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Edited Transcript of AHT earnings conference call or presentation 21-May-20 3:00pm GMT

Q1 2020 Ashford Hospitality Trust Inc Earnings Call

DALLAS Jun 28, 2020 (Thomson StreetEvents) -- Edited Transcript of Ashford Hospitality Trust Inc earnings conference call or presentation Thursday, May 21, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Deric S. Eubanks

Ashford Hospitality Trust, Inc. - CFO & Treasurer

* J. Robison Hays

Ashford Hospitality Trust, Inc. - President, CEO & Director

* Jeremy J. Welter

Ashford Hospitality Trust, Inc. - COO

* Jordan Jennings

Ashford Hospitality Trust, Inc. - Manager of IR

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Conference Call Participants

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* Bryan Anthony Maher

B. Riley FBR, Inc., Research Division - Analyst

* Chris Jon Woronka

Deutsche Bank AG, Research Division - Research Analyst

* Michael Joseph Bellisario

Robert W. Baird & Co. Incorporated, Research Division - VP & Senior Research Analyst

* Robin Margaret Farley

UBS Investment Bank, Research Division - MD and Research Analyst

* Tyler Anton Batory

Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure

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Presentation

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Operator [1]

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Greetings, and welcome to the Ashford Hospitality Trust First Quarter 2020 Results Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the conference over to our host, Jordan Jennings, Manager of Investor Relations. Thank you. You may begin.

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Jordan Jennings, Ashford Hospitality Trust, Inc. - Manager of IR [2]

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Good day, everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the first quarter 2020 and to update you on recent developments. On the call today will be Rob Hays, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Chief Operating Officer. 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 that has been covered by the financial media.

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 as of the date of the call, and the company is not obligated to publicly update or revise them.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the accompanying earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on May 20, 2020, and may also be accessed through the company's website at www.ahtreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all information provided in the release. Also, unless otherwise stated, all reports and results discussed in this call compare the first quarter of 2020 with the first quarter of 2019.

I will now turn the call over to Rob Hays. Please go ahead, sir.

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [3]

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Good morning, and welcome to our call. First, I'd like to begin by expressing our sincere hope that you and your families are safe and doing well. Our thoughts are with everyone who has been affected by this health crisis. These are challenging times for our country, the economy and of course, the hospitality industry. Given these trying times, I believe the appropriate starting point for today's call will be to update you on how Ashford Trust has navigated the COVID-19 pandemic. After that, Deric will review our financial results, and Jeremy will provide an operational update on the portfolio.

We are in unprecedented times, and while our results in January and February continued the overall solid trends we had seen over prior quarters, we are now operating in a very different environment. The impact of COVID-19 on the U.S. hospitality industry and our day-to-day operations have been profound. Our response to this crisis has been swift and comprehensive as we have focused our efforts on providing a safe environment for our guests and the staff to our properties, while at the same time, taking aggressive measures to protect our properties and maintain our financial flexibility so we can be in a position to return to profitability as travel resumes.

Given the economic impact of this pandemic, we were required to make some difficult and painful decisions. As precautionary measure and in conjunction with local, state and federal guidelines, we have temporarily suspended operations at 23 properties, and our remaining 93 properties have been operating at greatly reduced levels. However, several of our assets are being used by local government agencies, medical staffing organizations as well as hotel brands to support COVID-19 response efforts. And we are pleased to assist in these efforts through various initiatives. More than 48 Ashford Trust hotels provided temporary lodging for first responders, health care professionals and other community residents impacted by the crisis.

When we first became aware of this virus in China in late January, we worked quickly to develop a comprehensive plan in case the virus came to the U.S. That plan was quickly put into place when, in late February and early March, it became clear that our business would be significantly impacted by the pandemic. We worked closely with our property managers to cut costs and to maximize liquidity. This is where our relationship with our affiliated property manager, Remington, really does set us apart. Remington has been able to quickly cut costs and rapidly adjust to this new operating environment, and we're proud of their efforts and believe it sets us up well to outperform as the industry recovers. And Jeremy will discuss this more in detail in his section.

We have also significantly reduced our planned spend for capital expenditures for the year, suspending our common dividend and reduced our corporate G&A by approximately 25%. Deric will discuss this in more detail around our liquidity shortly.

Beginning on April 1, we did not make principal or interest payments on nearly all of our loans, which constituted an event of default, as such term as defined in our loan documents. We have been actively working with our lenders on our property level debt to arrange mutually-agreeable forbearance agreements to reduce our near-term cash utilization and improve our liquidity. We have had some success around those discussions, but the vast majority continue to be ongoing. And we look forward to providing additional information as we continue to work through that process.

And speaking to you for the first time as the President and CEO of Ashford Trust, I cannot be prouder with the effort and the performance of our team during this time. While we are closely monitoring this fluid situation and have plans in place to reopen closed properties as government edicts allow and business demand and conditions improve, our management team has had extensive experience in effectively navigating tough market environments and extended downturns. Now each crisis is invariably different. But we believe we have the right management team in place to protect long-term values of our assets in the company.

I'll now turn the call over to Deric to review first quarter financial performance.

