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Edited Transcript of AHT earnings conference call or presentation 3-May-19 3:00pm GMT

Q1 2019 Ashford Hospitality Trust Inc Earnings Call

DALLAS May 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Ashford Hospitality Trust Inc earnings conference call or presentation Friday, May 3, 2019 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

* Douglas A. Kessler

Ashford Hospitality Trust, Inc. - President & CEO

* 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

* Tyler Anton Batory

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

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Presentation

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Operator [1]

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Good day, and welcome to the Ashford Hospitality Trust First Quarter 2019 Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Jordan Jennings. Please go ahead.

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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 of 2019 and to update you on recent developments. On the call today will be Douglas Kessler, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; Jeremy Welter, Chief Operating Officer. Your results as well as the 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 Regulation. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed 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 this 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 company's earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on May 2, 2019, 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 other information provided in the release. Also, unless otherwise stated, all reported results discussed in this call compare the first quarter of 2019 with the first quarter of 2018.

I will now turn the call over to Douglas Kessler. Please go ahead, sir.

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [3]

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Good morning, and thank you for joining us to discuss Ashford Hospitality Trust's first quarter results. I want to begin by providing an update on the success we're having with our ERFP initiative with Ashford Inc., then I'll review our financial results and other items.

Given our approximately 17% insider ownership of Ashford Trust, we believe we have a tremendous alignment with our shareholders, which encourages us to think and act like owners. Our strategies throughout our 16-year history have consistently focused on ways to create shareholder value.

Many of our diligent efforts have been economically transformational and successful over the years. We believe that the ERFP is one of these initiatives and will provide meaningful benefits to improve our competitive position as well as increase shareholder value.

As we have discussed previously pursuant to the ERFP initiative, Ashford Inc. has committed to provide $50 million to the company on a programmatic basis, equating to approximately 10% of each new investment to acquisition price to be used for the purchase of FF&E and properties owned by the company. We believe the ERFP has the opportunity to significantly improve returns on hotel acquisitions. The attractiveness of the ERFP is to make good deals, great deals. Since establishing the ERFP, we have already completed $406 million of high-quality acquisitions that have utilized the program, which equates to approximately 80% committed utilization of the pledged $50 million of ERFP funding. To date, we have received approximately $21 million of the $40.6 million that Ashford Inc. has committed to provide us for the 4 acquisitions under the ERFP.

In January, we acquired Embassy Suites New York Midtown Manhattan for $195 million. In connection with this acquisition, Ashford Inc. committed to provide us with approximately $19.5 million under the terms of the ERFP. We expect this newly-constructed 41-story hotel, ideally located near Bryant Park and Times Square to benefit from being the only Embassy Suite in the dynamic Manhattan market. Additionally, as our first direct hotel investment in New York City, we believe the recent positive changes in Manhattan's Hotel metrics point to a favorable timing of this addition to our portfolio. While this property is still ramping up operations having only recently opened in early 2018, the hotel performed exceptionally well during the first quarter. In March, the hotel's penetration index already achieved our underwriting target for the year. Looking ahead, we believe there is a significant upside at the property.

Additionally, in February, we purchased the Hilton Santa Cruz Scotts Valley in Santa Cruz, California, for $50 million. Our latest acquisition took advantage of the ERFP as an attractive location near the expanding tech market in San Jose and just minutes from Santa Cruz, one of northern California's most desirable beach communities. This property also benefits from being the only full-service Hilton-branded asset in the Santa Cruz market.

The acquisition was partially funded by the issuance of approximately 1.5 million OP units. The OP units were issued at a price of $7 per unit, which reflects an approximate 23% premium to yesterday's stock price. We also assumed a $25.3 million mortgage loan that bears interest at a fixed rate of 4.7% and matures in March of 2025. In conjunction with this transaction, Ashford Inc. provided us with $5 million as part of the ERFP. Year-to-date, the hotel's penetration index has already grown 2.8 percentage points and we're enthusiastic about the future performance of this asset.

We believe these acquisitions are highly favorable investments on their own. However, with the ERFP, the projected return should be even greater. I can assure you that our underwriting efforts continue to be focused, diligent and with the same high standards to improve our portfolio with the best assets for the best value. I strongly believe that the ERFP provides us not only with a competitive advantage but is also structured to enhance shareholder value.

Let me now turn to our first quarter performance. Our actual RevPAR for all hotels for the quarter increased 2.1%, while comparable RevPAR for all hotels increased 1.9%. For the first quarter, comparable RevPAR for all hotels not under renovation increased 2.7%.

