Q3 2024 Ashford Hospitality Trust Inc Earnings Call
The New York Times
Speaker Change: Hello and welcome to the Ashford Hospitality Trust 3rd quarter 2024 Results Conference Call. All lines have been placed on you to prevent any background noise.
Speaker Change: Following these speakers' remarks, there will be a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to turn the conference over to Deric Eubanks. Chief Financial Officer, please go ahead.
Deric Eubanks: Good day everyone and welcome to today's conference call to review results for Ashford Hospitality Trust for the third quarter of 2024 and to update you on recent developments.
Deric Eubanks: On the call today, we'll also be Stephen Zsigray, President and Chief Executive Officer and Chris Nixon, Executive Vice President and Head of Assault Management.
Deric Eubanks: The result as well as notice of the accessibility of this conference call on a listen-only basis over the Internet, we're distributed yesterday afternoon in a press release.
Deric Eubanks: At this time, I would remind you that certain statements and assumptions in this conference call contain or based upon forward-looking information and are being made for soon to the same parbole provisions of the Federal Security Regulations.
Deric Eubanks: Such forward-looking statements are subject to numerous assumptions and certainties and known or unknown risks, which we'd cause actual results to differ materially from those anticipated.
These factors are more fully disclosed, and the company's filings with the Security and Exchange Commission. The forward-looking statement included in this conference call, or only made as the data this call, and the company is not obligated to publicly update or revise them.
Deric Eubanks: Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities.
In addition, certain terms used in this call are non-GAAP financial measures.
Deric Eubanks: Reconciliations of which are provided in the company's earnings release and accompanying tables or schedules which have been filed on Form 8K with the SEC on November 5th, 2024 and may also be accessed through the company's website at www.ahtreet.com.
Deric Eubanks: Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release.
Deric Eubanks: Also, unless otherwise stated, all reported results discussed in this call compare the third quarter ended September 30, 2024 with the third quarter ended September 30, 2023.
Deric Eubanks: I will now turn the call over to Stephen Zsigray, please go ahead.
Stephen Zsigray: Good morning and welcome to our call. After my introductory comments, Derek will review our third quarter financial results and then Chris will provide an operational update on our portfolio.
Deric Eubanks: I'll begin by reiterating how pleased I am with the significant progress that we've made executing on our plan to pay off our strategic financing.
Deric Eubanks: We announced this plan back in January, and since then, we've done exactly what we said we would do.
Deric Eubanks: We've sold over three hundred and ten million dollars of hotels We've completed a refinancing of our Renaissance Nashville that generated significant excess proceeds, and we've now raised approximately 173 million dollars of gross proceeds from the sale of our non-traded preferred stock
Deric Eubanks: We've used some of the proceeds from each of these efforts to pay down our strategic financing by more than $100 million since the beginning of the year to approximately $82 million today.
Deric Eubanks: Additionally, we announced this morning that we've agreed to an amendment to the strategic financing.
Deric Eubanks: This amendment provides the company with an opportunity for a discounted exit fee if the financing is fully paid off by December 15th.
Deric Eubanks: provided that the outstanding balance has been reduced to $50 million or less by next Friday, November 15th.
Deric Eubanks: We are currently working on a couple of transactions that we hope will close in the near term, and we continue to believe we have a viable path to paying off this financing entirely before the end of the year.
Deric Eubanks: Operationally, in light of underwhelming revenue growth across the lodging industry through the first three quarters, our property managers are aggressively driving sales and managing expenses.
Deric Eubanks: We are pleased to announce that October saw our highest monthly top-line growth of any month this year, with REVPAR growth of 4.6% versus October 2023.
Deric Eubanks: We believe we will also begin to see the benefits of additional expense management initiatives in the fourth quarter and more fully throughout 2025.
Deric Eubanks: We are also excited about the imminent conversions at our La Concha Hotel in Key West and La Pavillon Hotel in New Orleans, as well as our newest addition to the portfolio, the Lae Meridian Fort Worth downtown.
Deric Eubanks: Regarding the La Concha Hotel in Key West, we are on track to convert this hotel by the end of the year to Marriott's autograph collection.
