defined as net debt plus preferred equity gross assets by approximately 12 percentage points.
Fourth during the quarter were extremely pleased to announce that we filed a preliminary registration statement with the SEC for the future offering or a non traded preferred equity.
Importantly, this announcement demonstrates our strategic pivot from defense to offense as we believe this offering will provide an attractive cost of capital allow us to accretively grow our portfolio over time subject to future market conditions. We believe access to this attractive growth capital is a significant competitive advantage, particularly given the fact that lodging Reits are trading at material discounts.
To their net asset values.
We expect to commence issuing limited amounts of non traded preferred equity beginning of the third quarter of 2022 subject to satisfying certain customary conditions.
We are optimistic about the long term outlook for the company and by taking strategic actions to strengthen our balance sheet, we feel well positioned to capitalize on this recovery, we're seeing in the hospitality industry having.
Having said that we havent raised any equity capital this year, given the softness in our stock price and we'll look to the potential proceeds from a non traded preferred as our growth capital.
While our cash position is strong we expect several of our loan pools to remaining cash traps over the next 12 months to 24 months.
For 2022, we are increasing our capital spending from the previous two years, but we will still be well below our historical run rate for Capex.
The sizable strategic capital expenditures, we've made in our properties pre pandemic. We believe our hotels are in fantastic condition and are well positioned for industry rebound capex spend during the first quarter was $22 $7 million.
Let me now turn to the operating performance at our hotels.
The lodging industry is clearly showing signs of improvement.
As far for all held in the portfolio increased approximately 103% for the first quarter.
This revpar result, equates to a decrease of approximately 23% versus the first quarter of 2019.
Preliminary March was the best performing month of the first quarter with Revpar down only 13% versus 2019 pre.
Preliminary numbers from April show that Revpar continued to improve across the portfolio with a months down only 7% versus 2019.
We remain encouraged by the continued strength and weekend leisure demand at our properties as we enter 2022, we did see some softness in demand during January with the Omicron variant that was similar to what we saw with Delta variant in mid August .
That industry softness bottomed out in the last two weeks of January and improve during the remainder of the quarter. We believe United States is transitioning from a pandemic to an indirect mentality and we hope to build on the momentum we saw in 2021.
We believe our geographically diverse portfolio consisting of high quality well located assets across the U S is well positioned to capitalize on the acceleration in demand, we expect to see cross leisure business and group.
We continue to be focused on aggressive cost control initiatives, including working closely with our property managers to minimize cost structures and maximize liquidity at our hotels. This is where our relationship with our affiliated property manager Remington has really set us apart.
Remington has been able to manage costs aggressively and adjust the current operating environment. This important relationship has enabled us to outperform the industry from an operation standpoint for many years.
Additionally, capital recycling remains an important component of our strategy and we are likely to begin to pursue some opportunities to sell certain non core assets. When doing this we will remain disciplined in our approach and take into consideration many factors such as the impact on EBITDA leverage Capex and Revpar among others.
Turning to Investor relations for their men remainder of 2022, we will expand our efforts to get out on the road meeting with investors communicate our strategy and explain what we believe to be an attractive investment opportunity at Ashford Trust. We look forward to speaking with many of you. During this upcoming events. We believe we have the right plan in place to capitalize on the recoveries and unfolds. This plan <unk>.
<unk> 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 the portfolio we.
We have a track record of success when it comes to property acquisitions joint ventures, and asset sales and expect they will continue to be part of the plan moving forward.
We ended the 2022 first quarter with a substantial amount of cash our balance sheet and with the upcoming launch of our non traded preferred stock offering. We are excited about the opportunities we see in front of US I'll now turn the call over to Derek to review, our first quarter financial performance.
Thanks, Rob for the first quarter of 2022, we reported a net loss attributable to common stockholders of $58 5 million or $1 71 per diluted share for the quarter, we reported <unk> per diluted share of negative <unk> adjusted EBITDA totaled $42 million for the quarter.
At the end of the first quarter, we had $3 $9 billion of loans with a blended average interest rate of four 4%.
Our loans were approximately 8% fixed rate and 92% floating rate.
We utilized floating rate debt as we believe it is a better hedge of our operating cash flows. However, we do utilize cash on those floating rate bonds to protect the company against significant interest rate increases.