For the first quarter, we reported AFFO per share of $0.26 and adjusted EBITDAre of $100.5 million. As for our balance sheet, we believe in the benefits of an appropriate amount of nonrecourse leverage to enhance equity returns. We also believe having floating rate debt has several benefits, including flexibility as well as being a natural hedge against our cash flows.

Over the past couple of years, we've been very active in refinancing the majority of our existing loans, both to improve the spreads compared to the prior loan terms and to extend our maturities. To that end, during the quarter we refinanced a mortgage loan of the Renaissance Nashville and Westin Princeton with a new loan that totaled $240 million and has a lower spread than the previous loan. Deric will provide more information on that refinancing shortly. With all our recent financing activity, we now have an attractive, well-laddered maturity schedule.

We also seek to maintain a high cash and cash equivalence balance between 25% and 35% of our equity market capitalization for financial flexibility. We note that this excess cash balance can provide a hedge during uncertain economic times as well as the requisite funds to capitalize on attractive investment opportunities as they arise.

As of the first quarter of 2019, our net working capital totaled $359 million, equating to approximately $2.89 per share, which represents a significant 51% of our current share prices as of yesterday's close.

We also continued to make progress with our investor outreach efforts, including organizing and hosting a Key West market tour in April that included several of our REIT peers' properties and management teams. The event was very well attended by investors and analysts. During the remainder of 2019, we will continue to get out on the road to meet with investors, communicate our strategy and the attractiveness of investment in Ashford Trust. We look forward to speaking with many of you during upcoming events.

Looking ahead, we have a high quality portfolio -- well -- and well-diversified portfolio. And we remain focused on accretive transactions as well as proactive asset management initiatives. We are committed to maximizing value for our shareholders as we focus on generating solid operating performance, continuing to seek investment opportunities and efficiently managing our balance sheet.

I will now turn the call over to Deric to review our first quarter financial performance.

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

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Thanks, Douglas. For the first quarter of 2019, we reported a net loss attributable to common stockholders of $48.7 million or $0.49 per diluted share. For the quarter, we reported AFFO per diluted share of $0.26. Adjusted EBITDAre totaled $100.5 million for the quarter.

At the end of the first quarter, we had $4.2 billion of mortgage loans with a blended average interest rate of 5.7%. Our loans were 9% fixed rate and 91% floating rate. All of our loans are nonrecoursed, and we have a well-laddered maturity schedule. Interest rate caps are in place for virtually all of our floating rate loans. And including the market value of our equity investment in Ashford Inc., we ended the quarter with net working capital of $359 million.

As of March 31, 2019, our portfolio consisted of 121 hotels with 25,552 net rooms. Our share count at quarter end stood at 124 million fully diluted shares outstanding, which is comprised of 102.2 million shares of common stock and 21.9 million OP units. With regard to dividends, the Board of Directors declared a first quarter 2019 cash dividend of $0.12 per share or $0.48 on an annualized basis. Based on yesterday's stock price, this represents an 8.5% dividend yield, among the highest in the hotel REIT space.

On the capital markets front, during the quarter, we refinanced our Aareal Capital Nashville Princeton mortgage loan with an existing outstanding balance totaling approximately $178 million and a final maturity date in June 2022. The new loan totals $240 million and has a 2-year initial term with 5 1-year extension options subject to the satisfaction of certain conditions. The loan is interest-only and provides for a floating interest rate of LIBOR plus 2.75%. The loan remains secured by the same 2 hotels, the Renaissance in Nashville Tennessee, and the Westin Princeton at Princeton, New Jersey.

In January, in connection with the acquisition of the Embassy Suites Manhattan, we entered into a $145 million nonrecourse mortgage loan. The loan is a 3-year initial term with 2 1-year extension options, subject to the satisfaction of certain conditions. The loan is interest only with a rate of LIBOR plus 3.9%. In connection with the closing of the Hilton Santa Cruz Scotts Valley acquisition, we assumed an existing nonrecourse mortgage with a balance of approximately $25.3 million. The loan bears interest at a fixed rate of 4.7% and matures in March of 2025.

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 grew 1.9% during the first quarter of 2019. Comparable RevPAR for those assets not under renovation grew 2.7%. This growth represents a 180 basis point gain and a 40 basis point gain relative to the upper upscale class nationally in the total United States, respectively.

During the first quarter comparable hotel EBITDA grew $2.3 million or 2.1%. The government shutdown at the beginning of the quarter impacted January and February, leading to approximately $1.3 million less in revenue. Easter occurring later in April 2019 benefited March this year relative to 2018.

