Q2 2023 Ashford Hospitality Trust Inc Earnings Call

Greetings and welcome to the Ashford Hospitality Trust second quarter 2023 results conference call.

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A question and answer session.

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It is now my pleasure to introduce your host Jordan Jennings manager Investor Relations. Thank you you may begin ma'am.

Good day, everyone and welcome to today's conference call to review the results for Ashford Hospitality Trust for the third quarter of 2023 and I'll take you on recent developments.

On the call today will be Rob <unk>, President and Chief Executive Officer, Derek Eubanks, Chief Financial Officer, and Chris Executive Vice.

President and head of asset management, the results as well as notice of accessibility of 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 provisions of the federal Securities regulation.

Such forward looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated.

These factors are more fully discussed 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 day of this call and the company is not obligated to publicly update or revise them.

Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities.

These will be our way.

Only by means of a registration statement and prospectus, which can be found at www dot SEC thought that and.

In addition, certain terms used in this call are non-GAAP financial measure reconciliation.

They are provided in the company's earnings release, and accompanying tables or schedules, which have been filed on form 8-K, plus eight with the SEC on August <unk> 2023, and May also be accessed through the company's website at www Dot H T. Rieck 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 second quarter ended June 32023, with the second quarter ended June 32022, I will now turn the call over to Rob Hey, Please go ahead Sir.

Welcome to our call.

After my introductory comments, Derek who will review our second quarter financial results and then Chris will provide an operational update on our portfolio.

The main themes of our call today are first we are very pleased with the strong revpar growth we achieved in the second quarter. Our portfolio continues to ramp up nicely. We are clearly seeing the benefit of our broadly diversified high quality portfolio that is balanced across leisure corporate and group demand sources.

Second our liquidity and cash position continued to be strong we ended the quarter with approximately $442 million of net working capital, we feel well positioned for upcoming extension tests.

Addition, we have two we have access to an undrawn undrawn capital E B, our strategy strategic financing.

Third the capital raising for our non traded preferred is ramping up nicely and increased over 148% from the first quarter. We continue to be excited about this source of capital for our platform.

Now for some additional details on these three themes.

Revpar for all hotels in our portfolio increased six 7% in the second quarter compared to the prior year quarter. This revpar growth was led by occupancy, which increased two 8% over the prior year quarter and we also saw strong growth in average rates, which increased three 8% over the prior year quarter.

In addition to our solid hotel performance the vast majority of our hotels are now out of their respective cash traps. This is an important step for our company as it allows us full flexibility to use our cash to optimize our capital structure and pay down debt or invest in growth opportunities.

Looking ahead, we believe our geographically diverse portfolio consisting of high quality assets with best in class brands and management companies as well position. We also believe that our relationship with our affiliated property manager Remington really sets us apart Remington has been able to consistently manage costs and optimize revenues aggressively enabling us to outperform the industry from an operation standpoint.

Many years.

During the quarter, we made significant progress on our loan extensions and made the strategic decision not to make required pay downs in our keys, a b and F loan pools in order to meet those extension that Youll tests. This was a prudent economic decision that reflected a comprehensive capital management process by the company, which explored assessed multiple options for these asset.

Including refinancing extension and asset sales.

Accordingly, the recent amendment to our corporate financing provides us with added flexibility regarding these loan pools and by proactively choosing not to extend three of those pools, we will improve our balance sheet by lowering leverage and then materially improves our future cash flows.

Further the combination of the pay downs in the ultimate removal of the debt associated with the pools that we did not extend will lower our debt by approximately $700 million more than 18%.

Have been committed to deleveraging the company over time and this is a significant step towards our long term goals of creating a more sustainable capital structure.

Additionally, capital recycling remains an important component of our strategy and we continue to pursue opportunities to sell certain non core assets.

We recently sold a small asset in Orlando for nearly $15 million to have four other assets that are currently being marketed for sale. We have identified several additional assets that we may bring to market for sale if market conditions warrant. We expect any net proceeds from these sales will go towards paying down debt.

We also continue to be excited about our non traded preferred capital offering and believe this offering will not only provide an attractive cost of capital, but allow us to accretively grow our portfolio over time subject to future market conditions. We believe access to this growth capital is a significant competitive advantage, particularly given the fact that lodging Reits are currently trading at a material discount.