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Deric S. Eubanks, Ashford Hospitality Trust, Inc. - CFO & Treasurer [4]

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Thanks, Rob. For the first quarter of 2020, we reported a net loss attributable to common stockholders of $94.8 million or $0.94 per diluted share. For the quarter, we reported AFFO per diluted share of negative $0.12. Adjusted EBITDAre totaled $47.4 million for the quarter.

At the end of the first quarter, we had $4.1 billion of mortgage loans with a blended average interest rate of 4.4%. And our loans were 9% fixed rate and 91% floating rate. Our loans are all nonrecourse, and we have no corporate loans. We are in the process of discussing forbearance agreements with our property level lenders. We have signed a few agreements and several more are in process.

As we disclosed earlier this week in an 8-K filing, we did have one lender accelerate the loan on our Embassy Suites New York Manhattan Time Square, and used excess cash held by the lender to pay down their loan. New York City is obviously subject to a government-mandated stay-at-home order. But this hotel has remained open and is currently housing first responders in New York City, the center of the COVID-19 outbreak in the U.S. While the hotel is not profitable currently, we believe staying open and providing a place of refuge for these workers is the right thing to do. We continue to call on Congress, the Treasury Department and the Federal Reserve to assist the hotel industry during this crisis.

We ended the quarter with $386 million of liquidity, including cash and cash equivalents of $240 million, and restricted cash of $127 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts. We have been and continue to work with our property managers and lenders in order to utilize these lender and manager held reserves to fund operating shortfalls at our hotels. At the end of the quarter, we also had $19 million in due from third-party hotel managers. This represents cash held by one of our property managers which is also available to fund operating costs.

As Rob mentioned, in response to this pandemic, we have taken decisive measures to reduce our cash utilization. We have reduced corporate G&A and reimbursable expenses under our advisory agreement by approximately 25% on an annual basis. To further preserve our liquidity, our Board of Directors suspended our common stock dividend, which will save approximately $7 million on a quarterly basis. We estimate that our current monthly cash utilization of our hotels, given their current state of either having suspended operations or operating in a limited capacity, is approximately $20 million per month. As I mentioned, all of our debt is property level, nonrecourse debt and the interest is currently approximately $13 million per month. Our run rate for corporate G&A and advisory fees is approximately $4 million per month. We believe that hotel occupancy bottomed in the middle of April. Since then, occupancy continues to increase on a weekly basis. Net new bookings are positive, we are seeing pickup of room nights on a short-term basis, and the pace of that pickup is increasing almost daily. We expect drive-to leisure hotels to be among the first to bounce back. And we are already seeing this at our One Ocean Resort in Jacksonville, Florida; and our Lakeway Resort in Austin, Texas, which both sold out last weekend. We also expect those 2 hotels to be sold out Memorial Day weekend as well.

As of March 31, 2020, our portfolio consisted of 116 hotels with 24,719 net rooms. Our share count at quarter end stood at 124.8 million fully diluted shares outstanding, which is comprised of 105.1 million shares of common stock and 19.7 million OP units.

During the first quarter, we refinanced the mortgage loan for the 226-room Le Pavillon Hotel in New Orleans, Louisiana which had an existing outstanding balance of approximately $43.8 million, a floating interest rate of LIBOR plus 5.1% and a final maturity date in June 2020. The new nonrecourse loan totals $37 million and has a 3-year initial term with 2 1-year extension options, subject to the satisfaction of certain conditions. The loan is interest-only for the first 4 years, with $200,000 quarterly amortization payments in the fifth year. The loan provides for a floating interest rate of LIBOR plus 3.4%.

The during the quarter, we also sold the Crowne Plaza Annapolis, generating approximately $5.1 million in cash proceeds.

This concludes our financial review, and I would now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [5]

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Thank you, Deric. Comparable RevPAR for our portfolio decreased 22.9% during the first quarter of 2020. This decrease actually represents 1.7 percentage point and 0.6 percentage point outperformances relative to our hotels' competitive set and submarket chain scales, respectively.

During the first quarter, hotel EBITDA flow-through was 38%. The ongoing COVID-19 pandemic had disproportionately impacted the travel and tourism industry. Prior to the COVID-19 pandemic, many of our hotels were performing well to start 2020. Year-to-date February, comparable RevPAR for the Hyatt Regency Coral Gables and Courtyard Ft. Lauderdale Weston grew 26.4% and 15.6%, respectively, positively impacted by Miami hosting the Super Bowl. On the back of a large Amazon city-wide in January and hosting the NBA All-star game in February, comparable RevPAR for Chicago's The Silversmith grew 12.3%.

When it became apparent that the COVID-19 pandemic was going to severely impact our hotels' performance, we took swift actions to put ourselves in position for long-term success. In March, we reduced operating expenses significantly by 38.6% or $29.7 million relative to March 2019. These decreases will be even more pronounced in the second quarter numbers. We've also temporarily suspended operations at 23 hotels. These are unprecedented and difficult times (technical difficulty) asset management, property management and the brands are all working together. We want to bring back as many associates as soon as we can when demand justifies bringing them back. Our associates have been pushed hard, working through a challenging situation. Folks have risen to the occasion. It makes us proud to see how many -- how everyone has pitched in to help while being asked to do less -- or do more for less pay.