In January, we acquired the recently opened 310-room Embassy Suites New York Midtown Manhattan. Following this opening in January 2018, this hotel's performance has continued to ramp due in large part to its proximity to the Hudson Yards redevelopment Times Square, Penn Station and Bryant Park. It is also the only Embassy Suites Hotel in Manhattan.

As I've highlighted in the past, our property manager, Remington, has a strong track record of driving results following our acquisition of both independent and franchised hotels, and this hotel has not been an exception as comparable RevPAR during the first quarter grew 43.4%. This RevPAR growth represents 5,050 basis points and 4,920 basis points growth relative to its market and hotel competitors, respectively. We're excited about the outlook for this hotel, and we believe that significant upside remains at this property. One of the first initiatives is to convert 40 king rooms to double queen rooms during the third quarter in order to capitalize on the premium pricing of multi-bed hotel rooms in Manhattan.

During 2019, we will continue to invest in our portfolio to maintain competitiveness. In total, we estimate spending approximately $135 million to $145 million in capital expenditures during the year. This estimate is down significantly from what we spent in 2018. We've completed guestroom renovation in several hotels, including the Embassy Suites Crystal City, Hyatt Regency Coral Gables, along with a few select properties. We've also completed a lobby renovation at the Marriott Crystal Gateway. We continue to work on guestroom renovations at the Marriott DFW Airport and a number of other hotels. We're continuously identifying opportunities to create value throughout the portfolio. To that end, the first phase of the Renaissance Nashville redevelopment is complete and the second phase is underway, which will include the build-out of additional meeting space. Furthermore, we have identified accretive opportunities to add additional keys within our portfolio. We'll be adding 4 keys at the Hilton Boston Back Bay and have added 2 keys to the Embassy Suites Crystal City and one key to the Hyatt Regency Coral Gables.

Throughout 2018, I have discussed the impact of renovations on our portfolio. I'm now excited to discuss the positive benefit experienced from some of these transformational renovations and how they have positioned us for long-term success. I'd like to turn to our largest DC area hotel, the Marriott Gateway in Arlington, Virginia. During the first quarter, we completed the final stages of a major renovation, completing the refurbishment of the remaining portions of the lobby. We also finished painting the exterior of the building and adding pavers and lighting to the driveway porte cochere. But the ongoing renovation hotel EBITDA flow-through during the first quarter was a robust 66%. Major renovation at one of our largest hotels positions us well going forward, especially considering Amazon HQ 2's increased market presence is expected to significantly add overall room demand in this market.

In addition to our 2 acquisitions during the first quarter, the Embassy Suites Midtown New York and Hilton Scotts Valley Santa Cruz, I want to highlight the outstanding performance of our fourth quarter acquisition, the La Posada de Santa Fe, which is a hotel in Marriott's Tribute Portfolio.

During the first quarter, our initial quarter of ownership, comparable RevPAR grew 22% driven by 18.1% augmented growth. This RevPAR growth represents 1,890 basis points growth relative to the Santa Fe upscale and above submarket. Through the first 5 months of ownership, comparable RevPAR at La Posada Santa Fe has grown 16.1%. We're not only able to realize strong revenue growth, but we also saw a 7 percentage-point increase in hotel EBITDA margin with 51% hotel EBITDA flow-through. We're excited about the early successes of our recent acquisitions and the future of our portfolio. That concludes the prepared remarks.

And we will now open the call for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll go first to Bryan Maher with B. Riley FBR.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [2]

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A couple of questions for me, and maybe this one is for Jeremy. On the CapEx that you talked about, the $135 million to $145 million, how much of that would you consider maintenance versus project?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [3]

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I'm sorry, what?

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [4]

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Maintenance CapEx versus project or ROI project-type CapEx?

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

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Most of it is probably going to be maintenance CapEx, it's just part of the business we're in. We don't really break that out. We can -- we'll probably start doing that on a go-forward basis, but most of it is going to be substantially over one-way maintenance CapEx.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [6]

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Okay. And then other than Nashville, are there any other big projects kind of on the horizon maybe that you would start in late 2019 or in 2020?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [7]

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Not anything like Nashville. We've had meeting space down for so long. We've got some renovations we disclosed that we'd start in the fourth quarter on the renovation schedule that we provide, and those are mostly guestroom renovations at W Minneapolis Hotel. We have some -- we do have some meeting space work that we're going to do at Ritz-Carlton in Atlanta, but it won't be anything near what we did in Nashville, that's just a refresh. Most of it is mainly just refresh CapEx.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [8]