Their net asset values, our preference would be to use this capital for future growth. The only up we may also use some of the capital to pay down debt or other corporate uses as needed we.

We continue to build the selling syndicate and currently have 35 signed dealer agreements representing over 5027 reps selling the security.

We're still very early in the capital raising process and to date, we have issued approximately $56 million of gross proceeds including $9 $5 million in July alone.

Turning to Investor Relations, we continue to have a robust outreach effort to get in front of investors communicate our strategy and explain what we believed to be an attractive investment opportunity at Ashford Trust.

Already attended numerous industry and Wall Street conferences this year and have several upcoming conferences. Later this year, we look forward to speaking with many of you during those events.

We believe we have the right plan in place to move forward and maximize value at Ashford Trust. This plan includes continuing to grow liquidity across the company optimize the operating performance of our assets improving the balance sheet over time and looking for opportunities to invest and grow in our portfolio. We.

We have a track record of success when it comes to property acquisitions joint ventures, and asset sales and we expect they will continue to be part of our plans moving forward. We ended the second quarter is the substantial amount of cash our balance sheet and for launch of our non traded preferred stock offering. We are excited about the opportunities we see in front of US now I will turn the call over to Derek to review, our second quarter financial performance.

Thanks, Rob.

For the second quarter, we reported a net loss attributable to common stockholders of $33 million or 88 cents per diluted share for.

For the quarter, we reported <unk> per diluted share of <unk> 78.

Adjusted EBITDA for the quarter was $104 million, which reflected a growth rate of 8% over the prior year quarter.

At the end of the second quarter, we had $3 $7 billion of loans with a blended average interest rate of seven 8% taking into account the in the money interest rate caps.

Considering the current levels of LIBOR sofa, and a corresponding interest rate caps, 96% of our debt is now effectively fixed as almost all of our interest rate caps are now in the money.

During the quarter, we extended our family Highland loan pool until April 2024.

Part of this extension, we pay down the existing loan balance by $45 million.

Also during the quarter, we refinanced our mortgage loans for the 157 room, La Posada, Santa Fe, Santa Fe, New Mexico, which had a final maturity date in November 2023.

And the 252 room Hilton Alexandria, Alexandria, Virginia, which had a final maturity date in June 2023.

These two loans were our only final debt maturities in 2023.

The new nonrecourse loan totals $98 $5 million. It has a three year initial term with two one year extension options subject to the satisfaction of certain conditions.

The loan is interest only and provides for a floating interest rate of sofa plus 4%.

Also during the quarter, we extended our keys pool see loans secured by five hotels with a pay down of approximately $62 million.

Subsequent to quarter end, we extended our keys pool D loans secured by five hotels with a paydown of approximately $26 million and our keys pool, a loan secured by five hotels with a pay down of approximately $41 million.

As Rob discussed we also elected not to make the required paydowns to extend our keys pool, a b and F loans, which in total are secured by 19 hotels.

The required paydown needed to extend these loans totaled approximately $255 million by.

By not extending these loan pools, we not only save the $255 million required pay downs, but also approximately $80 million in capital expenditures at these hotels through 2025.

Many of the properties in the non extended keys pools or in markets that have experienced significant headwinds throughout their post pandemic recoveries and a number of these markets are not forecasted to reach pre pandemic topline levels until 2025 or 26.

Further the non extended keys hotel only generated approximately 10% of our hotel EBITDA and our portfolio Revpar will increase approximately 3% by removing these lower revpar hotels from the portfolio.

With the keys loan pool extension behind US our next significant extension tests as our Morgan Stanley loan pool secured by 17 hotels, which has an initial maturity in November and we currently believe that loan should be able to be extended until 2024 with no paydown required.

We ended the quarter with cash and cash equivalents of $252 million and restricted cash of $150 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts and $13 $3 million related to trap cash held by lenders.

At the end of the quarter. We also had $19 million due from third party hotel managers this primarily.

Really 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 $344 million.

As of June 32023, our consolidated portfolio consisted of 100 hotels with 22316 rooms, our share count currently stands at approximately $36 6 million fully diluted shares outstanding which is comprised of $34 5 million shares of common stock at $2 1 million op units.

In the second 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 all of the strategic financing we completed in January 2021.