The following are a few of the many steps we have taken at our hotels to reduce expenses and generate revenue. We've reduced staff through furloughs and layoffs to skeleton crews. We have put a freeze on employee hiring and are deferring new hires. We're scheduling partial shifts when full shifts are not necessary. And we have eliminated housekeeping service for stay-overs. We've eliminated advance transportation, airport shuttle service, valet parking services, turndown service and all amenities that exceed brand standards. We have suspended services at concierge, lounges, M Clubs and all spas and kids' clubs. We have blocked off and shut down floors and wings of hotels. We have set all thermostats in rooms and public spaces to temperatures that conserve the most power. We've turned off in-room refrigerators and unplugged kitchen, back of house and office equipment. We have suspended services at many food and beverage outlets. We have canceled advertising. We have renegotiated pricing on or our canceling service contracts. We're deferring numerous maintenance items. We're working diligently to collect cancellation fees or partner with group customers to rebook their programs for a later date. We're participating in Hilton's One Million Thank Yous, and we have registered hotels with FEMA, CLC, Hotels for Hope, state lodging associations and California's hotels for Health Care Workers. We are actively seeking how we can best partner with local and city groups to help in our communities and provide shelter for first responders and vulnerable populations.

I also want to highlight the extraordinary job that Remington has done in responding to the pandemic and minimizing the financial impact to owners while keeping associates and guests safe. During the first quarter, our Remington managed hotels, both franchised and independent, were able to more nimbly respond to the crisis. Comparable RevPAR at our 80 Remington managed hotels decreased 22.8%, and hotel EBITDA flow-through was 41%, both numbers outperforming our portfolio totals. March comparable RevPAR decreased 58.4%, 4.2 percentage points less than the upper upscale chain scale nationally. Operating expenses at our Remington managed hotels decreased 41.8%, again outpacing our portfolio totals. Remington was also aggressive in cutting the cost of shared services. Remington also implemented a lean staffing model, which we refer to as a 2-2-1 model, which consists of 2 associates in the morning, 2 in the evening and 1 overnight, with general managers and other executive staff covering front desk and overnight shifts.

While it is unknown how fast the recovery will be, we believe the worst is behind us. It appears the trough occurred in the middle of April. Incredibly, we have hotels open and operating with 8 to 10 FTEs, and in some cases, even less than that. As we look at our portfolio, we believe the fastest segments to rebound will be leisure and other transient business, with group segment lagging and recovery. It's seems that larger box hotels will struggle more than smaller hotels because it will be difficult for them to drive occupancy via large lots of rooms. In addition to smaller hotels having an advantage, we believe hotels to drive-to markets will experience a quicker recovery as well. In 2019, our portfolio's group occupancy as a percentage of total occupancy was 19%, while the transient segment accounted for nearly 4x as many room nights. We're not reliant on the group segment. Our average hotel size is 213 rooms, and many of our hotels are smaller. More than half the hotels in our portfolio have fewer than 200 rooms, and many of them are in drive-to markets. Our portfolio will benefit from being well diversified and having a mix of select service and full-service hotels. Our extended stay hotels, for instance, our Residence Inns, are positioned to perform well during the recovery. The Washington, D.C. market, where we have our highest concentration of KEYS, will also benefit from the inauguration next year.

Prior to the pandemic, supply growth in our domestic markets was slow, and we expect that tailwinds to continue. In addition, to position ourselves for long-term success, we have continued to prioritize doing the right thing, including being community partners and leasing space to the homeless. As examples in Austin, Texas, we stand ready to aid in local city contingency plans, while at Marriott Research Triangle Park, we have been leasing space to shelter the homeless for over a month. During the last few years, we invested significant capital in renovating our portfolio to maintain competitiveness. Looking ahead to 2020, these investments will pay off and provide us with a competitive advantage while our industry weathers the storm brought on by the COVID-19 pandemic. Additionally, our capital investment strategies will allow us to allocate capital more assuredly for the remainder of the year. These expenditures will primarily consist of completing the guestrooms renovation at Hilton Fort Worth, the guestrooms and public space renovation at Sheraton Ann Arbor and the guestrooms renovation at W Minneapolis.

I will now hand it back to Rob for some final comments before Q&A.

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [6]

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Thank you, Jeremy. I wanted to make a few final comments before starting the Q&A portion of this call. And while I've only been the President and CEO of Ashford Trust for a handful of days, I have been here at Ashford for 15 years. And as a team, we have had many successes in those years as well as our share of failures and hard lessons learned. But nothing compares to the devastation we are experiencing today. This pandemic is impacting our shareholders, our associates, our guests, our management team, our brand partners, our lenders and all of the other stakeholders of the company in ways we couldn't have imagined just a few weeks ago. But there are silver linings in every crisis and blessings that can come out of suffering and leaders in our organization are rising to respond to the chaos with long hours, serious determination and a real hope for the future. Our associates of the hotels across the portfolio are working hard to welcome back guests safely with genuine hospitality and gratitude. All of us have a better grasp today on what is truly important in life and have benefited from a reminder of how quickly tragedy can strike.

