Q3 2023 Ashford Hospitality Trust Inc Earnings Call
Hello, and welcome to the Ashford Hospitality Trust third quarter 2023 results conference call all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad.
I'll now turn the conference over to Jordan Jennings Director of Investor Relations. Please go ahead.
Good day, everyone and welcome to today's conference call to review results for Ashford Hospitality Trust for the third quarter of 2023 update you on recent developments on the call today will be Rob Hayes, President and Chief Executive Officer, Eric Eubanks, Chief Financial Officer, and Chris <unk> Executive Vice President and head of Us.
Asset management.
Well I've noticed that the sensibility 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 regulations.
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 in the company's filings with the Securities and Exchange Commission.
The forward looking statements included in this conference call are only made of the date of this call and the company is not obligated to publicly I think or revise the.
Statements made during this call do not constitute an offer to sell or close patient of an offer to buy any securities.
We will only.
Do you mind he means at a registration statement and prospectus, which can be found at www SEC Gov.
In addition, certain terms Houston, Nicole are non-GAAP financial measures reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on form 8-K with the SEC on November seven 2023, and May also be accessed through the company's website at www Dot H T REIT dotcom each listener.
I would encourage you review the 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 ended September 32023, with the third quarter ended September 32022, I will now turn the call over to Rob Hey, Please go ahead Sir.
Good morning, and welcome to our call.
After my introductory comments, Eric will review, our third quarter financial results and then Chris will provide an operational update on our portfolio.
The main themes for our call today are first we are very pleased with the strong operating performance in Revpar growth. We achieved in the third quarter. We are clearly seeing the benefit of a broadly diversified high quality portfolio that is balanced across leisure corporate and group demand sources second our liquidity and cash position continue to be strong we are.
The quarter was approximately $271 million of net working capital and our non traded preferred stock offering continues to ramp up nicely.
Third we are now focused on paying off our corporate financing and I've listed several assets for sale. We believe proceeds from potential asset sales along with the capital raised from our non traded preferred offering may be sufficient to completely pay off our corporate financing during 2024.
Now for some additional details on these three themes.
Revpar for all hotels in our portfolio increased 4% in the third quarter compared to the prior year quarter.
Revpar growth was led by average daily rates, which increased two 2% over the prior year quarter and we also saw strong growth in occupancy, which increased four 7% 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 trips. This is an important step for our company as allows us the flexibility to use cash to optimize our capital structure 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 management companies as well position doesn't believe that our relationship with our affiliated property manager Remington really sets us apart as they had been able to consistently manage costs and optimize revenues aggressively.
Regarding asset management I'll provide some highlights that Chris will cover in more detail shortly.
We continue to engage and beneficial strategies that we believe will create long term value during.
During the quarter, we announced that our Crowne Plaza La Concha Hotel in key West, Florida is on track to convert to a Marriott autograph collection property in 2024, it will be rebranded as La Concha key West an autograph collection hotel as we anticipate the conversion will create a distinctive theme and style for the hotel with its eight plus prime location right on the Wall Street in the heart of key.
West the up branding of this historic landmark hotel should elevate the property into a desirable niche in a very attractive high barrier to entry high Revpar market.
We also recently announced a new franchise agreement with Marriott International to convert our lip Pantheon Hotel in New Orleans, Louisiana to attribute portfolio property.
We've had great success with the tribute portfolio with our lots of sort of resort and spa in Santa Fe, New Mexico and are looking to capture similar upside and let Pat.
This up branding includes transforming the lobby bar and extensive exterior work as well as upgrading the restaurant Guestrooms guest bathrooms and corridors the hotels, a prime location and as close as close proximity to major demand generators in downtown New Orleans and post conversion. We believe the new tribute portfolio of properties should realize a 10% to 20% revpar premium compared to <unk>.
Pre conversion.
Planned conversions of what have you learned in La Concha are both excellent examples of how we go about unlocking embedded value in our portfolio.
Turning to capital markets during the quarter, we made significant progress on our loan extensions and made the strategic decision not to make required pay downs on our keys avian F loan pools in order to meet extension that Youll tests. This was a prudent economic decisions that reflected a comprehensive capital management process by the company, which explored in a SaaS multiple options for these assets including refinancing.