Assuming yesterdays closing stock price our equity market cap is approximately $144 million.

While we are currently paying our preferred dividends quarterly or monthly we do not anticipate reinstating our common dividend for some time.

Our liquidity position is solid and we are pleased with the progress that we've made on our loan extensions and the pace of our non traded preferred capital raising.

While it continues to be a challenging market for hotel debt financing with the increase in both credit spreads and base rates our portfolio is performing well from a capital structure and balance sheet perspective, we will continue to focus on raising capital through our non traded preferred stock potential asset sales and paying down our corporate financing.

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 for the quarter comparable revpar for our portfolio increased approximately 7% over the prior year quarter.

This revpar growth compared favorably to the national averages for both the upscale and upper upscale chain scales.

Despite significant cost pressures, we were also able to generate approximately 5% growth in comparable hotel EBITDA.

This is a testament to our talented team of asset managers that work relentlessly with our hotel managers to maximize the operating performance of our hotels.

The portfolio saw a number of records set in the second quarter in fact, 37% of our hotel set all time second quarter records in comparable total revenue.

These record breaking performances were spread across various markets ranging from Florida to Alaska and among different hotel classes, which included resort urban suburban and airport locations.

We remain encouraged by the continuing recovery that we're seeing in our urban markets a large portion of the year over year comparable hotel EBITDA success. During the second quarter was from Washington D. C. New York, New Jersey, and Atlanta, we have a large concentration of assets in these markets and they collectively increased comparable hotel EBITDA for the quarter by 12.

<unk> percent over the prior year quarter.

In fact four of our hotels in these markets at all time Hotel EBITDA performance records during the second quarter.

We positioned the airport properties in our portfolio to capitalize on increased air lift and accelerating demand trends seen by the airlines.

In the second quarter, our airport hotels collectively achieved growth of 15% and comparable hotel EBITDA over the prior year quarter.

Our courtyard Crystal city located by Reagan International Airport capitalize on increased parking demand by revamping its parking rates and offerings for both hotel guests and other customers utilizing the airport and increase the number of available rooms earmark for distressed airline passengers.

Our embassy suites Orlando Airport leveraged a partnership with two major airlines to capture long term space associated with their respective training programs.

As those training needs exceeded what was contracted and we were able to provide additional inventory at premium rates to further drive revenue.

Another key differentiator and competitive advantage for us as our dedicated revenue optimization team. This team works at a granular level to optimize performance during high demand periods. During the second quarter, the portfolio realized 16% more room nights with 95% or higher occupancy than we did in the prior year quarter. This is.

Particularly encouraging for our urban and suburban hotels, where the number of peak room nights during the second quarter increased 43% and 21% over the prior year quarter, respectively.

These peak nights present us with the opportunity to improve profit margins as we were able to drive rate.

Our revenue optimization team conducts monthly deep dive calls across our portfolio focused on driving pricing strategy in each segment, a topline basis, creating tools to build a strong group base pushing premiums on club and sweet room types and ensuring our properties follow our optimized marketing strategy.

We remain encouraged by the continued strength we are seeing in the group segment in the second quarter group room revenue increased 14% over the prior year quarter. This marks the ninth consecutive quarter with positive year over year quarterly growth in group room revenue.

We've had a heavy focus on driving group banquet and catering revenue as these are often the most profitable revenue streams within the food and beverage Department.

In the second quarter catering revenues increased 19% over the prior year quarter.

The increase in group revenue and bookings occurred broadly across the portfolio and included gains in many of our large hotels, including Marriott Crystal City Gateway.

Renaissance Nashville, and Marriott DFW.

We remain excited about the continued momentum from the group segment.

Moving on to capital expenditures, we have noted in previous calls how we have taken a strategic approach to renovating and strategically repositioning our hotels.

So far in 2023, we've completed the renovation of the lobby and bar at the Ritz Carlton Atlanta, the Guestrooms at Hampton in Evansville, and residence in Phoenix, the guest rooms, and public space and Springhill suites viewpoint and the relocation of the concierge lounge at the Renaissance Nashville.

Later this year, we plan to start a guest room and public space renovation at the embassy suites, Dallas, our Guestroom renovation at Marriott Sugarland and a fitness center renovation in key addition at the Renaissance Nashville.