So hear me clearly on this. We will get through this. And I promise you, it will make us a better company, one that does give us a deeper respect and thankfulness for all of our stakeholders. In that light, I want to mention that once we make our way through COVID-19, I anticipate that we will spend some time analyzing lessons learned from this crisis and over the past decade, and we'll likely update the strategy of Ashford Trust going forward. This could include changes to our leverage profile, our capital stack, our liquidity profile and our investment strategy. I would not be doing my job as the new CEO if I didn't take a hard look at our performance the last few years and take some steps to adjust the strategy, particularly in light of new strategies.

That concludes our prepared remarks. And we'll now open up the call for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Tyler Batory with Janney Capital Markets.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [2]

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Just a couple for me. And first, Rob, I wanted to follow-up on some of the comments that you just made there. And I appreciate it's early. Maybe not a whole lot that you can say. But you've been with this company for a number of years. And just in terms of reviewing the strategy, I mean, is anything and everything on the table here? Or are there a few items maybe you're focused on in terms of the strategy, company structure, et cetera? Just any high-level thoughts or anything you can tease out in terms of potential changes that we might expect going forward?

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [3]

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Yes, I don't know if there's anything in terms of pure expectations. But I can say that from my perspective, anything and everything is on the table. And that's the sort of situation that we're in. I do think that we've gone into this crisis with too much leverage. It's something that I think Douglas had looked for opportunities. And we, as a company, had looked for opportunities to delever somewhat going prior to this and had, in many ways, been unsuccessful due to just the environment that we were in. But in this crisis, that's something that we've got to take a real look at, at what I'm not going to be content with is "just survival," that we set up this company with all nonrecourse debt for REIT. We set up this company and building our cash balances for a reason. We obviously didn't imagine to be in this sort of situation, but here we are. And so it does allow us a certain amount of flexibility in doing that. I'm sure glad as I sit here today that I don't have bondholders, for example.

So we've got to take an honest look at that. And what I -- like I said, I'm not going to be content with is just making it through this crisis surviving and having a company that some investors may not think is investable and some -- and many think will have too much leverage. I'm not okay with that. I want to set up this company on the back side of all this to be able to grow and to be able to raise capital. And so be able to flourish. I'm not okay continuing to be "in a box." We're not going to do that anymore.

So -- and so that -- by definition, that means everything needs to be on the table. And that's something that we've had discussions with the Board, discussions with Monty, very generally, and I think everyone was on board with that. It's going to take time to figure out what that strategy looks like once we make it through all this. We have a lot of things in front of us right now we've got to deal with. But that's the situation we are today.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [4]

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Okay. Perfect. I appreciate that color. And then just in terms of some of the conversations you're having with your lenders. Can you talk a little bit more generally about how some of those are progressing? And any commentary in terms of helping us thinking about how we should handicap the range of outcomes here?

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [5]

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Sure. Those -- there's -- I'd say, they kind of put it into stages. Right now, lenders are obviously overwhelmed. They've got a lot of loans coming back their way. And that is also attributable both balance sheet lenders and for CMBS lenders. They're a little overwhelmed. And no one, I think, is really willing to engage on any serious discussions that "solve the problem." Right now, everyone is just trying to postpone the problem. And frankly, kind of hold out hope that things will just get better. And so as a result, most of the discussions that we're having are just on temporary forbearances. And these are looking at things like 3- to 6-month forbearances, deferring interest to a later date. Sometimes, it's spread out over time. Sometimes, it's paid back at maturity. Sometimes, it's paid back earlier than that. Getting access to FF&E and other reserves to pay operating expenses. Those are kind of the main terms. And frankly, we've had a wide variety of success with that. We have signed up some and have made good progress with others. And there's other lenders or servicers out there that have, frankly, been fairly difficult to deal with, and may even, in some sense, be seen as an opportunity to get restructuring fees or other things. And so -- and I kind of put it in light of we've had great working relationships with our brands, for example. The brand has bent over backwards, I think, in terms of particularly, our friends at Hilton and Marriott and Hyatt, where they're giving us access to reserves. They're suspending brand standards. They are allowing us to operate in ways that were completely unimaginable just a few months ago. And so kudos and credit to them because they've been a tremendous help in turn this time. And the lenders have, by and large, not taken that approach. And it's been very frustrating. But it's what we have to deal with. And so we're going to keep kind of chopping wood on those and -- but at the end of the day, if the lender wants to dig in and offer terms that just aren't acceptable, then that's why we have nonrecourse debt. And our goal is to keep as many of these properties as we can, and to keep the portfolio as it is. But there's obviously the outside opportunity that some of that will not happen. And so we've got to -- here, internally, we've been working on prioritizing our assets. Which ones do we see that we have a lot of equity value in as we sit here today, which ones do we think are going to recover in certain trajectories, which ones have reserves that we need -- that add more cash to the properties, all these sorts of things, all these factors that we're going into. And that will kind of lead into, I think, a longer-term strategy of dealing with these assets and the debt in terms of what needs to be restructured, what needs to be recut, what needs to be extended. And so there's a lot of moving pieces. But as we sit here today, we're mostly focused on creating space to do that work. And so that means working with our lenders to come up with kind of 3- to 6-month forbearances.

