Q4 2024 Ashford Hospitality Trust Inc Earnings Call
Jeannine: To ask a question, you will press star 1 on your touchtone phone, and to withdraw your question, please press star 1 again. I will now hand the call over to Deric Eubanks, Chief Financial Officer. Sir, please go ahead.
Deric Eubanks: Thank you. Good morning everyone and welcome to today's conference call to review results for Ashford Hospitality Trust for the fourth quarter and full year 2024 and to update you on recent developments.
Speaker Change: On the call today will also be Stephen Zsigray, President and Chief Executive Officer, and Chris Nixon, Executive Vice President and Head of Asset Management.
Speaker Change: The results as well as notice of the accessibility of this conference call on a listen-only basis over the internet were distributed yesterday afternoon in a press release.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: These factors are more fully discussed in the company's filings with the Securities and Exchange Commission.
Speaker Change: The forward-looking statements included in this conference call are only made as of the date of this call and the company is not obligated to publicly update or revise them.
Speaker Change: Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities.
Speaker Change: In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on Form 8K with the SEC on February 25, 2025.
Speaker Change: Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release.
Speaker Change: Also, unless otherwise stated, all reported results discussed in this call compare the fourth quarter and full year ended December 31st, 2024, with the fourth quarter and full year ended December 31st, 2023.
Speaker Change: I will now turn the call over to Stephen Zsigray. Please go ahead.
Stephen Zsigray: Good morning, everyone, and thank you for joining us today. After my introductory comments, Derek will review our fourth quarter and full year financial results, and then Chris will provide an operational update on our portfolio.
Stephen Zsigray: The 6.2% growth in comparable hotel EBITDA for the quarter reflects efforts by our property managers to operate more efficiently as margins across the industry have narrowed.
Stephen Zsigray: Beyond the impressive operating results, we were also very active in the quarter on the investment and capital markets fronts.
Stephen Zsigray: We announce the conversion of the La Concha Hotel in Key West to Marriott's autograph collection.
Stephen Zsigray: Upon conversion, it was rebranded to Autograph La Concha, and we've created a distinctive theme and style for the hotel that is commensurate with the higher-end Autograph product.
Stephen Zsigray: This included transforming the lobby, bar, and restaurant, as well as upgrading the exterior, guest rooms, guest bathrooms, corridors, pool, and meeting space.
Stephen Zsigray: Ideally located in Old Town Key West, the transformation elevated the property into a desirable niche in the high barrier to entry, high rep par key west market.
Stephen Zsigray: Post-conversion, we believe the new autograph property should realize a 20% to 30% REVPAR premium compared to pre-conversion, and the hotel recently posted 25% year-over-year revenue growth in the month of January.
Stephen Zsigray: We also completed a similar conversion at our La Pavillon Hotel in New Orleans, converting it to Marriott's tribute portfolio.
Stephen Zsigray: This project included renovations to guest rooms, guest bathrooms, restaurant, and lobby bar, as well as the extensive exterior work.
Stephen Zsigray: Located on historic Poydras Street, it has a prime location in proximity to major demand generators in downtown New Orleans.
Stephen Zsigray: Post-conversion, we expected the new Tribute Portfolio property to realize a 10% to 20% REVPAR premium compared to pre-conversion. Impressively, the hotel has exceeded those expectations out of the gate and recently posted more than 45% year-over-year revenue growth in the month of January.
Stephen Zsigray: In the capital markets, we refinanced our mortgage loan on the Marriott Crystal Gateway Hotel in Arlington, Virginia in November, and in December, we extended the mortgage loan for the Le Pavillon Hotel in New Orleans.
Stephen Zsigray: Meanwhile, our non-traded preferred stock offering allowed us to raise substantial capital despite a challenging environment, reinforcing our financial position.
Stephen Zsigray: Building on this success, we are pleased to announce that the offering of our Series J and Series K non-traded preferred stock will close on March 31st, 2025.
Stephen Zsigray: Looking ahead to 2025, we expect this to be a transformational year for the company, and we have gotten off to a hot start.