Deric Eubanks: Upon conversion, it will be rebranded to Autograph La Concha, and we are creating a distinctive theme and style for the hotel that is commensurate with the upper-upscale luxury autograph product.
Deric Eubanks: This includes transforming the lobby, bar, and restaurant, as well as upgrading the exterior, guest rooms, guest bathrooms, corridors, pool, and meeting space.
Deric Eubanks: We're also on track to convert our Lafayette Hotel in New Orleans to Marriott's tribute portfolio by the end of 2024.
Deric Eubanks: This upbranding includes renovations to guest rooms, guest bathrooms, restaurant, lobby bar, as well as extensive exterior work. Located in historic Poydras Street, it is a prime location in proximity to major demand generators in downtown New Orleans.
Deric Eubanks: The post-conversion, we believe the new Tribute Portfolio Property should realize a 10% to 20% REV PAR premium compared to pre-conversion.
Deric Eubanks: Additionally, we have also recently opened the Lay Meridian Fort Worth Downtown, following a redevelopment of the 13-story historic building.
Deric Eubanks: Situated in downtown Fort Worth, the 188-room hotel is located within easy walking distance of the Fort Worth Convention Center and close to local landmarks such as Trinity Park and Sundance Square.
Deric Eubanks: The property features a rooftop lounge, French-inspired cuisine, over 5,000 square feet of function space, and floor-to-ceiling windows designed to offer scenic views of the city's downtown.
Speaker Change: It's a great addition to our portfolio. It's already running well ahead of expectations, and we're very excited about the prospects for this property.
Deric Eubanks: As we look forward, completing the repayment of our strategic financing will allow the company to finally turn the page on the COVID era.
Deric Eubanks: As mentioned, we are keenly focused on maximizing the performance, profitability, and value of our hotels.
Deric Eubanks: Perhaps equally importantly, the company's advisor, Ashford Inc., has also provided an unwavering commitment to substantially improve the profitability of Ashford Hospitality Trust over the coming year through corporate cost reductions, strategic portfolio turnover, and continued deleveraging.
Deric Eubanks: We will have more information to share regarding those efforts in the coming months, and we are excited about the future of the company, especially given increasingly attractive industry fundamentals, several coming years of limited supply growth, and improving transaction and financing markets.
Speaker Change: I will now turn the call over to Derek to review our third quarter financial performance.
Derek: Thanks Stephen. For the third quarter we reported a net loss attributable to common stockholders of $63.2 million or $12.39 per diluted share. For the quarter we reported AFFO per diluted share of negative $1.71.
Deric Eubanks: Adjusted EBITDA RE for the quarter was $52.4 million.
Speaker Change: At the end of the third quarter, we had $2.7 billion of loans with a blended average interest rate of 8%, taking into account in-the-money interest rate caps.
Speaker Change: Considering the current level of SOFR and the corresponding interest rate caps, approximately 83% of our debt is now effectively fixed and 17% is effectively floating.
Speaker Change: We ended the quarter with cash-in-cash equivalents of $119.7 million and restricted cash of $114.3 million. The vast majority of that restricted cash is comprised of lender and manager-held reserve accounts.
Deric Eubanks: and $2.4 million related to trapped cash held by lenders.
Deric Eubanks: At the end of the quarter, we also had $26.7 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.
Deric Eubanks: We ended the quarter with net working capital of approximately $160 million.
Deric Eubanks: As of September 30, 2024, our consolidated portfolio consisted of 73 hotels with 17,644 rooms.
Deric Eubanks: After taking into account our recently completed 1 for 10 reverse stock split, our share count at the end of the quarter consisted of approximately 5.6 million fully diluted shares outstanding, which is comprised of 5.4 million shares of common stock and 0.2 million OP units.
Deric Eubanks: While we are currently paying our preferred dividends quarterly or monthly, we do not anticipate reinstating a common dividend in 2024.
Deric Eubanks: 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.
Chris Nixon: Thank you, Derek. For the third quarter, comparable hotel REVFAR for our portfolio decreased 1% over the prior year quarter. While achieving growth in REVFAR has been challenging, our team has been actively working with our property managers to roll out several initiatives to grow ancillary revenue, which increased 15% per occupied room compared to the prior year quarter.