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Operator [6]

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Our next question comes from Chris Woronka with Deutsche Bank.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [7]

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Rob, welcome into the new seat. A follow-up. Yes. No, great. Rob, just a quick question, a follow-up on that -- on Tyler's question. I guess, as you think about the New York City Embassy Suites, and I think there was another one, right, Santa Cruz, Hilton, what are kind of the next steps there? And what kind of -- how does that process kind of play out? It seems like it's been a little bit more formalized now. So what -- can you just walk us through what happens?

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [8]

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Yes. No, it's a good question. I mean, in some ways, in one sense, nothing happens. It's just a terminology that's used. And in many cases, it can be unwound. But there was an acceleration. And it just means that we need to spend some time focusing on that and working with the various people that are in that capital stack. As you know, there is the realities of it being in New York City. There's the reality that you had Governor Cuomo put out his kind of moratorium on foreclosures. No one really even knows what that means, frankly. There's different cases that are going on in the state. But regardless is that foreclosures in that sort of process in New York takes time. We know that. The lenders know that. The servicers know that. And so it's something that we are -- it just means that we are actively working with them to come to a mutual solution. And New York is in a pretty rough place right now. And it's not exactly clear what the trajectory of recovery is going to be, when will it cease to be a hotspot. As Jeremy mentioned in his comments, we've been -- this asset, specifically, has been housing a lot of first responders and workers in regards to this pandemic. It's not profitable. It is losing money. But it is at least kind of covering the incremental fixed expenses, the incremental -- the variable expenses that's part of it. But it's something that I'm hopeful that we'll -- we'd like to work something out. It's an asset that we recently purchased. It's our only asset in Manhattan proper. So it's just going to be a process of working with the various members of the capital stack.

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Deric S. Eubanks, Ashford Hospitality Trust, Inc. - CFO & Treasurer [9]

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Yes. And Chris, this is Deric. I'll just add that, really, the acceleration is just sort of the next step in the process after there's an event of default. And what really needed to happen here was just kind of everybody hit the pause button because we were forced to close, obviously, several of our properties, given government mandates and government orders. And the Federal Reserve gave guidance to banks, which, obviously, as a borrower, we're very appreciative of, where they encourage banks to work with borrowers that have been impacted by the COVID-19 pandemic, and basically said like, "Look, look, give your borrower some breathing room." Like Rob said, we just need some time to kind of work this out. Unfortunately, in terms of hotel lending world and hotel financing, banks only make up about 50% of the outstanding hotel debt. So there's another half the financing world out there that are not commercial banks, that are governed and regulated by the Federal Reserve. And unfortunately, there's no single voice yet that has given those lenders guidance in terms of what to do. And so as Rob said, it's been a little frustrating because different lenders are doing different things. To us, to have a loan be accelerated and take our reserve accounts and used to pay down a loan for a hotel in New York City that is housing first responders just doesn't feel right. And so we've called on Congress. We've called on the Treasury Department. We've called on Federal Reserve, someone to give some guidance to these other lenders that are not regulated by the Federal Reserve, to assist hotel borrowers. There are a lot of borrowers that are just like us. Most hotel owners are individuals that own a small portfolio, maybe 1 asset, maybe a handful of asset and they finance their assets through property-level mortgages. And so our industry has just been crushed and really need some guidance from our government officials in terms of how lenders should be working with borrowers right now to make it through this crisis.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [10]

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Okay. Great. I appreciate all that color. And then, Rob, I think you mentioned in the prepared comments a reduction in the advisory fee, I guess, with Ashford Inc. Can you give us maybe a little bit more color on that? And is that something as in your new role, does this situation kind of put that back on the table in terms of maybe doing a second -- another amendment to the master agreement?

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [11]

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Well, I mean, I think at some point in time, we'll -- there's going to -- we'll -- I mean, like I said, we're going to have to review everything to figure out what is the best way to set up Ashford Trust for success on the back side of all this. That mechanism -- there's a mechanism within the existing advisory agreement where the fees can be reduced by 10% year-over-year as stock prices and whatnot drop. And so you will see and have seen the fees to Ashford Inc. drop as part of all this. And to the extent that this process, that this crisis continues, you'll continue to see probably year-over-year drops, potentially. But no, we just got to think through all of it. I mean, there's obviously great benefits that come from that relationship, I mean, the ability to have the team that Jeremy has in asset management. It's definitely a massive benefit, and we can do that because we also have $2 billion of assets -- we actually have $2 billion of assets over at Braemar, and with the goal of continuing to hopefully grow over time. There's also -- Ashford Inc. has services like Pure, which here, in this environment, there are quite a few assets that we have in trust that have Pure rooms, hypoallergenic deep clean rooms. That may be an offering that is a real strategic advantage for our hotels going forward, and we're looking at ways to potentially roll that out in a bigger scale. We have OpenKey. For example, this was something at Ashford Trust -- that we've been focused on over the last 6 months prior to all this, which is working on a true skip-the-desk process that, frankly, other than Hilton, which really only does that for certain elite members, that doesn't -- hasn't really existed in a polished form in our industry. And so that's something that we had already been rolling out at Ashford Trust independent hotels over the past several months. That's a, I think, a key advantage into what may be a contactless environment for our hotels and operating environment going forward. So that's a big strategic advantage. I guess I did see that some of our other peers or on their calls were mentioning that. Well, that's something we've been doing. And something that we've been already rolling out prior to all this. And so there's some great key advantages. And obviously, the relationship with Remington and Premier, where we just, frankly, can control those costs better and manage it better. And if you saw the speed -- and it was brutal. It was brutal to experience going from in one -- I mean, literally, in a period of a few days going from operating full board to furloughing or laying off -- then, it was kind of 80% and then 90% and then 90% plus of associates across the portfolio. I mean, that was heart wrenching and -- but we did it several weeks ahead of most other people and most other groups. And it's because we saw the devastation coming and had no ill intents. We had no choice. And so there's just great advantages.