For 2023, we anticipate spending between $110 million to $130 million and capital expenditures.

Looking forward, we are considering several new initiatives across our portfolio, including brand conversions at several hotels accretive key additions and executing high margin ROI projects.

I would like to finish by emphasizing how optimistic we are about the future of this portfolio as mentioned earlier group business has continued to show growth. We are seeing more markets rebound and many of our assets continue to break comparable hotel EBITDA Records.

The portfolio is well diversified geographically, allowing us to continue to capitalize on the industry's continued recovery.

We have a number of value add and ancillary initiatives. We are working on behind the scenes to further add value of the portfolio, which we're excited about with.

With these new initiatives underway, we are confident that the portfolio will continue to outperform.

That concludes our prepared remarks, and we will now open up the call for Q&A.

Yes.

Thank you.

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One moment, please while we poll for questions.

Okay.

Okay.

Thank you. Our first question is from Chris We're on we don't share Bank. Please proceed.

Hey, good morning, guys.

Thank you.

Just to start off with can you can you give me maybe give us a little bit of detail on how it what the mechanics are on the.

The key is loans pools that you did extend I think the CBE <unk> is that something that's going to be reevaluated again after the extension and what you know what.

What are the possibilities there what would cause you to to.

Maybe not make payments at a later date on those or do you think they're reached a level that you don't have to worry about that anymore.

Hey, Chris its Rob.

We also went through a pretty rigorous process of going through all of these loan pools. This past year in terms of determining where we thought equity was where do we think value was what do we think about the markets that Capex now is a big factor in a lot of these decisions as kind of future Capex, where we thought we maybe would get or wouldn't get rich.

Turns on that capital.

In terms of the pools, we did extend we obviously paid those down to get yields.

They were typically around 10% or so where the <unk> pools.

Where we feel pretty good about where those are from a value standpoint, and where from a refinancing standpoint, even in a pretty difficult market. These days on the refinancing side, so unless we have.

I mean, all things could change if we had a significant recession or something where we have numbers pull back significantly in our.

Across the portfolio, but.

At least what we're seeing right now in numbers continuing to approve we feel pretty good about the portfolio as we chose to keep.

And.

As of right now foresee any any issues with them on their future extension tests of refinancings in the future.

Okay very helpful and then kind of on the on the operational side.

I guess the theme has been that we're continuing to see labor availability improve gradually and maybe if you guys could just give us an update on where you're at in terms of staffing and what youre seeing on any of the.

Union versus nonunion markets on wages, and Youre still using any contract labor things like that thanks.

Yes. Thanks for the question, Chris I think you phrased it well we're seeing.

Slow and steady improvements when.

When we look at our total FTE equivalent.

<unk> count to last year were actually flat to last year, which is which is pretty remarkable given for the portfolio occupancy has increased two percentage points and when you equate that to increase number of salt rooms, It's just over 40000 rooms and so.

We've been laser focused on managing labor, we've been able to keep it flat year over year with servicing additional rooms, which has been great.

We're starting to see a pullback in contract labor to your point our contract utilization rate.

Kris about 14% to last year for the quarter.

And.

That's that's kind of the start up the pullback. So we were we were expecting that coming into this year, we didn't see as much of a pullback in Q1 and then in Q2, we are becoming less reliance on contract labor, which is great because contract labor is obviously much more expensive than in house labor.

And so I think you kind of phrased it well, we're seeing slow and steady improvements in terms of the labor market.

Okay Super helpful. Thanks, Chris maybe just a quick housekeeping one for Derek.

Derek I think you mentioned that you are.

After the <unk>.

The keys the three those three pools, you are effectively 95% fixed with the I guess, the swaps or caps or whatever does that mean that when we get to our Q3 interest expense that is effectively a run rate going forward.

Yeah.

Assuming LIBOR, so first stay where they are and.

And that the cafe in place yes.

Unfortunately, we have an array of caps that all expire at different times and typically the caps are structured to expire coterminous with initial maturity dates or maturity dates of the underlying loans.

So they'll kind of match up with.

Maturities of the underlying loans, but I think for all intents and purposes for the next quarter, it's probably a pretty good run rate.

Okay very helpful. Thanks, guys. Thanks.

Thanks, guys.