Our hotel loans are all non recourse that currently 90% of our hotels are in cash traps. This.
This is down from 93% last quarter.
Our cash trap means that we are currently unable to utilize property level cash for corporate related purposes, as the properties recover and meet the various debt yield or coverage thresholds, we will be able to utilize that cash freely at corporate.
We ended the quarter with cash and cash equivalents of $548 6 million and restricted cash of $102 $3 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 $21 $9 million 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 approximately $609 million.
As Rob mentioned.
It's also important to point out that this networking capital amount of $609 million equates to approximately $17 per share.
This compares to our closing stock price from yesterday of $7.32, which is an approximately 58% discount to our net working capital per share our net working capital reflects value over and above the value of our hotels.
Additionally, as of March 31, 2022, our current market value implies a portfolio value of approximately $170000 per key.
Which represents a 58% discount to the weighted average hotel development costs of our portfolio of approximately $408000 per key based on a recent Hbf hotel development cost survey for upper upscale and upscale 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 $55 6 million in the quarter.
Our current quarterly run rate for debt service is approximately $44 million, our quarterly run rate for corporate G&A and advisory expense is approximately $14 million and our quarterly run rate on preferred dividends is approximately $3 million.
As of March 31, 2022, our portfolio consisted of 100 hotels with 22313 net rooms, our share count currently stands at approximately $36 1 million fully diluted shares outstanding which is comprised of $34 5 million shares of common stock at $1 6 million op units.
In the first quarter, our weighted average fully diluted share count used to calculate <unk> per share included approximately $1 7 million common shares associated with the exit fee on the strategic financing we completed in January 2021.
Assuming yesterdays closing stock price of $7 32.
Our equity market cap of approximately $264 million.
We are current on our preferred dividends and our current plan is to continue to pay our preferred dividends quarterly going forward.
We expect our common dividend to continue to be suspended for the foreseeable future.
Over the past several months, we've 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 lower our leverage our cash balance is solid we have an attractive maturity schedule with no final maturity to 2022, and we believe the company is well position 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 Chris to discuss our asset management activities for the quarter.
Thank you Derrick we are extremely proud of the work that our asset management team has done to drive operating results Revpar improved each month during the quarter with March Revpar down only 13% compared to March of 2019.
The team is also seeing other strong indicators of future demand returning while leisure continues to lead the recovery group business continues to accelerate rapidly.
Gross group bookings in March exceeded 2019 bookings by 19%.
We've also seen our corporate transient business come back strongly accelerating rapidly during the back half of the quarter.
Satisfaction is the strongest it has been since 2019 and our property level forecast continued to improve for the balance of the year.
I would now like to spend some time highlighting a few of the recent success stories across our portfolio.
Crowne Plaza La Concha key West had a strong first quarter with hotel EBITDA exceeding comparable 2019 by nearly 40%. The key west market is experiencing an incredible amount of transient demand and our hotel was able to capitalize on this by successfully positioning the brand to limit the terms of brand promotions for the hotel.
Additionally, the team identified an opportunity to strengthen midweek performance by partnering with a local Navy group, which contributed to an increase in group room nights by nearly 250% during the first quarter relative to comparable 2019.
These strategic changes position the hotel for success, which contributed to first quarter revpar, increasing nearly 36% relative to 2019.
Similarly, our team was able to capitalize on transient demand at the La Posada hotel in Santa Fe, which exceeded 2019 revpar by more than 27% during the first quarter.
Our team reengineer, the hotels' pricing strategy to maximize rates during weekends with high transient demand, which resulted in first quarter weakened ADR growth of 29% and.
In addition in order to fill midweek room nights. Our team ran an initiative to increase repeat group business that initiative was a success capturing 886 more weekday group room nights during the first quarter relative to 2019 in fact, one of those groups booked three additional space for this year.
Also one ocean resort and Spa had a great fourth quarter with Revpar up 12% relative to the same time period in 2019.
Our team tested the launch of a new gift package focusing on France looking for getaway. The offering was a huge success with it becoming the highest rated offering during the first quarter.
In addition, we have seen strong group demand with a hotel nearly reaching its 2019 group levels during the first quarter.