Deric Eubanks: Corporate transient is improving, with year-to-date corporate revenue up 9% compared to the prior year period. Additionally, we are seeing an acceleration in attendance at major events and decreased price sensitivity around those events.
Deric Eubanks: We have also benefited from non-annual events.
Deric Eubanks: For example, in August, when Chicago hosted the Democratic National Convention, our Silver Smith Hotel experienced an 85 percent increase in group room revenue and a 50 percent increase in group ADR. I will now go into more detail on some of the achievements completed throughout the quarter.
Deric Eubanks: Many of our historically group-dominant markets are operating at full steam, significantly surpassing levels seen in 2019.
Deric Eubanks: Group room revenue for the full year 2024 is pacing ahead of last year by 2 percent, and group room revenue for the full year 2025 is pacing ahead by 8 percent, with all quarters pacing ahead to the prior year.
Deric Eubanks: We are pleased with the positive outlook and continue to build momentum, as evidenced by our group lead volume, which increased by 4% compared to the prior year quarter.
Deric Eubanks: Our revenue optimization team has worked diligently with the hotel teams to capitalize on the positive 2025 group outlook seen across the industry to grow group block sizes and extend the booking window.
Deric Eubanks: Additionally, our team has set optimal group-mixed targets across the portfolio for sales teams and has meticulously audited spending for digital channels and events-based demand generators.
Deric Eubanks: This process has positioned our two largest hotels in favorable positions with Marriott Crystal Gateway and Renaissance Nashville group room revenue pacing ahead by 14% and 7% respectively for 2025.
Speaker Change: As Stephen mentioned, we opened the Lombardian Fort Worth during the last week of August. The 14-story, 188-room, full-service hotel is well-situated near local demand generators and attractions.
Deric Eubanks: As background, we completed a comprehensive redevelopment of a property that was abandoned since the mid-2000s.
Deric Eubanks: The redevelopment features two food and beverage outlets, including an upscale lobby-level restaurant and a stunning rooftop lounge with views of Fort Worth's downtown skyline.
Deric Eubanks: Situated adjacent to our Hilton Fort Worth property, the historically registered hotel is also managed by Remington, resulting in operational synergies.
Deric Eubanks: The initial performance of this upscale boutique property has been strong out of the gate.
Deric Eubanks: Total revenue for the first full month of operations was more than double that of our underwriting. This performance was bolstered in part from a local university parent's weekend that drove market compression.
Deric Eubanks: Although the hotel has only been open for a few weeks, the property team was able to push a $20 ADR premium over the market during that weekend.
Deric Eubanks: Turning to property tax, during the third quarter, we had successful appeals at several locations and have reduced total real estate assessments by over $100 million, with total estimated tax payment savings of $1.7 million.
Deric Eubanks: The largest reduction in subsequent savings were generated from our appeal of our current assessment on the Marriott Sugar Land.
Deric Eubanks: The Appraisal Review Board agreed to reduce the assessment by over $31 million, which resulted in an estimated tax savings of approximately $600,000.
Deric Eubanks: Also, during the quarter, we successfully resolved prior litigation on the Marriott DFW Airport, which will generate refunds of approximately $120,000.
Speaker Change: Thank you. Thank you.
Deric Eubanks: In late September and early October, a number of markets and hotels were impacted by Hurricanes Helene and Milton in the southeastern United States.
Deric Eubanks: As always, we believe it's important for our hotels to stay open as a place of refuge and service the communities during these storms.
Deric Eubanks: We have a lot of experience here, and we prioritize the safety and well-being of the hotel employees and guests.
Deric Eubanks: During the third quarter, we are pleased to say that all of our hotels remain open.
Deric Eubanks: Our risk management team proactively handles hurricane procedures by identifying and notifying potentially impacted hotels, allowing them ample time to prepare.
Deric Eubanks: We then preemptively align with hotels on preparation procedures, such as identifying low spots, adding sandbags, removing debris, and strapping down equipment. We ensure that all hotels have access to generators in case of a power outage.