Stephen Zsigray: In January, we closed on the sale of the Courtyard Boston Downtown for $123 million, nearly $400,000 per key.
Stephen Zsigray: This sale underscores the continued improvement in the hotel transaction markets with a 6.9% trailing cap rate highlighting the intrinsic value within our portfolio. It also provided important deleveraging for our largest loan pool and resulted in significant capital expenditure savings.
Stephen Zsigray: On February 12th, we completed the refinancing of 16 assets spanning four mortgage loans with final maturities in the first half of the year.
Stephen Zsigray: This refinancing also enabled us to achieve another significant milestone, as we fully repaid the remaining balance on the corporate strategic financing.
Stephen Zsigray: This accomplishment was the culmination of a comprehensive process that began more than a year ago and included selling over $430 million in hotel assets, refinancing several properties for excess proceeds, and raising approximately $195 million through our non-traded preferred stock offering.
Stephen Zsigray: These coordinated actions allowed us to successfully retire the strategic financing and open a new chapter for Ashford Trust.
Stephen Zsigray: With the strategic financing behind us, we are now focused on partnering with our advisor and property managers to execute our recently announced Grow AHT initiative.
Stephen Zsigray: Grow AAHT is a massive strategic initiative designed to drive outsized EBITDA growth and substantially improve shareholder value. Grow AAHT revolves around three core pillars, G&A reduction, revenue maximization, and operational efficiency.
Stephen Zsigray: Under G&A reduction, we plan to significantly lower corporate overhead by cutting management and board compensation, renegotiating advisory fees and expenses with Ashford Inc., and reducing professional and administrative costs.
Stephen Zsigray: Our revenue maximization efforts will focus on boosting Rooms Revenue Market Share, conducting pricing audits to increase ancillary revenue, and introducing additional revenue streams across our portfolio.
Stephen Zsigray: Finally, the operational efficiency pillar aims to combat margin pressures by renegotiating vendor contracts, implementing energy-saving measures, and optimizing labor.
Stephen Zsigray: We believe Grow AHT will transform Ashford Trust with a goal of adding 50 million dollars to our run rate corporate EBITDA, an increase of more than 20 percent.
Stephen Zsigray: By focusing on discipline cost control, aggressive revenue strategies, and operational innovation, we are confident we can enhance shareholder value and further strengthen our balance sheet.
Stephen Zsigray: Completing the repayment of our strategic financing also allows us to definitively definitively move past the challenges of the COVID era. We remain dedicated to maximizing the performance, profitability, and overall value of our hotels, as well as continuing strategic portfolio turnover and ongoing deleveraging.
Stephen Zsigray: We are very encouraged by the increasingly attractive industry fundamentals, limited supply growth in the coming years, and gradually improving transaction and financing markets. We look forward to updating you on our progress with Grow A.H.T. and the many opportunities that lie ahead for Ashford Trust.
Deric Eubanks: I will now turn the call over to Derek to review our fourth quarter and full year financial performance.
Derek: Thanks, Stephen. For the fourth quarter, we reported a net loss attributable to common stockholders.
of $131.1 million
or $23.83 per diluted share.
Derek: For the full year, we reported a net loss attributable to common stockholders of $82.5 million, or $17.54 per diluted share.
Derek: For the quarter, we reported AFFO per diluted share of negative $2.21, and for the full year, we reported AFFO per diluted share of negative $4.84.
Derek: Considering the current level of SOFR and the corresponding interest rate caps, approximately 23% of our debt is now effectively fixed and 77% is effectively floating.
Derek: During the quarter, we successfully extended our mortgage loan secured by the 226-room Le Pavillon Hotel located in New Orleans, Louisiana.
Derek: The loan had an initial maturity date in December of 2024 and has two additional one-year extension options subject to the satisfaction of certain conditions, with a final maturity date in December of 2027. The loan was extended with no paydown and continues to have an outstanding balance of $37 million.