Our team has also tightened the booking guidelines for group business at target opportunities that would include large banquet food and beverage audio visual and other outlet spend to drive ancillary revenue.
The last hotel I'll highlight is the Hyatt Regency, Savannah, which had a strong first quarter with hotel EBITDA exceeding comparable 2019 by 11%.
The majority of this success was contributed through room rate, which was up nearly 15% during the first quarter relative to comparable 2019.
Our team built the foundation of midweek business through targeted promotions, which increase that stigma of over 1000 room nights relative to 2019.
This incremental business allowed our team to strategically push rate during higher demand periods, which propelled revpar by nearly 12% during the first quarter relative to the same time period in 2019.
Moving on to capital expenditures in prior years, we were proactive in renovating our hotels to renew our portfolio.
That commitment has now resulted in a competitive and strategic advantage as demand continues to accelerate.
We currently anticipate strategically deploying approximately $110 million to $120 million in capital expenditures in 2022, which includes our guestroom renovation at Marriott Fremont and meeting space renovation at the Hyatt Coral gables, and a lobby bar renovation at the Ritz Carlton Atlanta.
Before moving on to Q&A I would like to reiterate how optimistic we are about the recovery of our portfolio in the industry as a whole.
As mentioned earlier, a number of our hotels are experiencing heightened levels of demand with group bookings exceeding 2019, and the continued expected rebound in corporate travel we are extremely bullish about the potential of this portfolio.
During the first quarter, 11% of our hotels exceeded the comparable 2019 and hotel EBITDA. When you look at just the month of March the number of properties outperforming 2019 hotel EBITDA levels increase of 27%.
This portfolio is positioned extremely well to capitalize on the industry's continued recovery.
That concludes our prepared remarks, and we will now open up the call for Q&A.
Yes.
At this time, we'll be conducting a question and answer session. If you would.
To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for question.
Yeah.
Our first question is from Tyler battery with Oppenheimer. Please proceed with your question.
Good morning, Thanks for taking my questions first for me is just on trends in the business certainly some optimistic commentary.
With the direction, we're moving into Q2 here.
Any signs of consumer weakness or perhaps macro softness impacting things and I'm also really curious you know the business travel commentary it sounds quite good.
Have you seen the leisure side of things slow down at all the past month or so any indication that's perhaps there's a little bit more price sensitivity on the on the leisure side as well.
Hey, Tyler this is Chris so I can give you some color on kind of the broad trends we're seeing.
Everything that we're looking at suggests that there are no signs of this slowing down.
As you mentioned, we're seeing very strong trends out of our corporate travel.
That's accelerating as we look ahead to Q2 Q2 from a corporate standpoint is currently pacing ahead of Q1 by about 16%.
And we pass the milestone earlier this month in May where we booked more corporate bookings for the next 30 days.
And then we did in 2019 and so that was huge for us.
We're also seeing from our corporate traveller more corporate rate codes that are staying through the weekend than we've ever had before and so we think that that bodes really well for us long term in terms of helping us on shoulder nights and even outcome the production.
From a group standpoint, as you mentioned, we're seeing very strong trends in March we saw more bookings than in 2019, and what's more encouraging are the group bookings that we had in Q1.
Had 9% higher ADR than the bookings we had in Q1 of 2019, and so again from that segment very little right resistance and.
And continued acceleration leisure continues to lead the way, it's showing no signs of slowing down or are weakened ADR continues to accelerate and thats. The case as we look ahead to Q2 and beyond and so on the whole we're seeing.
Probably the most optimistic signs that we've seen thus far coming out of the recovery.
Okay very very helpful.
Follow up question.
In terms of the cash drops and I think you're 90% right now youre at 93% in the prior quarter, just talk a little bit if you could about.
When that percentage might move substantially lower what might need to happen in the broader environment for that to occur and assuming things continue to move in the right direction forget kind of into the back half and the percentage of loans being cash crops is much lower than it is today.
How does that change your perspective on liquidity and how much cash you would need to hold on hand to meet potential obligations. Yeah. Good question. So.
I guess the first step is just to think about it we've got about $12 million trapped today.
Those cash traps.
And actually the vast majority of that is in basically.