Thank you our.

Next question is from Tyler.

Baytree with Oppenheimer and company. Please proceed.

Thank you. Good morning first question for me is on trends in the portfolio I think there's a view out there that.

Leisure travel is slowing industrywide, there's less pricing power that corporate travel has peak in your revpar in the quarter was really quite strong. So are you seeing any sort of evidence of those trends playing out in your portfolio and kind of how are you thinking about.

The rest of the year in terms of how leisure and corporate travel play out.

Yes, thanks for that question Tyler So I can start with corporate travel.

We're continuing to see signs of recovery and strength out of the corporate segment and the <unk>.

Quarter, Ashford Trust was up 13% year over year and corporate revenue.

Now that's broadly a lot of that is driven by ADR ADR was up 8% in room nights were up just over 5%.

And so broadly we are seeing continued strength out of corporate.

Now within that there are kind of market specific nuances one of our markets that have significant exposure to tech companies and we're down in year over year revenue. So we're seeing softness from corporate and Austin, Santa Clara and markets like Portland that rely on a lot of tech business on the whole we're <unk>.

A continued recovery in signs of strength out of corporate on the leisure side.

I wouldn't say that things are softening broadly in leisure we are seeing more of a stabilization within this portfolio.

When we look at our weekend Occupancies, we were flat to last year.

And within that within urban markets, we're continuing to see growth.

It's really where I wouldn't say, it's necessarily resorts, it's really more markets, where youre seeing leisure customer Scott. So we're starting to see a little bit of softness in Nashville, We're sorry.

Turning to see some short term demand that size is not as strong as we've seen in recent months, but it's more of a stabilizing in leisure.

But I think in terms of when we look ahead for this portfolio.

We expect to see continued growth our group pace remains strong we're up significantly as high single digits for Q3 and Q4.

Corporate segment continues to increase quarter over quarter, and then from a leisure side, we're seeing kind of stabilization with weekend occupancy rates flat to last year.

Okay.

Very helpful.

A question on the asset sales.

Any kind of update there in terms of how that process is going and as you mentioned, perhaps bring some more.

Some markets.

Just kind of what's the interest bearing on what you have out there right now and kind of how you think and.

The siding.

When and what you might bring to market in the future Yeah. Good question. Thanks Tyler.

We've got as I said for assets in the market right now we've got a three pack of limited service assets.

Kind of a.

Full service asset.

That are kind of in the process of.

I'd say, they're kind of in the second round or getting towards the end of those processes. So we should have some more color on those in the next month or so.

At least here internally and then obviously to the extent that we had successfully find deals it'll be a couple of months before those probably close.

I think for US it's really looking at what do we think is the best path to pay off our strategic financing instead.

We've had great partners with them, but we do want to pay off that loan. We do have the proceeds that are coming in from the non traded preferred which is going towards some of that as well, but I think.

You will likely see us get a little bit more aggressive here in the next.

Few quarters on on some asset sales both in order to clean up the portfolio so you'll see.

Potentially some additional assets coming to market that are non core, but you may have some assets that.

Our assets that we like and that are solid assets, but that has an equity value and then in order to generate some proceeds.

Those are still decisions, where we're looking at internally in terms of the right way to move forward on those but we do see asset sales as a kind of a crucial.

Crucial part of what we're doing over the next couple of years in order to get the portfolio and the capital structure, where we want it.

Okay. That's all for me. Thank you. Thanks.

Thank you our.

Next question is from Michael Bellisario with Baird. Please proceed.

Thank you good morning, everyone.

Okay.

Rob I just want to go back to that last question and your answer there and maybe just talk about the sequencing that you think needs to occur to be able to pay oaktree and also maybe sort of timeline that you are thinking about today do you need to sell more hotels beyond. These four do you need to raise more preferred or is it maybe just simply being patient and waiting for EBITDA.

It continued to recover but any color around sort of the sequencing and timing would be helpful.

Sure I mean as it all these things Michael you know, it's a little bit of everything and it depends on how one versus the other goes.

We've been very happy with the way that the non traded preferred raise has gone thus far.

But what we just see what you never know is is it going to continue to accelerate like we want do is it going to stay at comparable levels for a while.