Derek: During the quarter, we also successfully refinanced our mortgage loan secured by the 703-room Marriott Crystal Gateway Hotel located in Arlington, Virginia, which had a final maturity date in November 2026.
Derek: The new non-recourse loan totals $121.5 million and has a three-year initial term with two one-year extension options subject to the satisfaction of certain conditions.
Derek: The loan is interest only and provides for a floating interest rate of SOFR plus 4.75%. The refinancing resulted in approximately $31 million of excess proceeds that were used to pay down our strategic financing.
Derek: Subsequent to quarter end, we completed the sale of the 315-room Courtyard Boston downtown, located in Boston, Massachusetts, for $123 million, or $390,000 per key.
Derek: When adjusted for the anticipated capital expenditures, the sale price represented a 5.9% capitalization rate. A net operating income for the trailing 12 months ended September 30, 2024, or 14.3 times hotel EBITDA for the same time period.
Speaker Change: Excluding the anticipated capital spend, the sale price represented a 6.9% capitalization rate on net operating income for the trailing 12 months ended September 30, 2024, or 12.3 times Hotel Ibida for that same time period.
Speaker Change: Subsequent to quarter end, we closed on a $580 million refinancing secured by 16 hotels.
Speaker Change: The financing included the hotels that were previously part of the company's Keys Pool C loan.
Keith Poole D. Lone
Speaker Change: Key's Pool E loan and the BAML Pool 3 loan together with the Weston-Princeton.
Speaker Change: The previous loans had a combined outstanding loan balance of approximately $438.7 million.
Speaker Change: The new financing is non-recourse, has a two-year term with three one-year extension options subject to the satisfaction of certain conditions, and bears interest at a floating interest rate of SOFR plus 4.37 percent.
Speaker Change: We used approximately $72 million of the excess proceeds to completely pay off the remaining balance on our strategic financing, including the exit fee.
Speaker Change: The remaining excess proceeds were used to fund transaction costs and reserves for future capital expenditures.
Speaker Change: We ended the quarter with cash and cash equivalents of $112.9 million and restricted cash of $107.6 million.
Speaker Change: The vast majority of that restricted cash is comprised of lender and manager held reserve accounts and 2.6 million related to trapped cash held by lenders
Speaker Change: At the end of the quarter, we also had $21.2 million due from third-party hotel managers.
Speaker Change: This primarily represents cash held by one of our property managers, which is also available to fund hotel operating costs.
Speaker Change: We ended the quarter with net working capital of approximately $122 million.
Speaker Change: As of December 31st, 2024, our consolidated portfolio consisted of 73 hotels with 17,644 rooms.
Speaker Change: After taking into account our recently completed 1 for 10 reverse stock split, our share count at the end of the year consisted of approximately 5.8 million fully diluted shares outstanding, which is comprised of 5.6 million shares of common stock and 0.1 million OP units.
Speaker Change: Additionally, as Stephen mentioned, during the quarter we announced plans to close the offering of the Series J and Series K non-traded preferred stock on March 31st, 2025.
Speaker Change: Since launching the offering in 2022, we have raised approximately $195 million of gross proceeds from the sale of our Series J and Series K non-traded preferred stock.
Speaker Change: While we are currently paying our preferred dividends quarterly or monthly, we do not anticipate reinstating a common dividend in 2025.
Speaker Change: 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. In the fourth quarter, we delivered strong performance across our geographically diverse portfolio. Comparable hotel rep PAR increased by 3% over the prior year period, reflecting solid demand and the impact of our strategic revenue management initiatives.
Speaker Change: Group dynamics and corporate transient demand are improving, and we are starting to see accelerating benefits from our Grow A.H.T. initiatives, many of which were rolled out in November.
Speaker Change: December was a particularly strong month, with a 12% increase in hotel EBITDA over the prior year period, driven in large part by the successful execution of several GROW-AHT initiatives that were in full swing. This performance was broad-based, demonstrating the resilience of our portfolio and the effectiveness of our strategies.