Single Arrow to pool asset, the Nashville, Renaissance, Nashville, and Westin, Princeton and given what we're seeing in Nashville, I do think that sometime this year, it's likely that loan will be b coming out. So I think from a functional standpoint is that vast majority of cash that we have trapped in there.
I think we have a path to getting it out here in the next several months.
More broadly speaking I think if you look at how our cash traps typically work.
Most of them are based on some either mix of either debt yield or <unk>.
Coverage ratio.
On them for example, I think a lot of them have kind of a <unk> of around one two times is kind of about the average of them and I think to the extent that we see.
What we're seeing now in April and that continued through April May June in the second quarter and then through the third quarter. I think there is the potential for a significant number of our assets to come out of cash trapped because they typically are six months or two consecutive quarter tests. So I think.
Given what we're seeing we there is some hope that a good number of them I don't know if its majority of them, but a significant amount of them could be out of cash traps by the end of the third quarter. This year.
Some of the more difficult pool as it may be next year, but again, its really dependent upon the trajectory of that covering if things continue like they are going and I think we're optimistic that those will be coming out sooner rather than later.
Okay, Great. That's all from me I'll leave it there. Thank you.
Our next question comes from Bryan Maher with B Riley Securities. Please proceed with your question.
Good morning, maybe following a little bit along Tyler's questioning.
When we think about the potential for dispositions and maybe some assets held in that in that portfolio and maybe you want to sell two out of five just being hypothetical.
You know assuming there's some cash trapped in there with the plan be to use your significant cash position.
Can you maybe temporarily pay off that low.
Free up the assets you wanted to sell and then maybe refinance the ones you want to continue to hold or are we thinking about that correctly.
I think so I would say, it's a little bit maybe a little bit more nuanced, which is and we're having these discussions now and we've identified.
Call. It at least an initial wave of call it maybe five or six assets that we're contemplating.
That we're contemplating.
Disposing of over the next rest of the year.
And some of those are crossed with other assets that we definitely want to keep the struggle that we have on those specific loans is that there are ways to extract them and typically I mean, I think almost universally on those loan pools is that it's typically a price of 115% of the allocated <unk>.
Loan balance is is the extraction price however that typically assumes that.
It typically assumes that youre able to meet certain debt yield tests and other tests that the lenders require of which generally speaking we're not meeting just because of the current state of the industry. So what is I would say most likely to happen is that we would be willing to pay the lender the 115.
Percent.
And then to the extent there is incremental proceeds above that that they would likely want that themselves to pay down that loan. So I think it's unlikely that incremental cash proceeds that we get from any sales would go to corporate cash because even with our strategic financing.
To the extent there is excess proceeds coming from an asset sale of those would need to go down to pay down the strategic financing. So the asset sales are being primarily used for a combo of deleveraging.
And clean up the portfolio from a kind of a revpar quality standpoint.
And not from a kind of a cash generation standpoint, so I think overall there.
They could be even depending upon the assets that we pick it could be a little bit of cash being used to.
Pay down those loans to delever, but.
I hope that explains a little bit of I think what's the most likely scenario.
Yeah and the.
Isn't that youre looking to potentially dispose of or are those more of your select service hotels or full service hotels. They are mostly full service I think we've got.
A handful of assets that have franchise agreements that might be expiring over the next several years that have maybe what we think are some of the weaker brands in our system.
Where we don't think that the pips required.
Make it worth it.
Or some of our lower Revpar full service assets that when you look at when we look at the life of the assets in the amount of Capex that we have put in over time, given their lower revpar profile. It just makes it hard for them to cash flow and a significant basis.
So I think thats, probably our focus is initially lower lower quality.
Lower quality full service, though there may be some.
Servicer asset or two.
That comes up from time to time, because I do think overall, we'd like to to the extent that we are.
Either kind of dispose of.
Or.
Right of our select service assets is more likely to be.
Many of them together and some sort of strategy, where we're selling them as a pool are contributing them as a pool.
We're spending in that as a pool or something more strategic rather than.
I mean, there's a few of them that we I think are or.
Maybe not long term holds but to the extent you see us do something substantial limit service it'll be probably bigger a bigger strategy.
Right I mean, I recall, a few years back probably five or six years back.