<unk> extension and potential asset sales, we have been committed to deleveraging. The company over time. This is a significant step towards our long term goal 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 assets during the quarter, we sold a small asset in Orlando for Nir.
The $15 million and have six other assets that are currently being marketed for sale.
<unk> also 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 primarily be used for debt pay downs.
We also continue to be excited about our non traded preferred stock offering I believe this offering will not only provide an attractive source of capital, but it will allow us to accretively grow our portfolio over time subject to stoop to future market conditions. We believe access to this growth capital is a significant competitive advantage, particularly given the fact that lodging rates are currently trading at material discounts to <unk>.
Asset values, our preference would be to use that capital for future growth. So we may use some of the capital to pay down debt or other corporate uses as needed we continue to build to sell.
Selling syndicate and currently have 40 signed dealer agreements representing over 5402 reps selling the security. We are still early in the capital raising process and to date have raised approximately $77 million of gross proceeds including $28 million during the quarter. We believe that we have the right plan in place to move forward and maximize value at <unk>.
Trust. This plan includes continued to grow liquidity across the company raising attractively priced capital and possible optimizing the operating performance of our assets improving that balance sheet over time through asset sales and deleveraging and looking for opportunities to invest and grow our portfolio. We ended the third quarter with a substantial amount of cash our balance sheet and with the 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 third quarter financial performance.
Thanks, Rob for the third quarter, we reported a net loss attributable to common stockholders of $68 $6 million or $1 99 per diluted share for the quarter, we reported <unk> per diluted share of <unk>.
Adjusted EBITDA for the quarter was $82 5 million.
At the end of the third quarter, we had $3 6 billion of loans with a blended average interest rate of seven 9% taking into account in the money interest rate caps.
During the current level of sulfur and the corresponding interest rate caps, 94% 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 keys pool D loans secured by five hotels with a paydown of approximately $26 million and our keys pool <unk> loan secured by five hotels with a pay down of approximately $41 million as Rob discussed. We also elected not to make the required paydown 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 would not only save the $255 million of acquired Paydowns, but also approximately $80 million in capital expenditures at these hotels through 2025.
Many of the properties in the non extended Keith pools are in markets that have experienced significant headwinds throughout their post pandemic recoveries at a number of these markets are not forecasted to reach pre pandemic topline levels until $2025 for 2026.
Further the non extended tier hotels, 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.
We continue to work with the servicer on a consensual transfer these assets to the lender and expect that to be completed sometime in the fourth quarter.
With the keys loan pool extensions behind Us our next significant extension test was our Morgan Stanley loan pool secured by 17 hotels, which we recently extended for one year with no pay down.
We ended the quarter with cash and cash equivalents of $185 million and restricted cash of $158 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts and $2 million related to trap cash held by lenders at.
At the end of the quarter. We also had $24 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 ended the quarter with networking capital of approximately $271 million.
As of September 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 third 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 that we completed in January 2021.
While we are currently paying our preferred dividends quarterly or monthly we do not anticipate reinstating a 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.
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 hotel Revpar for our portfolio increased approximately 4% over the prior year quarter.
This revpar growth compared favorably to the national industry averages for both the upscale and upper upscale chain scales.
Despite challenges due to rising wages and costs, we were able to grow comparable hotel EBITDA for the quarter.
I would like to spend some time highlighting some of the initiatives from our team, including optimizing performance through increased group demand propelling growth urban properties and maximizing ancillary production throughout the portfolio.
We continue to experience a resurgence in the group segment portfolio group revenue pace for full year 2023 is ahead of the prior year by 19%.
Group revenue is also pacing ahead for 2024 exceeding the prior year revenue on the books by 9% during.
During the quarter, we saw a 5% lift in group ADR compared to the prior year quarter and we are pacing ahead of 8% in ADR.
For the full year compared to last year.
In addition, our two largest hotels Marriott Crystal Gateway Renaissance Nashville finished the quarter with a combined $11 $1 million in group revenue, a 9% increase to the prior year quarter.
<unk> through the third quarter Renaissance Nashville generated more group room revenue year to date than any other year in the hotel's history on.