Deric Eubanks: These procedures have helped us to forge strong relationships with disaster relief companies who provide quick aid to our hotels with cleanup. Overall, despite minor damage occurring at some of the hotels, our approach towards the hurricanes resulted in minimal operational impact and positive financial results during the quarter.
Deric Eubanks: Moving on to capital expenditures, during the third quarter of 2024, we completed both the guest room and public space renovations for two strategic conversions.
Deric Eubanks: The $35 million transformation of La Concha Key West into an autograph collection hotel and the $19 million renovation of La Pavillon New Orleans into a tribute portfolio hotel. We anticipate both properties to fully convert to their respective brand by year end.
Deric Eubanks: Once finalized, both hotels will benefit significantly from Marriott's extensive sales, distribution, and loyalty platforms.
Deric Eubanks: We have also made significant progress on the extensive renovation of both guest rooms and public spaces at the Embassy Suites Dallas, with the project slated for completion later this year.
Deric Eubanks: For 2024, we anticipate spending between $80 million and $100 million on capital expenditures as we continue to invest in key renovations and strategic upgrades across our portfolio.
Deric Eubanks: As mentioned earlier, Group Business has continued to show growth. We are experiencing strong demand in various markets and our ancillary revenue initiatives have performed well. We remain optimistic about the outlook for this portfolio and will now open up the call for Q&A.
Speaker Change: Thank you. As a reminder, if you have a question, it is star one on your telephone keypad. If you wish to withdraw your question, simply press star one again.
Speaker Change: Your first question comes from the line of Tyler Batore with Oppenheimer. Your line is open.
Speaker Change: Hi, good morning. This is Jonathan on for Tyler. Thanks for taking my questions. First one for me, Chris, helpful commentary on the group side, but maybe could you walk us through what you saw on the leisure and BT side for demand in the quarter, maybe on a monthly basis?
Speaker Change: Has it been kind of a continuation of trends from last quarter? And also, was there any noticeable pickup post-Labor Day on the BT side?
Speaker Change: Yeah, thanks Jonathan. I'd be happy to talk to that. We continue to see softening on the leisure side. We can retail with Soft for both us and other hotels within our markets.
Speaker Change: So we saw some, we see some continued softening there. It's not necessarily accelerating. It's just, just continued softness.
Deric Eubanks: corporate business remained strong, BT for our portfolio was up over 4% in Q3 to last year. Those increases were split between occupancy and ADR, so it was roughly half and half.
Deric Eubanks: We see that continue to accelerate as we progress. We did see some increase post-Labor Day weekend. One segment that we saw softness in for the quarter was the government segment.
Deric Eubanks: And we saw that government and government-related travel was soft, as I think there was.
Deric Eubanks: You know, just some unease around the election, and that impacted some of our D.C. hotels. We're hoping that now that the election's over, that segment starts to pick up is kind of what we anticipate.
Speaker Change: Okay, very helpful. And then maybe switching gears there, Stephen, the release this morning, obviously a positive update. You noticed some additional transactions in the coming weeks. I mean, I'm hoping you can provide some details on kind of the type of those transactions. I'm assuming they're asset sales. Your optimism they can close kind of before that December deadline. Just maybe hoping you could add any color on that.
Speaker Change: Yeah, I will say it is a combination of transactions. So we're looking at some asset sales still, we're looking at some refinancings. You know, I'm hesitant to comment prematurely on what exactly those transactions will entail, but I think as you watch over the next couple of weeks, we'll have plenty to announce as it relates to those.
Speaker Change: Okay, great. And then maybe last one from me, if I could, kind of on that line. Can you provide some additional color on the transaction environment more broadly? Has there been any noticeable pickup or changes in demand as of late? Any changes in the bid-ask spread, differences in large valuations versus smaller assets? Any color there you can...
Deric Eubanks: provide would be helpful given the move in interest rates as of late.
Speaker Change: Sure, sure. Yeah, certainly post the rate cut in September, I think we've seen an uptick in interest, particularly from institutional buyers. We've certainly seen more interest in a number of our assets, both assets that we've marketed and on.
Speaker Change: deals where we've gotten some inbound interest.