There was some discussion about selling a large chunk of your select service hotels are are you receiving and there seems to be a lot of capital out there right now check chasing hotel assets and we're seeing some transactions are you receiving inbound calls on doing something like that or do you plan on picking out hotels.
And then actively marketing those well we are we are getting inbound calls, but as you can imagine it's typically for our our highest quality and best assets and cash flow and significant cash flow assets, which.
Obviously, we have less interest in selling those right now and so we haven't gotten really any inbound interest in large portfolios.
We just kind of just kind of a one off here or there and as in all of these things. It's complicated just because a lot of those across with other assets in so it's not necessarily easy to transact on those.
So I think we're going to be as focused on.
Trying to start chipping away at it cleaned up the portfolio and we do have this the reality that we're dealing with that until we pay off our strategic financing, we really aren't able to generate incremental cash proceeds.
At this goes to pay down the strategic financing, but I think we hope that as the recovery continues and values continue then maybe and we're paying off the strategic financing that.
That is a weighted to delever generate some cash maybe going into next year.
Okay, and just last for me.
Everybody knows that you guys have been heavy users of floating rate debt over the past.
Nearly 20 years, it's worked out really well for the past 12, or 13 years, but with the new interest rate environment. We have I think people might be a little bit more.
On edge about that.
Derek you've talked about caps being in place on those pieces of debt how much higher are the caps relative to where interest rates sit today, yes.
The caps are really meant to protect us from a significant spike in rates not a not a traditional sort of slow increasing of rates. So those those caps typically kick in and sort of the 3% to 4% range on LIBOR.
And they tend to cover whatever the remaining maturity is of the loans that we have in place. So I don't really anticipate those caps kicking in both of those have to see.
But youre right.
Our strategy has been predominantly floating rate financing.
And even sitting here today I would continue to defend that strategy and believe it's the right strategy. We do have some fixed rate debt in the portfolio. So.
It's not exclusive but we do feel like Theres, a lot of benefits to having the floating rate financing obviously, we've benefited from that over the last few years.
As we sit here today, if rates do go up and that would be a headwind that we would face as we look at our <unk> in our on our earnings but again, we believe that's a bit of a natural hedge in and I think if you look historically you would also see that when rates are going up spreads on hotel debt is coming down and so in some cases you are all <unk>.
And Ray that you are paying may not may not change that much and we're also in a fortunate position of really having no no maturities for the balance of this year and and being able to be opportunistic on any refinancings if.
If we want to go pursue refinancing so.
We're still comfortable with the mix of fixed and floating debt in our portfolio.
Okay. Thank you.
Yes.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Chris <unk> with Deutsche Bank. Please proceed with your question.
Yeah.
Good morning, guys wanted to follow up a little bit on kind of the operating model and you guys don't have a ton of brand managed hotels, where do you think you are in terms of.
Getting getting it to where you want to be given that you know rates or occupancy is coming back corporate travel is coming back. Sometimes there is you know expectations going up on the customer's part.
Just on some of the.
Food and beverage and also the housekeeping, where where do you think you are in terms of getting to a final place where you can you can live with the.
With the extra labor that is starting to come back.
Yeah I'll take that this is Chris makes sense so.
We're we're at about 70% of our pre Covid staffing levels, and so where we've needed to add labor, we have but our our brand management and management company partners have done a great job through the pandemic of reengineering, our labor models and so on.
I don't I don't see us getting back to kind of pre COVID-19 levels. So theres going to be some efficiencies that are built in and pull through and where we're really seeing it is on the management side in terms of management Ftes and management wages, we felt a lot of.
Consolidating and complex thing and our management companies have have found efficiencies there and it's really pulling through when we look at our undistributed expenses for the quarter Theyre down about 10% per available room to 2019, and so that's a really encouraging sign.
You mentioned us having less brand managed hotels, when we talk to our third party our largest third party manager Remington. They cited a nearly 20% productivity improvements in Q1, and so there's a there's a lot of efficiencies that we're pulling through in our labor model that we're really encouraged by.
We have had to add staffing back and we've done so successfully where theres been any gas we've been able to use temp labor, but we have been in a situation, where we've had to turn away business because of staffing in terms of.
What the customer experiences we're encouraged our guest satisfaction scores are as high as they've been since 2019. They continue to show a strong uptick and so that tells us that we're focusing on the right things, we're bringing back labor prudently and we're focusing on the things that are important to the customer and it's coming through in kind of their fees.