An added benefit is that additional ancillary banquet revenue that comes with the group business.
Revenue was up 25% in Nashville through the first three quarters this year compared to last year.
Our urban assets are performing well as travel demand returns. This is evidenced by a 43% increase in peak nights during the quarter over the prior year quarter.
Redefine peak nights as any individual made with occupancy greater than 95%.
For the quarter transient ADR at our urban hotels increased 5%.
This increased demand in pigment performance allowed us to drive rate for transient business in major hubs, such as Atlanta, and Nashville, where transient ADR for these urban hotels grew 33% and 16% respectively during the quarter relative to the prior year quarter.
Our revenue optimization team has also partnered with the brands on corporate pricing strategy to ensure that we are aligned on our targeted 25 by 'twenty five.
This strategy is an effort to drive corporate rates to 25% increase over 2019 by the year 2025.
As the portfolio or other revenue department, which includes monitor departments as well as ancillary revenue streams grew by 9% during the quarter over the prior year quarter.
Parking has been a major contributor to the success, we negotiated nearly every outsource parking valet contract within the portfolio, which resulted in a 680 basis point increase in our revenue share.
We also rolled out new parking charges at 12 properties.
Additionally, we completed price benchmarking and capture audits across all other ancillary revenue streams to ensure we were top of market.
One of our best performing properties. This quarter was the Hilton Boston back Bay, a 390 <unk> full service asset in downtown Boston.
For the quarter comparable hotel Revpar increased 20% over the prior year quarter.
For comparison, the entire Boston markets comparable hotel Revpar growth for the quarter was 8% relative to the prior year quarter.
Additionally, comparable hotel EBITDA during the quarter increased 22% over the prior year quarter.
We partnered with Remington to create new housekeeping processes, which identified schedule risks and other inefficiencies. These changes resulted in labor hours per occupied room for the quarter, improving by 9% compared to the prior year quarter.
This initiative helped propel the comparable hotel EBITDA margin to 43, 6%, a 133 basis points higher than the prior year quarter.
Moving on to capital expenditures, we have noted in previous calls how we have taken a strategic approach to renovating and repositioning our hotels.
So far in 2023, we've completed the renovation of the lobby and bar at the Ritz Carlton Atlanta, the meeting space at Embassy suites Crystal City and relocated the concierge lounge at Renaissance Nashville.
We have started the transformative conversion of our Crowne Plaza key west to an autograph collection hotel, which will enable the property to grow in a high barrier to entry market.
In addition, we are converting the la <unk> in New Orleans to attribute portfolio hotel, which will allow the hotel to benefit from myriad booking system.
Lastly, we are currently renovating the old concierge lounge, located on a premium guest room floor and Renaissance Nashville into a spacious suite overlooking downtown Nashville.
For 2023, we anticipate spending between $110 million to $120 million on capital expenditures looking forward, we are considering several new initiatives across our portfolio, including additional brand conversions at various 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 and more markets rebound and our team's concentrated efforts have helped maximize additional revenue streams.
The portfolio is well diversified geographically, allowing us to continue to capitalize on the industry's continued recovery.
This concludes.
Our prepared remarks, we will now open up the call for Q&A.
Thank you if you have a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again.
Your first question comes from the line of Bryan Maher with B Riley Securities. Your line is open.
Thank you.
Just a couple of questions. This morning, maybe.
Continuing upon the discussion of the upgrades to let's say key west in New Orleans.
Rob how are you thinking about allocating not insignificant amounts of capital to those projects.
Still in the face of debt maturities that you have over the next couple of years can you walk us through how youre thinking about that.
Yeah, Brian I think there is a handful of things that we're all trying to do simultaneously, which is the combination of trying to delever, which we've obviously taken is pretty big steps over the past few quarters to do that yet at the same time trying to keep an eye towards luxury you want this portfolio to look like in three years or five years time and.
We do have assets that we think are great long term holds that we think are under serving are being kind of underserved the market that have opportunities to push revpar in ways that.
And that needs to investment and so.
I mean, it's a balancing act and there's a reason why we're only doing a handful of these and not 10 of them because we do see other opportunities like this in some of our other properties, but at.