So those are all the different aspects that we're going to have to consider as we figure out what's the best structure and the best opportunity for Trust over the long run.

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Operator [12]

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Our next question comes from Bryan Maher with B. Riley FBR.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [13]

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Robert or Deric, can you talk about the potential to have the government come in and do some kind of backstop on the CMBS and foreclosures? And what type of timing is involved in that? What's the status of that? And who, specifically, is lobbying for that?

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Deric S. Eubanks, Ashford Hospitality Trust, Inc. - CFO & Treasurer [14]

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Bryan, this is Deric. I'll address that. The AHLA, the American Hotel Lodging Associations, has really done a great job, spearheading a lot of advocacy for our industry. Something that I've had personal conversations with several Federal Reserve folks about that I think would be great is if the Federal government could just backstop a refinancing program for any hotel loan that was performing and current prior to the declaration of a national emergency. Because the reality is, if you've got a hotel mortgage today, pretty much every hotel in the country will be in default, every hotel loan in the country. And that's the way that lenders could get made whole. If they -- through commercial banks, could basically sponsor a refinancing effort where banks would refinance existing loans that were current prior to the national emergency. Previous lenders get paid off, that capital can get recycled back into the economy. And borrowers are able to hold on to their assets and give us some breathing room to make through this crisis. So that's a proposal that's out there. The likelihood of that, I don't know. I know there's some bills that have been proposed in Congress recently regarding declaring the pandemic available for business interruption insurance. And that's something that's been kicked around on a retroactive basis, that companies could go back and get coverage through the Federal government for any business interruption that can be claimed as a result of the -- as a result of the pandemic, because most business interruption policies have specific exclusions for pandemics.

So I know there's some things working. The likelihood of that, I don't know. But clearly, there is a need for it. And our industry has just been crushed. I know hotel industry leaders met with President Trump and Vice President Pence, I think, the second week of March. And we were hopeful that the PPP, SBA program would be able to assist hotel owners like us. And unfortunately, with the changing of the guidance of that program, we were unable to keep those funds and access that -- those funds. The Main Street facility that's been announced will not work for the REITs given the requirement to not use that money to refinance any existing loans. So there's still a need, and we're optimistic and hopeful that our elected officials will come up with something.

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [15]

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Yes. I mean, we -- I'll add a couple of other points on that, Bryan, is that, I mean, one, we have to operate as if we assume nothing is coming, right? So it's not like we have to -- we're just kind of sitting here, tilling our thumbs, hoping that help comes. So we have to move forward as if we don't. There are, I guess, a couple of things that I'll mention that Deric kind of touched on. There is kind of a little bit of a groundswell movement that we've come in contact with, with a bunch of small -- kind of small CMBS borrowers. I think they started a group called hotelstogether.org, which is trying to have these certain standards and guidelines, particularly for CMBS, but other lenders. I think they're calling kind of the fairness in lending standards. Because it is kind of seen that in our experience, at least my experience has been in the last few weeks, is that you get the sense that the CMBS guys, in particular, would actually welcome some sort of guidance from the federal government or the treasury, the Federal Reserve, the FDIC, whomever, in order to kind of give them cover because these guys are very nervous about taking steps. And then, in the low likelihood situation that things come ramping back quicker, they look silly and made a bad decision. So I think they would welcome that.

And then there's also, as Deric mentioned, this thing called the Workplace Recovery Act, which is getting some traction that we've heard through certain members of Congress, that is more or less a business interruption insurance-type structure. So again, I think both of those would be very, very helpful for us in our industry. But the likelihood is -- I would imagine likelihood is low, given just the realities that we're dealing with, but maybe one of them gets some traction.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [16]

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Yes. Just 2 quick ones from me. The 23 hotels that are still closed, how soon do you think that those reopen? And is it more of a government mandate thing? Or is it a lack of demand versus the costs associated with reopening?