<unk> surveys to us.
Okay. Yeah. Thanks, Thanks, Chris very helpful. And then just as a follow up it's been a little while since we've talked about supply.
But just kind of looking at your portfolio right you got a little bit of it.
Exposure to places like Nashville, and areas in Texas, Dallas Austin.
Are those those are areas that are you know, we think continuing to grow economically there were a lot of projects on the board pre COVID-19, what's what's your general sense as to whether you know at some point, we actually see supply as an issue in some markets again.
Yes, good question I mean, obviously.
We have our eye on and he said I mean, there's always kind of those handful of markets that hasnt, some supply issues Nashville, Austin, Dallas and Atlanta.
Denver that we don't have much exposure there. So there are some markets where it seems like at least on the drawing board there is a lot of supply.
Potentially coming in obviously, what we've experienced in Nashville is that that market has had a ton of supply, but given the asset that we have the location where it is the quality of the renovation that was done and the other thing is going on around that hotel. The demand is is kind of through the roof and so we've seen just no impact whatever I think of that hotel from.
The impact of supply just because of how well located it is I do think it could be a potential headwind in some of these other markets.
Hard to know exactly what for example, or happened in Austin.
Austin is blowing and going I mean demand is growing that city is growing.
And there's definitely something you said about it becoming the new Silicon Valley.
That being said it just Texas does have lower barriers to entry and it's something that we had seen across Texas markets in our history, particularly being from Dallas that it we've had a hard time raising rates historically and so.
It is something that is going to be a little bit of a headwind in those markets, but I think as we look across our overall portfolio of what we think supply growth is and even by kind of our tracks within those markets.
We see over the next 24 months or so that supply growth probably is going to be more than maybe one low 1% to one to one 5%.
And so obviously, we see demand significantly growing significantly above that.
On a normalized basis, so I think releases lack next several years.
We think that things are looking good and obviously as you see continued geopolitical concerns these inflationary concerns and the cost concerns I mean, we're seeing on the construction side and even our own capex budgeting.
Projects being skinny down a little bit.
In certain situations.
Situations to keep down cost.
And that with what it is now taking to field in particularly in the larger more urban markets.
I think what you see coming into the pipeline a lot of that is not going to.
Be made and that even with this inflationary environment and cost situations I think a lot of banks have lot of concerns on the construction sites cost so.
And then Chris May have some yes.
I'll add some color to Nashville, you called out Nashville is a market. That's obviously, one that's very important to us and on our radar.
We've been really impressed with the resiliency of that market are a Renaissance Nashville Hotel. There is a large hotel within the portfolio. They had nearly $4 million and omicron cancellations in Q1, and still managed to achieve a 90% occupancy in March.
With total revenue that was up over 11% to 2019. When we look ahead for that hotel group pace for 2022 is up 5% in 2019, so very strong performance in the quarter, even more encouraging signs as we look ahead. So that market has been really resilient and its and its ability to absorb that new.
Supply.
Okay very helpful. I appreciate all the color thanks, guys.
Our next question comes from Michael Bellisario with Baird and company. Please proceed with your question.
Thank you good morning, everyone.
Derek I just wanted to go back.
I just wanted to go back to one of the prior questions on the floating rate debt.
Quantification that you can provide on say 25 or 50 basis point change in LIBOR, what that does to your $44 million of.
Quarterly interest expense.
Yeah. So.
25 bps increase.
And rates would would increase our interest expense of about $9 million.
And then you can sort of extrapolate from there.
That's more of an annualized basis, not on a quarterly basis, but.
Got it.
To clarify that 9 million annual impact correct.
Okay.
Thanks.
Rob I want to go back to the info you guys gave last quarter on your kind of recovery expectations broadly for revenues and EBITDA coming back to prepayment dependent on level 23, and 24 any any change in your view with what you guys have seen more recently in terms of the timing of the topline and Bottomline recovery broadly, yes, I think broadly we're.
Getting definitely more bullish on it.
Chris has got some thoughts on that given what <unk> seen on the property levels I'll, let Chris take that one hey, Michael We're we're very optimistic that we've returned to normalized levels in 2023, I think that there could be.