It's hard to know exactly what that trajectory looks like and so for us for internal planning purposes have to assume somewhat conservative numbers on those fronts in order to make sure that we've got.

The capital, we need and the cash we need in order to grow <unk> and to pay off the strategic financings. We want so I think what what we're focused on is really to like say two fold on the on.

On the asset sales I mean, one is.

Generating proceeds in order to make sure we've got the <unk>.

Available cash to pay.

Pay off the strategic financing I mean, we still have two and a half years left on it and we've got time, but I think for from our perspective, it's an important.

I don't know symbol to the.

The street the market that we're moving out of our kind of post our coding phase of this company and moving on towards growth and like I said, a more sustainable capital structure and so that's why it's important to US right now to really focus on taking that out.

And so I think we're going to be a little more aggressive in how we're using proceeds as an entre preferred and some of these asset sales to pay that down so youre going to see likely.

Some asset sales like this one where we just sold world Quest that we closed yesterday those proceeds are going down.

The three pack of of limited service assets that are in the market right now are likely to generate some proceeds that can pay down and then makes its in the other assets. We may bring to market may be able to generate some proceeds to help pay that down at the same time, we've got I'd say, some lower quality noncore assets that.

They either had capex requirements for the next few years, maybe our brands that we don't feel as strong about.

<unk> are just I'd say more housekeeping just assets that.

That we think are not long term holds and so I think youll see a mix of of those over the next.

Six months to 12 months come to market from our perspective, So I don't know if sequencing as the right.

Is the right word it's a little bit of we need to we just need to be conservative in how we are.

And the assumptions of how the properties are going to do what happens in the industry. How the capital comes in from an entre preferred and just make sure that we are.

Prepared regardless of the situation.

Got it fair enough and then just switching gears a little bit on Capex it looks like.

It sounds like it's the same dollars you expect to spend this year, but.

<unk> significantly reduced the number of hotels that are at least under significant renovation in your press release schedule.

Yes. Some of those obviously are part of the keys portfolio that youre not going to renovate because youre, adding them back but are some of those falling to 24 are you deciding not to renovate a handful of properties and then presumably if the costs are the same.

110, $130 million of our projects costing more any color around Capex also would be helpful. Thank you, yes, absolutely. It's a similar number and that we also add once we began that process sometime ago thinking about where.

As we are analyzing these pools that also led us to put a lot of the.

Projects on hold in terms of that were in that those portfolios anyway. So some of that.

I have been thinking about head of time, but we also are going through a process.

Pushing projects of putting things into 2020 for I don't know if Chris here.

Our color so as Rob said, a lot of the ABF projects, Michael we had already deferred once we kind of.

We're determined had determined the path that we were going to go with those hotels, I think where we expect to see significant savings from those loan pools in terms of the capex spend is going to be more 2024, and 2025 and so if we have provided kind of a projection of what we spent for 24 that would come down.

Without those hotels in the portfolio, but the 23 number was already fairly baked and had included.

Deferral of a number of those projects.

Thank you.

Thank you.

Ladies and gentlemen, if you would like to ask a question. Please press Star then one.

Our next question is from Bryan Maher with B Riley Securities. Please proceed.

Great. Thank you.

As I listen to all the question you know kind of bring forward more questions related to kind of the strategic plan and maybe Rob.

You can get a little more color on.

Is there a big macro plan as it relates to the portfolio.

And you can see several quarters out, which hotels, you'll probably sell <unk> handbag.

Or is it more like youre going quarter to quarter, depending upon fundamentals in interest rates and cost of hedges.

The ability to sell assets or are you I don't want to say winging, it but being a lot more fluid in how you approach. The next couple of quarters and years.

No I mean, we've got Canada.

Plan that we've laid out.

A matter of fact, as we are talking right now I mean, we've got a.

We've got kind of what I would say there is a portion of our portfolio that.

We've identified that we don't think are our long term hold assets as we've talked about historically, but hopefully at some point in time. It also come to fruition that we.

We also don't want to be necessarily a long term holder of limited service assets in this portfolio and those are still while we handed back our hany back some of those here, we still have a decent number that are still in our portfolio and Highland and in our 17 pools, which are great assets, but I don't think are long term holds within <unk>.

This portfolio.

And so we're actually in the process right now as well as going through a pretty significant rebuy analysis of.