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [17]

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Yes, there are a couple of them that were still kind of -- that were government mandated. For example, in Monroe County, down in Key West. They're going to be opening up on June 1. So that was one that was closed down due to the government. Most of the others are more demand driven. And so you're going to see a wave of them. A good amount of them will be coming back on June 1. And then you do have a few kind of laggards that just based on, typically, maybe their bigger assets or have demand generators that are urban, that may not be coming back. That could be a little bit later, maybe everywhere from mid-June to some time in July. So there are a few laggards into July. But most of them will be open in the next 30 days.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [18]

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And Rob, when you sit here today, being the new CEO and with the challenges that you face here, with everything that's going on with the lenders and CMBS and what have you, how do you envision this portfolio looking in size a year from now? Is it 50 hotels? Is it 70 hotels? Is it 90 hotels? Just a best guess. I mean, I know it's hugely uncertain times, but how are you thinking about this business a year from now?

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [19]

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Well, I mean, I look at -- I'd say there's a couple of factors. One is when we look through what -- what happened in the financial crisis, I think we ended up getting back 3 hotels, right? We -- it was a Hilton in El Conquistador in Tucson; at Chicago, O'Hare Westin; and a Hyatt in Michigan, in Dearborn. This is materially worse than that situation. In what we're seeing and how far underwater certain assets may be. So in one sense, I would say it probably would be more than that. At the same time, what I just don't know is it's kind of the phrase, right, If I owe you a dollar, it's my problem. And If I owe you $1 million, it's your problem. There's some of that, that may happen with the lenders because they're so underwater and there's so many problems. So we just don't know how difficult they're going to be and how willing to work with us they are. We obviously have priorities and keepers and things and assets that, frankly, if we had to hand back, I would be okay with that. There's all of those.

So I just don't know what the lenders are going to do, Bryan, I just don't control that. But from a depth-of-problem situation, it's definitely much more severe than the financial crisis. And so I would anticipate that we're definitely at risk to hand back a few.

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Operator [20]

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(Operator Instructions) Our next question comes from Michael Bellisario with Baird.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP & Senior Research Analyst [21]

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Just a couple of questions for you, more along the same lines of the debt modifications. I think you mentioned you're still making a few principal and interest payments. Can you tell us which loans or which mortgages those are? And then why did you choose those properties?

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [22]

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Yes. I don't know if I'll go into the detail of which ones. But what I can tell you, there are a handful of ones where either we're in the midst of, say, either renovation that has certain funds that we want to make sure are -- we're being able to get access to. Or there's just certain discussions with lenders that make it make it more necessary to be kind of current in order to deal with them. But it's very limited. I mean, the number of loans that we're current on, as we sit here today, is extraordinarily small. So it's mostly just about either the type of relationship or maintaining access to certain reserve accounts that were important for kind of normal operations or renovations to keep going.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP & Senior Research Analyst [23]

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That's helpful. And then maybe a more technical question for Deric. But I guess, what can be negotiated or modified with the servicer when you're going through these forbearance agreements? I guess, can you extend the maturity date? Or is it really all about the smaller items and kind of the current pay items that Rob mentioned earlier?

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [24]

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Mike, I can take that, too. I mean, I think once you're dealing with the special, most things can be changed. I mean, they have their -- the rights, the abilities to do quite a few types of modifications, including extensions, changes in rate, changes in a variety of terms. There are certain things, structurally, that they may not be able to do. To give you an example, one thing that we had as an ask early on in some of our forbearance discussions was taking deferred interest and putting it onto the back end as an addition to principal payments at maturity. As we've discovered, that's not something, structurally, that's very easy to do within the CMBS environment.

So there's things like that, that are just a little more difficult. The issue, I think, is less about what they're capable of doing and more about what they're willing to do in this right now. Again, I don't think people have -- the servicers and lenders have yet come to acknowledge the reality and depth of this crisis and the fact that I don't think there will probably be one forbearance of 3 to 6 months that will likely suffice to solve the problem. And I think that's the case, almost universally, across every hotel loan. No one is ready to solve it. And that may just have to come through continued pain and just watching this slowly crawl back. And so I just don't know when those legitimate discussions will -- they'll be ready to have. I don't know if that's after Forbearance 2.0, as people still realize here in a couple of months that there's still assets that have still low double digit, low double digit, 20%, 30% occupancy. And they're still treading water and still underwater. Is it then -- do they kick the can out just another 3 months or 6 months? Can we do this again? But at some point in time, fundamentally, every hotel loan in America will likely need to have some sort of restructuring of something. And I just don't know when that will happen. Obviously, we're -- we would love for that to be happening sooner rather than later. But I think the lenders are, by and large, and the servicers are hesitant to do that because they just -- that's a lot of work. That's a lot of, in some sense, risk that they're taking, because they just don't know the trajectory of the recovery. And again, they don't want to look silly as if they gave the borrower a really friendly deal, and then they look back and say, "Well, that was stupid, we gave them too much." And they're just not ready to do that yet.

So it's not just us. I mean, I think it's the case that every loan, every hotel loan in America is going to have some sort of need to be extended and some sort of restructuring done.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP & Senior Research Analyst [25]

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That makes sense. And then just on your $127 million of restricted cash, how much of that is held by lenders? How much is held by your managers? I think that the Remington portion? And then how would you get access to that money if you're not making your monthly mortgage payments? Can they can just kind of walk us through the mechanics of that and where that money is held specifically?