Speaker Change: You know, I think the election and the uncertainty around that also brought a significant amount of uncertainty to the market. And so hopefully, with that largely behind us here, we start to see, you know, continued tightening of that bid-ask spread and continued improvement both in the financing markets and the transaction markets that rely on it.
Speaker Change: Okay, that's very helpful, Culler. I appreciate all the, Culler, and the time. Thanks. Thank you very much.
Speaker Change: Once again, ladies and gentlemen, if you have a question, it is star 1 on your telephone keypad.
Speaker Change: Oh, my apologies. We have a question from Michael Bellisario with Baird. Your line is open.
Michael Bellisario: Michael, your line is open. Good morning everyone.
Michael Bellisario: Hey, good morning. Morning, Michael.
Michael Bellisario: Thanks for taking my question.
Michael Bellisario: I think in the prepared remarks you mentioned some cost savings or the potential for cost savings.
Speaker Change: related to, I think you said, Ashford Inc. Could you just elaborate on that? Is that something that would be at the property level related to Remington and management fees or is that something around the advisory agreement related to Ashford Inc.?
Speaker Change: So, yeah, look, our property managers are doing everything they can to manage expenses at the property level. We'll have more details to announce on this as we move forward over the next couple of months, but Ashford Inc. is very, very committed.
Speaker Change: to the profitability of Astro Hospitality Trust and making significant improvement there as we look to 2025 and beyond. And so I believe we'll see some corporate level cost savings as well in addition to what we're getting from the portfolio.
Speaker Change: And is it too early in the process to quantify that at this point?
Speaker Change: Yeah, I think I think it's a little bit premature You know obviously You know there will be negotiations on between Ashford Inc. and Ashford Hospitality Trust as it relates to this And we certainly will comment as you know as that starts to come into view and put out more details around with those What those changes look like
Speaker Change: Yeah, Mike, this is Derek. I'd just also comment, you know, we're right in the middle of budget season and, you know, really the comment was just meant to convey, you know, the level of attention and commitment that Ashford Inc. has in making this platform successful and thriving platform, and so that's what we're focused on doing.
Mike: Got it. Thanks for that. And then just last one for me, maybe fast forward to the end of the year, you've paid off Oaktree. Can you just remind us of your strategic priorities and how you expect to allocate capital in 2025 once you've?
Mike: completed these near-term transactions and paid off the oak tree finance.
Speaker Change: Thank you for attending.
Mike: Thank you.
Speaker Change: Sure, sure. You know, strategic priorities for us, once we've completed the O3 payoff, the first one is we have a number of upcoming debt maturities in the next 12 months.
Mike: I think priority one for us is getting those maturities pushed out, getting refinancings done, getting extensions done.
Mike: throughout the portfolio.
Mike: As we start to look forward and we're driving performance on the existing portfolio, I do think there will be opportunities within that portfolio to strategically turn over some of those assets.
Mike: Again, the sales we've done to date, down through 2024, have been geared towards paying off Oak Tree. I think as we look forward, it'll be more strategic and looking to reposition the portfolio in some ways.
Mike: And, you know, we're excited. The industry fundamentals are really lining up nicely. You know, the supply growth is something that, you know, I think everybody's harped on, but it's virtually nil for the next two or three years.
Mike: And I think the other thing that very few people have touched on so far is the return to office.
Mike: And we saw Amazon do it, we've seen 3M now comment and do something similar. I think as more and more, more and more of these corporates are starting to bring people back to centralized locations.
Mike: I think that could be a tremendous driver for that business transient segment that I think we all kind of assumed was tapped out.
Mike: And so we've seen great strides on the group side. I think there's opportunity on the business side. And we'll look to take advantage of that with Ashford Trust Portfolio, which has really a strong exposure to those segments.
Mike: Thank you.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you for joining our call. We look forward to speaking with you again next quarter.
Speaker Change: Thank you for watching!
Speaker Change: This concludes today's conference call. Thank you for joining. You may now disconnect your lines.
Speaker Change: Top 10コミックスキャストの障がい
Speaker Change: Michael Bellisario, Deric Eubanks, Bryan Maher, Jonathan Jenkins David