We could come back sooner than that we're seeing from the properties as forecast continue to increase each month, there is renewed optimism and desire to pull forward those trends, we're seeing it in pace.
We said, we look at experience encouraging and so we think there is a good chance that we probably past that point before 2023, but just just conservatively given given all the unknowns.
Kind of sticking with that expectation at 23 is when we expect to return.
Yeah.
And all these things makes you know it's just that the trends that we're seeing are very encouraging but we also saw those trends at times last year and little hiccups, along the way, but I think if things continue.
Given what we're seeing on the books right now we would anticipate that going forward.
Got it.
That's helpful. And then just last one from me on.
Capital allocation, just the non traded preferred call it a low 8%.
Coupon there.
Investments you've looked at to date not that youre going to do anything it sounds like the imminently, but.
As you think about our required rates of return and underwritten projects that you look at so far where do you see that kind of cost of capital spread on potential investments I get that it might be six or 12 months out when you deploy some of that capital, but what have you seen so far on initial deals that you've looked at an underwritten.
Yes, good question and I think we're really excited about this we've always.
We've always struggled at times with her with frustration net at the fact that Theres times when lodging Reits are trading at premiums or at any of it but it seems like the vast majority of time lodging Reits are trading below NAV.
And it just makes it difficult to Accretively issue equity to go do deals at times.
And so it's something that we decided years ago that if we had the opportunity that we would try to take capital raising into our own hands to be able to continue to grow the platform because you see opportunities all the time of great deals to do and you don't always have the capital to do it.
At the same time, you are trying to avoid obviously leveraging up over time and we've been down that path before and we want to have a lower leverage profile and so that's why we're really excited about this about this non traded preferred because it achieves the ability to raise significant capital I mean that to see what our.
Sister eat Braemar is doing where they are coming up on nearly $100 million raised.
On their platform to be able to go out and you've seen some of the deals that <unk> been able to do.
But what's interesting about this is preferred.
Structure is that it does allow it has much more equity like features that to the extent that down the road our stock price is at a more attractive level. It does allow us to converted over and so it's different than the traditional perpetual preferred that we've had.
And so I think it's a way that we can get.
Give some comfort to our common shareholders that there is ways for us to grow without issuing equity at lower than ideal prices.
And then so then as we're looking at deals I think.
It's something where this is a secret piece of that I think we are going to be looking at.
Assets that are kind of unlevered returns kind of 10% plus is kind of what we're targeting.
The types of assets I think there will be full service assets.
There will be assets that are most likely in top 25, well diversified markets I think were not a group that is just going to focus in on in the sunbelt are only in the top five markets.
So we're going to be looking for opportunities across the top 25, and other resort markets and trying to accrete, our overall revpar a little bit I'd like to we're obviously not going to be in the luxury space, but higher quality upper upscale assets.
And I think the combination of cleaning up some of the lower quality assets in our portfolio along with this growth capital really gives us an ability and a place where over the next several years. We can we can really put Ashford trust in a place where we both have a better leverage.
Profile and have a higher quality quality portfolio.
Got it that's.
Very helpful. Just one follow up there and I get cash is fungible, but it sounds like the preferred is really earmarked for external growth or will some of that capital maybe would be used to repay oaktree.
When you can start repaying them early next year.
That's a good question I think it's ideally in mostly for growth, but to the extent that we have very expensive pieces of debt.
For example, we do have this strategic financing, which is obviously quite expensive.
And then even on some pools of assets in our Highland portfolio or our key portfolio as we are doing refinancings and maybe as we're trying to delever. Some of that mezz on top of that is pretty expensive last pieces of paper and so there may be a little bit of an arbitrage of times were to be able to pay down the loan.
And bringing this preferred as opposed to.
Refinancing at comparable levels that really expensive.
Junior pieces of paper. So there may be I'd say, some used limited amounts used to pay down debt that's pricey.
But we'd like to have most of it towards growth capital if possible.
That's all for me thanks.
Thanks, Mike.
Ladies and gentlemen, we have reached the end of the question and answer session and I would now like to turn the call back over to management for closing remarks, alright. Thank you everybody for joining us on this quarter's call and we look forward to speaking with you all next quarter.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
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Okay.
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