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Deric S. Eubanks, Ashford Hospitality Trust, Inc. - CFO & Treasurer [26]

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Yes. So I'd say that the vast majority of that is held by the lenders and lender-held reserves. Marriott does hold some of those FF&E reserves. And that's obviously just part of the negotiation with the forbearance because it is held by the lender. There are specific requirements in the loan docs in terms of getting reimbursed when we spend those CapEx dollars to get reimbursed from those. But obviously, now, we're trying to get access to those to use those funds for our operating shortfalls, which all of the brands have really waived their requirements of even having FF&E reserves. And any cash that's in an existing reserve can be utilized to fund operating shortfalls. So now it's just a question of getting there with the lenders, and that's a discussion that we're kind of having at the moment.

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [27]

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Yes. And that's kind of probably the key part of all of our forbearance agreements is, is being able to get access to those FF&E reserves. And I think -- I mean, generally speaking, the lenders, I think, are amenable to that. It's just what are the other kind of requirements or asset terms around that, that make it more difficult to work on. But we're getting there and communication is active with the lenders. And so we're just kind of chopping away and making some progress on it.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP & Senior Research Analyst [28]

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Got it. And then just last one for me on your preferred. What's your latest thought on why you might still or maybe not pay this coming quarter's dividend? And kind of where is your head at in terms of that piece of the capital stack today and that quarterly cash outflow?

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [29]

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Good question. The decision to pay the preferred in the first quarter was made for a pretty specific reason for us. At that time, Ashford Inc. had started the Ashford Securities platform and was setting up, in this case, it was Braemar, to do an offering that was out in the public market that we -- that Braemar had announced was going to be kind of a non-traded preferred paper. And that was something that, at some point in time down the road, could be an interesting part of the capital stack or interesting way to raise capital for Ashford Trust. And so as a result, since, at that time, we didn't know what the trajectory was here at Ashford Trust, and that was potentially a valuable capital raising option. We didn't want to do anything here in the short term to kill that option down the road. To suspend payment on preferreds, obviously, would be a detriment to that strategy and the story.

Now as we sit here today, the world has changed. As we sit here today, the Board is clearly aware of the cash needs we have of the business and the environment we're in. They have not declared or not declared the dividends. That will be decisions they may go into the -- as they normally do in the second quarter. But they are clearly aware of the current environment we're operating in. So I'm sure they will take that into account as considering what to do going forward.

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Operator [30]

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Our next question comes from Robin Farley of UBS.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [31]

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Great. I know you talked about the expectation that leisure business would come back first. Can you -- I don't know if you've quantified kind of what percent of your business is leisure and what percent is also drive-in business versus flying? I don't know if you have those percentages. And then just lastly, I guess, is the idea of selling assets in this environment, would that just, I guess, not address any issues with debt due on those properties, given the rates that like a distressed sale? Is that why that's kind of not on the table at this point?

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [32]

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Well, that's a good question. I mean, I'll -- let me answer the second one first. I mean as we sit here today, we actually, a couple of months ago, did kind of dangle out there a couple of assets to kind of see what was market pricing out there. And those assets came in, I think, generally, maybe 40% off of what we thought kind of pre-COVID-19 values were. And that was pretty significant and something where we didn't think that was a reasonable number. And so we kind of moved on from those alternatives.

As we sit here today, there may be a time where asset sales do make some sense. There may be times where there may be assets, if we do end up wanting to hand them back, we're working with the lender to team up for sale or that may be part of a restructuring of certain loans. We'll see. But -- and there's always a price, right? There's always -- if someone comes in with an offer that's too good to say no to, that's always possible. The reality is that with our loans, by and large, in default across the portfolio, it's unlikely that, to the extent that we sold an asset, that any of those proceeds -- net proceeds would come to us. They'd likely go to the lender just to pay down debt. Which, again, may be part of what we have to do in order to get the capital structure in a place over time to where we need it to be. But as we sit here today, our focus is clearly on managing our costs, working with our lenders to come to solutions. And as we make progress on that, if there are some asset sales that can make sense to help that and help position the portfolio, we'll do that.

In terms of the first question, I will say, I don't know if I've seen data that specifically breaks up drive-to versus fly to. I don't think we really track that. Like I said, as we did mention, we are about 80% transient and with a little bit of contract. But we are a predominantly a transient house. And we do have a pretty wide mix of both limited service and full-service assets that are transient houses. So at least as we look to the portfolio, there are, let's call it, if you take most of our limited service products and you add some of the other located full-service assets, I'm going to say you probably have, I don't know, 50 to 60 assets. It's maybe half the portfolio that have a material amount of drive-to traffic. And so it's substantive. It's definitely, I think, more than the vast majority of our peers in the industry who tend to have that more urban, more big box-type products. So I think we're pretty well positioned from that perspective.

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Operator [33]

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There are no further questions at this time. I'll turn it back to management for closing remarks.

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J. Robison Hays, Ashford Hospitality Trust, Inc. - President, CEO & Director [34]

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Thank you for joining today's call, and we look forward to speaking with you next quarter.

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Operator [35]

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Thank you. This concludes today's conference. All parties may disconnect. Have a good day.