At least in key west and Thats a property that.
We think that has a significant amount of potential upside just given that market.
And the.
On La <unk>, it's a great asset that kind of need the renovation anyway, and so the ability to to put a little bit of incremental capital to reposition it as one that we thought made sense.
But it's a balancing act and that's why it's a couple of here in a couple there.
And at the same time, we'll be selling assets to raise capital. So I would say, it's a balancing act.
Okay, and shifting gears and maybe for Derek.
About pulling out the 19 hotels from the keys pools that you did not extend.
I'm, assuming that that hasn't happened already as we sit here in early November I think you said.
In your prepared comments sometime in fourth Q.
Do you suspect it's much later in <unk>, so that we shouldn't be modeling to those assets in say <unk>, but still keep them in there for <unk>.
And what is the rough impact on Revpar I think you commented that the capped hotels have a higher revpar, but can you quantify maybe in dollars terms round to the nearest five what we should uplift our modeling revpar assumption too.
Hey, Brian.
In terms of timing all of those hotels are still in our portfolio.
Everything these days just seems to be taking longer transaction wise.
I think from a modeling perspective.
I would say halfway in the fourth quarter, probably is a good estimate.
Somewhere between 50% and 100% during the quarter.
I expect it will happen sometime between now and the end of the year. So hopefully by the end of the year.
Those are all 19 of those hotels have been transferred over to the lender some of that might happen in November some of that might happen in December.
In terms of impact on the remaining portfolio.
We anticipate that our net debt to gross assets will decrease about 500 basis points. So we'll have a pretty decent decrease in our overall leverage of the portfolio and from a revpar standpoint, we anticipate the revpar of the remaining portfolio to go up by about 3%. So I think in terms of round numbers.
Yes.
Kind of where we land.
On the portfolio post transfer of these 19 hotels.
While years still owning these hotels do you get to keep any profits from these hotels or do any economic interest upward down go to the lender at this point.
Yeah, we're not we're not doing anything other than.
Our management company is continuing to operate the properties so.
There's really very little oversight from our perspective at these properties at the moment and for all intents and purposes, they're basically learned around.
Okay and then just last for me I think Chris talked about this on the asset management side, the layering on of certain ancillary costs like Eric charges like parking.
How are you thinking about that or.
Or Rob as it relates to kind of slightly waning leisure demand and those costs tend to put off people, who don't want to pay 20% to $30. A night to park are you kind of bifurcate in weekday charges versus weekend charges that to maybe not.
Put off that leisure traveler, who may opt to go somewhere else as opposed to paying those fees.
Yes, that's a great question, Brian So I think.
Regarding kind of those ancillary charges. It's critical that there is appropriate value for the customer in terms of what you are charging and so our two major streams are.
Really resort charges and then parking makeup a lion's share of kind of that ancillary revenue for our resort charges, we've gone back and looked at the value propositions of all of those inclusions to make sure that it truly is additive to the customer into the experience.
And when we look at kind of what margin we're running on those those revenue streams, it's lower than we historically have because we're adding more value to the customer.
We display those those charges is also becoming more important. So we are working with the brands and we're very mindful of that in terms of importing.
Many of our providers do offer dynamic rates they flex based on periods in the year based on day of week based on events.
And so where we've rolled out parking charges. We've also often rolled out parking gates added security added presence. There's cameras. So it's not just an additional parking charge, but theres added security for the guests as well.
Okay. Thank you that's all for me.
Your next question comes from the line of Tyler Battery with Oppenheimer. Your line is open.
Hi, Good morning. This is Jonathan on for Tyler. Thanks for taking my questions first one for me on the operating cost side any color you can provide on what youre seeing on the labor costs that are out there with the hiring situation look like right now.
Any other areas of cost inflation that are worth calling out besides potentially later.
Yeah, Hey, Jonathan this is Chris I'll take that so.
In Q3. This was really the first quarter, where we saw meaningful signs of improvements within the labor market I think that was something that we were optimistic we see earlier this year and.
And we really saw the first real real signs of improvements this last quarter, so our contract labor.