Speaker Change: I would now like to go into more detail on some of the achievements completed throughout the quarter.
Speaker Change: Group room revenue for the fourth quarter increased by 5% over the prior year period. Booking activity remained strong, with group pays continuing to accelerate across our portfolio.
Speaker Change: Our Washington, D.C. properties delivered a healthy group performance this period. During the fourth quarter, Embassy Suites Crystal City produced a 22% increase in group room revenue compared to the prior year period.
Speaker Change: With the presidential election cycle presenting both opportunities and challenges, our team implemented an aggressive strategy to drive results.
Speaker Change: We focused on targeted marketing to political organizations supporting the election, particularly security and campaign teams.
Speaker Change: 2025 group room revenue pace for the broader portfolio remains strong, currently pacing ahead by 5% over the prior year period.
Speaker Change: Additionally, booking volumes have been robust. We added over $13 million in additional group room revenue during the fourth quarter for the first quarter of 2025, representing an increase of approximately 6% compared to the prior year quarter for the first quarter of 2024.
Speaker Change: Turning to gross operating performance, I am pleased with our results as fourth quarter gross operating margins expanded by approximately 141 basis points relative to the prior year quarter. Renaissance Nashville delivered a strong fourth quarter gross operating profit increase of 10% on 3% total hotel revenue growth.
Speaker Change: Ideally positioned near downtown Music City Center, this property benefited from recent initiatives aimed at enhancing its operating performance.
Speaker Change: These initiatives included adding a valuable ancillary revenue stream and cutting other operational expenses.
Speaker Change: Additionally, our team strategically utilized a supply chain procurement system throughout the year, which resulted in over $130,000 in food cost savings for the full year.
Speaker Change: These efforts underscore our ongoing commitment to operational efficiency and margin expansion, reinforcing our ability to drive sustainable profitability across our portfolio.
Speaker Change: One hotel that I would like to highlight this quarter is La Meridie in Fort Worth downtown, which opened during the third quarter of 2024.
Speaker Change: Thanks to a combination of strategic partnerships, proactive marketing, and early activations, our asset management team has successfully capitalized on the hotel's incredible amenities, achieving total revenue growth ahead of our initial budget by 21 percent.
Speaker Change: A key driver of this early success was our focus on strong community engagement, even before the hotel's grand opening and ribbon-cutting events.
Speaker Change: We partnered with Fort Worth Sister Cities International, the Fort Worth Chamber, and Downtown Fort Worth, Inc. to improve awareness prior to the opening. Additionally, the hotel conducted exclusive hardhat tours for prospective customers and community partners, generating early excitement and demand.
Speaker Change: To attract business travelers, we introduced Bonvoy room packages and brought on a dedicated business travel sales manager to engage with companies in the downtown area and establish corporate accounts.
Speaker Change: Simultaneously, to position the hotel as a vibrant social and dining destination, our team launched dynamic food and beverage activations including live music and happy hours at the upscale Lobby Restaurant and the stunning Rooftop Lounge.
Speaker Change: Further, an aggressive early rate strategy for group bookings helped establish a competitive market presence, with additional overflow blocks and group bookings secured through strategic collaborations with our other properties in the area.
Speaker Change: By positioning itself as a premier venue for group events and conferences, this upscale boutique property has delivered an exceptionally strong performance right out of the gate, and I'm excited about its long-term potential.
Thank you for joining us. We appreciate it.
Stephen Zsigray: As Stephen mentioned, this quarter marked the successful completion of our strategic repositioning of Crowne Plaza La Concha Hotel in Key West, Florida into Autograph La Concha, now part of Marriott's Autograph Collection.
Speaker Change: Ideally located on Duval Street in Old Town Key West, this transformation followed a $35 million investment, including upgrades to the lobby, bar, restaurant, exterior, guest rooms, bathrooms, corridors, pool, and meeting space.
Speaker Change: A key enhancement was the conversion of a previously underutilized spa into premium rooftop suites, offering some of the best views in Key West.