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And then when you look at our RevPAR outperformance in the first quarter of '19 over '18, how much of that would you attribute to renovations that were completed in '18 that are now not going on in 2019? Is it 50 bps, is it 25 bps, what do you think that, that outperformance measurement is?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [9]

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That's -- I haven't gone back actually to calculate that but if I were to guess, I would say somewhere between 50 to 100 basis points.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [10]

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And then maybe for Douglas. When you're looking at the acquisition pipeline and the ERFP, first of all, are you guys -- have you started any further discussions with Ashford Inc. to grow the size of ERFP from $50 million to $100 million? And then secondarily, kind of how deep is your pipeline now versus historically, and historically, being over like the last year or 2?

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [11]

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Bryan, so you highlighted an interesting point, which is the ERFP agreement contemplates potential increase in size of the ERFP to $100 million by mutual agreement. We've spent 80%, we're committed 80% of the ERFP, so we still have a little bit ways to go and I think we'll cross that bridge when we get there as we continue to seek out accretive acquisitions for the platform. So a little too early to having the discussion around your first question. As for your second question about transaction pipeline, I'd say that overall, for the industry, we're seeing a decent flow of single assets. In fact, the data would show that volume was up about 1.5% for single assets, but there are a lot fewer portfolios out there in the market over the same time a quarter ago, it's down substantially, almost 75%. And yet the total dollar volume this quarter -- this year over same quarter last year for the whole industry is down about 31%, mainly due to the lack of portfolio activity. And I think all this is directionally consistent with our specific focus on the upper upscale full-service segment.

I think it's worth noting that cap rates per -- the average cap rates, I'd say, for the type of assets we're seeking are down about 67 basis points. So showing at least from the trades that have happened pretty strong price competitiveness and that the per-key prices have also traded up mid- to high-teen percentages. So it's a -- it's a strong market in terms of pricing movement. I think one comment I'd say is there seems to be a little bit more upside to the increase in pricing above the BOVs for the higher-quality assets and maybe a little bit more aggressive BOVs than what's actually coming out for the less demanded assets by buyers. But overall, I'd say prices as indicated by the data I shared with you are pretty firm. I think people are being a little bit more conservative on underwriting but delaying recessionary forecast, and I think deals in general are taking a little bit longer to close in this competitive bidding transaction market where bids may be going to multiple rounds. So for us, I think I'd conclude by just saying that we've had great success with the 4 deals we bought over the past year. The ERFP has worked I think substantially to our benefit to increase shareholder value. It gives us a competitive advantage. We're going to continue to remain disciplined, we're underwriting deals and the objective is to make good deals, great deals.

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Operator [12]

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And we'll go next to Chris Woronka with Deutsche Bank.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [13]

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I want to ask, a lot of your peers talked about seeing some benefits related to the Marriott Starwood and that they're coming through in a more meaningful way. And I know some of that relates to managed hotels, which wouldn't apply as much do you guys, but even on the franchise side things like OTA fees. Are you seeing those come through more meaningfully this year?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [14]

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Yes, we are. We had really good flow-throughs for our managed portfolio. They definitely stood out in the quarter. And there's a pretty good mix of a lot of reasons why that occurred. Some of it is because of we had some underperformance in the prior year, last year, in some of those hotels given the disruption of the integration, but we're certainly seeing a lot of benefits this year on the cost side.

On the revenue side, we are also gaining share. We're gaining quite a bit of share across the portfolio. We had overall -- our overall portfolio, if you take out Embassy Suites Manhattan, which is ramping up, there was 180 basis points growth in market share versus our direct competitive sets, which is I think fantastic for a portfolio of this size for the first quarter. And I would say that the Marriott managed portfolio definitely stood out to be well north of 200 to 250 basis points. And so they were the outperformer for us in the first quarter.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [15]

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Okay, great. That's helpful. And then I just want to come back to the Embassy Suites New York, congrats on the early success there. Does that make you -- do you guys have maybe a different view of the market? I know it's a very specific asset and the reason you guys bought it, but we've heard some mixed things from others about New York. Do you guys have a different view, if something else similar came up would you be willing to go deeper in the market?

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [16]

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Well let me just tell you why we bought this asset. You're right, this was a unique opportunity given brand-new, be simple, very efficient box, the only brand of this type in the market opportunity for Remington to take over management. We thought that it would ramp up well, which the early performance indicators clearly highlight that. And as for our macro view on New York, I would say that we're extremely pleased with this acquisition and we're looking forward to its continued performance and I think a lot of it has to do with what we've started to see in New York.