Reduced in the quarter versus what we historically have been running and kind of where we were last year. That's kind of the first side. So we're less reliance on more expensive contract labor, we were able to hire for.
For the quarter, we brought on about 400 additional associates.
Across the portfolio and we shifted some of that contract labor in house.
From a wage standpoint, we haven't seen much movement. There are hourly wages are still up about 5% to 6% year over year again, we were hoping to see that come down kind of earlier. This year. It's been fairly steady we think sequentially kind of the first step is a reduction in contract labor as we're still being very aggressive to hire internal folks to <unk>.
Service those roles and then kind of thereafter, we'll see wages start to come down.
That's kind of what we've expected and now we're finally, starting to see signs of that.
Okay. Thank you Chris very helpful. And then switching gears to the asset sales any updates there in terms of that process and its timing and I believe there is.
The possibility to bring more assets to the market any kind of early indication or updated thoughts on how you're thinking about using that Avenue.
Sure I think while we've got like I said, we've got.
Kind of a smaller asset that were that were hopefully will be done here. Shortly some of the bigger assets that were contemplating or are in process those probably won't be.
We move forward those as probably not until our first quarter.
Close, let's just have been taking a little bit longer.
And I think depending upon we've got some call for offer dates coming up in the next few weeks I think depending upon how those look and how the market looks will probably impact the decision or not whether to add additional assets to the portfolio.
Bolt on <unk>.
Are we finding certain kind of niches of available capital types of assets that people are interested in.
On the other side of are there what are they.
The cash proceeds that we are going to be getting from those asset sales and how does that.
How does that look as we're trying to pay off this strategic financing and Thats really the.
Kind of twofold purpose of all of this is to both pay off the debt.
That financing and at the same time trying to improve.
Our portfolio and deleverage over time, so there's a few moving pieces. There. So we'll probably know more here in the next month to six weeks.
Okay very good I appreciate all the color guys Thats all for me.
Correct.
Once again, ladies and gentlemen, if you have a question. It is star one on your telephone keypad.
Your next question comes from the line of Michael Bellisario with Baird. Your line is open.
Good morning, everyone.
Morning, Brian.
Yep.
The follow up to that last question.
You mentioned being able to pay off Oaktree at some point next year I guess for that to happen.
Is there a dollar amount or number of hotels that you think need to get sold for that to happen and kind of what.
What needs to happen first.
In order for that to be paid off at some point in 2024.
We've got $187 million left on it.
Again, we've got some asset sales that are coming up here, but I think at the end of the day, it's a combination of.
Ian generate enough proceeds to be able to both pay that off and have.
Enough kind of working capital that we feel comfortable so.
We've got kind of the working net working capital and cash numbers that we reported in the in the quarter.
Yes against that.
Probably not quite to a point, where we can pay that off today.
But feel comfortable paying that off today, but the combination of those asset sales and it also depends on the non traded preferred as it comes in.
Again, it's continuing to do well.
So again, it's just a lot of a lot of moving pieces. So.
I don't have a specific number because it's kind of a dynamic but I do think we need those the proceeds to probably be $100 million or more in order to feel like we've got everything that.
That we needed to get.
Got it understood. Thanks, and then just.
On Capex any initial thoughts on 2024 spending maybe at least directionally versus.
And what you plan to spend in 'twenty three and then can you provide any more details just on the cost of.
What youre going to spend in key west and New Orleans.
Sure on the.
The first question, we are still in the midst of negotiating with some of the some of the brands on exactly what Capex will look like I don't think it will be higher than this year and they will likely be comparable or maybe even a little bit less but.
So thats kind of where we will when we have a better number well, we'll put that out.
In terms of.
La Concha, that's I think we've put in the press release about $35 million all in project of which has already started and the goal is to have it done in the third quarter of next year.
La <unk> is some.
Between 15 and $20 million.
And it has.
Right now and also will be kind of a similar timeframe in terms of its opening.
Okay.
That's all for me thank you.
This concludes the question and answer session I will turn the call back to management for closing remarks.
Thank you everybody for joining us for our third quarter call. We look forward to speaking to you next quarter.
This concludes today's conference call. Thank you for joining you may now disconnect your lines.
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Yes.
Okay.
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