Speaker Change: I'm equally excited about the conversion of our La Pavillon Hotel in downtown New Orleans to a tribute portfolio property following a $19 million investment.
Speaker Change: This renovation included extensive exterior work, upgraded guestrooms and bathrooms, a refreshed restaurant, and a reimagined hotel lobby bar.
Speaker Change: The new bar, 1803, pays homage to the rich history of both the hotel and the city. Named after the year Emperor Napoleon signed the Louisiana Purchase.
Speaker Change: These conversions exemplify our ability to unlock embedded value in our portfolio. Looking ahead, we expect La Concha and Le Pavillon to benefit significantly from Marriott's sales, distribution, and loyalty platforms, enhancing long-term performance and value.
Speaker Change: As part of our Grow AHT initiatives, we implemented strategic measures during the fourth quarter to drive Hotel Ibiza, focusing on food and beverage, parking, and labor expenses to enhance profitability while maintaining service standards.
Speaker Change: We conducted audits of revenues of all outlets and gift shops
Speaker Change: Parking fee and historic preservation fee adjustments will provide additional revenue streams.
We also partnered with Remington to reduce allocated expenses.
Speaker Change: We launched a day-use hospitality program, monetizing hotel amenities. On the labor front, we refined staffing models, optimized schedules, and leveraged technology to improve efficiency while preserving guest service.
Speaker Change: Together, these GROW-AHT initiatives will help us create a more sustainable and profitable operating model.
Speaker Change: As we move into 2025, we will continue identifying opportunities to further drive hotel EBITDA and maximize value.
Speaker Change: Turning to capital expenditures, in the fourth quarter of 2024 we completed the extensive guest room and public space renovation at Embassy Suites Dallas and began the guest room renovation at Embassy Suites West Palm, which is on track for completion during the first quarter of 2025.
Speaker Change: Additionally, renovations at Residence Inn, Evansville, and Courtyard Bloomington are progressing well, with completion expected during the second quarter of 2025.
Speaker Change: For the full year, we invested approximately $106.5 million in capital expenditures.
Speaker Change: In 2025, we will execute several PIPs to support brand-franchise agreement renewals while enhancing guest experience. At Hilton Garden in Austin, a restaurant and meeting space renovation will modernize the property and capitalize on its prime downtown location.
Speaker Change: Later in the year, we plan to embark on public space renovations at Hampton and Evansville and Weston-Princeton.
Speaker Change: These initiatives underscore our commitment to asset excellence and delivering superior guest experiences.
Speaker Change: In total, we expect to spend between $95 million and $115 million in 2025 as we continue to enhance and elevate our portfolio.
Speaker Change: In summary, group business continues to show solid growth, demand remains strong across key markets, and our ancillary revenue initiatives are performing well. Looking ahead, we are actively rolling out additional pro-AHT initiatives aimed at enhancing operational performance.
Speaker Change: We are also focused on reducing energy costs, optimizing contract labor utilization, and cutting travel expenses, all designed to drive efficiency, lower cost, and improve profitability.
Speaker Change: We remain optimistic about our portfolio's outlook for 2025 and confident in our ability to unlock additional value.
Speaker Change: That concludes our prepared remarks and we will now open up the call for Q&A.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the answer and...
Speaker Change: Question session. Should you have a question, please press star 1 on your touchtone phone and you will hear a prompt that your hand has been raised. Should you wish to withdraw, please press star 1 again. If you are using a speakerphone, please leave the handset before pressing any keys.
Speaker Change: Our question comes from the line of Jonathan Jenkins from Oppenheimer. Sir, please go ahead.
Jonathan Jenkins: Good morning, thanks for taking my questions. First one from me on the GROW initiative. Chris, I think you noticed some changes and benefits.
Speaker Change: that you're already seeing here in 4Q, but can you maybe quantify the benefits that you've seen and provide some color on the ramp period and the cadence throughout the year, and maybe some additional color on potential opportunities that get you to that $50 million target?
Thank you.