Every asset in our pool and our in our company and really looking at what are the anticipated capex needs and we've got to.

Dave of Pips franchise agreements extension and whatnot that are coming up over the next five years to seven years and really looking to see what do we think the capex spend is on those do we think that there is ROI on those that capex spend so its very deliberate and honestly isn't say call. It winging. It however at the same time.

Always have to be flexible right and for us. It's a combination of what's going on in the economy, because that could cause you to either accelerate or decelerate certain initiatives that you have depending upon what's going on.

Same thing with our non traded preferred right, if we really see that.

Accelerate and we see opportunities in front of US we may be going on the offense, a little bit sooner than we would if it is a little bit slower so.

In some ways, we've got a I'd say a plan that we're working through in order to get the portfolio, where it is where we want to be over the long term and where we want the capital structure to be at the same time, you've got to be flexible enough to <unk>.

You can drive when.

The economy changes or cap rate seen changes so.

So I guess, it's a little bit of some of these little bit above.

Hi.

I can appreciate that but you know when we think about the preferreds viewers you mean non traded preferred 8% then you've got the 16% <unk> debt outstanding.

To your point on wanting to get that taken out are cleaned up or whatever.

When you all day long issue, 8% preferreds and pay up 16% or three debt.

Basically found money.

Now in <unk>.

If I could get the 8% money to show up in that $200 million chunk Tomorrow, I would take it and pay it off tomorrow right.

The answer is you're right.

And even within the capital structure I mean, we have pieces of of meds that are on some of our pools that are more expensive than that.

And heck even.

Mortgages, new mortgages that people are putting out now and you've got three or 400 or 500 over on.

50, or 60% mortgage debt.

That paper is cheaper than that so we're in an age right now a very expensive debt financing and so the 8% money is coming from the Ashford Securities' platform is very attracted to us on a variety of fronts. So we've got plenty of I'd say accretive uses.

It's just a question of building up the demand.

On that side.

And just last from me.

We expect to see you.

For lack of a better word.

A shell game here, where you've got a couple of hotels, where the $100 million are with a loan of $100 million that are really worth 60 70 80.

Then you turn around and handed back to the lender.

But your peer also has the same situation and sending them back at $67 80.

And you take the $100 million of the debt you now don't have to pay.

And redeploy that capacity into taking that asset that they just took those hotels that 67 or 80 and generate.

Growth in that way is that something we could see unfold over the next year or two.

I don't know.

It's.

It tends to be more complicated right I mean, because there is certain processes and there is fiduciary status of some of these the servicers and lenders.

I don't know if its that.

I don't know if its that simple, but I think you could have a situation where loan pools are going back and you have other peers buying that the debt on other assets, whether its mens or the.

The loans and trying to step into them and I think those sorts of things are going to happen, but it's a slow process and even here on the process of hanging back. These 19. These 19 assets and that's not something that happens overnight right. There is inter creditor agreements that have to be gone through in different places in the desktop.

You have different rights.

All of these things take time, and so we don't know even on our pending.

Adding back our 19 assets, whether or not that's something that will be.

Formerly taking place in several weeks.

Indeed them over or is it something that goes through a longer foreclosure process that could be many months.

So.

It's just as my experience now having gone through obviously, a lot of debt restructuring and a lot of.

A lot of issues of the past three years through Covid as Ivo stories, how these things are way more complicated than.

People typically think alright.

Alright, which brings up another question that I had is holding back on which is when do we Yankees 19 hotels out of our model I mean, it's it's kind of important right, it's not one or two or three who cares at 19 and $700 million worth of debt I mean do you have that.

Recommend that we all pull these out effective.

Beginning of the fourth quarter for conservative sake.

I mean.

It's a good question, Brian look from my perspective, I'll go ahead and take them out of the portfolio now I mean that could happen imminently and it could drag all of it so far.

From our perspective, we are ready to hand, the keys over and so from a modeling perspective I'll go ahead and take them out.

Okay. Thank you.

Alright.

This concludes today's question and answer session I would like to turn the floor back over to the management for closing comments alright.

Alright, Thank you everybody for joining us on our second quarter call and look forward to speaking with you next quarter.

This concludes today's teleconference. Thank you for you.

Okay.

Thank you for your participation you may now disconnect your lines.

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