Speaker Change: Yeah, great question, Jonathan. Thanks for the question. So we've begun rolling out all initiatives. I would say more than half of the initiatives are fully rolled out and underway. Obviously, we've seen the impact of performance that a number of these initiatives started having immediately with the December numbers we've cited. As we look ahead to kind of Q1 in January, then our performance is pulling through, so we're very optimistic. Many of the initiatives will continue to roll out through the course of the year.
Speaker Change: As we're kind of going through 2025, we're still identifying new initiatives and potential new partnerships and things we can do to kind of build on. And so we're very happy, but we're not satisfied. So I'd say roughly half of the initiatives have been fully rolled out.
Speaker Change: and then the remainder will be rolled out throughout the remainder of the year.
Speaker Change: Very helpful. That's great to hear. And then switching gears to the conversions, Stephen, I believe you talked about 20 to 30 percent of par premiums and revenue growth in January was in or above that, which is impressive.
Speaker Change: Do you think those assets have largely stabilized or is there an additional ramp period from here?
Speaker Change: and then more broadly, any additional thoughts regarding conversions in the portfolio and how much of an opportunity that could be.
Chris Nixon: Yeah, hey Jonathan, this is Chris, I'll take that. We're very encouraged by the performance of the conversions. As Stephen indicated, we underwrote pretty aggressive returns and both hotels are outperforming that.
and LePavillon.
So, extremely strong performance.
Chris Nixon: The hotel continues to ramp. We're seeing strong distribution performance as we expected from Marriott. And so I think there is still some additional runway before that stabilizes. But performance at both hotels is kind of blowing our underwriting out of the water. Down in Key West...
Chris Nixon: Occupancy has outperformed the market. We're starting to see the broader market soften a little bit in occupancy, so it's great that we're outperforming there. But where we've really seen the benefit is on the ADR side, with ADR gains that are just significantly outperforming underwriting, which is obviously great news for us.
Speaker Change: Okay, that's excellent. And then switching gears to the transaction environment, can you provide some additional color there? Has there been any noticeable pickup or changes in
conversations you've been having having as of late.
Speaker Change: Any changes in bid-ask spreads or differences in portfolio deals versus one-offs that are worth calling out? Any additional color there would be helpful.
Speaker Change: Yeah, we've definitely seen improvement in the financing markets and that has driven improvement in transaction markets, certainly driven optimism that 2025 is going to be a much better year for transactions.
Speaker Change: You know, from our perspective, I expect that we'll continue to sell a handful of additional assets, but I caveat that and say that we're going to continue to be very disciplined.
Speaker Change: We want to ensure that we're getting we're getting optimal value on our sales And there does remain a bid ask spread in in a handful of markets And so we need to you know we need to explore
Speaker Change: several different opportunities. We're not going to transact on all of them similar to what we've done in prior quarters, but we also expect to continue to deleverage and improve our balance sheet overall.
Speaker Change: Okay, that's good. And then lastly for me, if I could, just a clarification question on your floating rate exposure. I assume that increased sequentially, just the expiration of slots.
Speaker Change: Is that the case? And more broadly, is there any additional color you can provide to us on how you're thinking about your fix for floating rate exposure? Do you expect to re-get into swaps to lower that floating exposure?
Speaker Change: Yeah, Jonathan, this is Eric. I'll take that. It's a combination of interest rate caps burning off as well as SOFR dropping back below strike prices on those caps.
Speaker Change: So that's why we're more floating now. I think, look, historically we've always preferred floating rate financing just because...
Jonathan Jenkins: It has more flexibility. We think it's more of a natural hedge to our business.
Jonathan Jenkins: and we believe over time that you'll typically pay less floating. Obviously that's been a challenge for us over the last year or two, but I think you'll continue to see us have a mix of fixed and floating with sort of a bend to more floating.
Speaker Change: Okay, very helpful. I appreciate all the color, everyone. Thank you for your time.
Thank you.
Thank you.
Speaker Change: Thank you for joining today's call and we look forward to speaking with you all again next quarter.
and many more. Thank you. Thank you.