Now granted the first quarter of 2019 was a bit soft, but our property was up 43% in terms of RevPAR and our index was up 46%. So when I look at that I'd say this is clearly a great asset in its specific market. And so we're excited about that. When we look at what people were most concerned about in New York, it tended to be the supply pipeline. And I think sometimes that supply pipeline has been a little bit overstated. I think things are taking longer to get developed in New York, it's -- but nevertheless, the pipeline was fairly strong with, I'd say, about 9.1% new supply in the previous 13 to 24 months, but that's tapered off substantially. And when we look at the past 6 months, our data shows there was only about 5.2%.

And according to Smith Travel Research, New York finished 2018 with 3.4% RevPAR growth and the forecast is -- that was in 2018, and the forecast is for continued positive RevPAR growth in 2019. So I think that's a pretty good setup in one of the nation's hottest hotel markets with a brand new asset of this type and quality, and that's why we made the investment that we made and plus with the benefit of the ERFP money, it just made this transaction even better. As for other opportunities in New York, it took us 16 years to find this asset that fit perfectly with what we were looking for. I can't really comment on what we might find in the future in New York, but we're pretty patient and disciplined when it comes to thinking about investment activity in Manhattan.

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [17]

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I would add that the ramp has exceeded our expectations. In terms of transition, it takes about 30 to 45 days but just within 2 months, we basically achieved our full year underwriting for RevPAR index penetration, which we mentioned in the prepared remarks, which is fantastic. And one of the things that we really like is that Remington does a fantastic job with the Embassy Suites brand. So we think there's a lot of upside for us for this particular asset.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [18]

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Okay. Great. And I just wanted to ask on thoughts service. I think we still see a pretty big disconnect in private and public valuations, if not widening. Has your guys' calculus changed maybe since last quarter in terms of being closer to potentially selling some of the select serve you've talked about in the past?

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [19]

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I think you're right in terms of the valuation. I think there is a pretty substantial disconnect between private and public market values. There's definitely a private market appetite for these types of assets. And when it comes to sales, I'd say our perspective on sales is more holistic. It's not anything other than we're going to be opportunistic when it comes to sales with a focus on trying to upgrade the portfolio, mitigating low ROI CapEx assets, removing lower RevPAR assets and just having an overall positive impact on leverage and cash flow within our portfolio. And to the extent we sell anything, it's not just a focus on select-service hotels, it could be other assets in our portfolio.

And I think if you look at the history of what we have sold over the past 3 years, it really has been a mix of both full-service and select-service hotels at cap rates that were materially better than where our portfolio overall traded and yet, if I recall correctly, I think the average RevPAR on those hotels was around $80. So I think that significantly lower RevPAR, and maybe that RevPAR number could be a little bit off, but it was materially lower RevPAR than our overall portfolio. So I think an indication of value of the assets that we have in our portfolio and I think the fact it indicates our ability to be very opportunistic in selling the right type of assets at the right time to the right buyers and getting the maximum proceeds that we can from those assets. So I think our track record speaks for itself in terms of being disciplined and thoughtful in regards to looking at potential dispositions within our portfolio. So I think it goes beyond just your question on select-service assets.

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Operator [20]

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Our next question comes from Tyler Batory with Janney Capital Markets.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - VP of Travel, Lodging and Leisure [21]

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Just wanted to follow up on one of the earlier questions just about your RevPAR outperformance in the quarter. How did results come in versus your internal budgets and expectations? And are there any notable trends with resect of demand that are worth highlighting specifically? Any differences as far as what you're seeing on leisure versus corporate travel?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [22]

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Yes, this is Jeremy. I'll take that. I think it exceeded what we thought it was going to be for the quarter. No real trend in terms of substantial changes in demand. It's a little bit difficult because we did have a big change in mix in the quarter because we had the main space back in our largest group hotel, which is Nashville Renaissance, we had a lot more group business in the quarter than what we did prior year. But when you look at it, we were definitely impacted by the government shutdown. So if that didn't occur, we'd have even better RevPAR for the quarter. And then March was fairly solid for us as well.

So in terms of other trends, one thing that I do want to point out in terms of just kind of distribution is that we are seeing really for the first time in quite some time, that we're having declines in our OTA channels, which I think is very positive. We are seeing growth in our direct channels, our branded channels and direct website channels. So we're positive about that. But there's not really any other trends in terms of major change in demand or mix that we can provide any insight at this time.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - VP of Travel, Lodging and Leisure [23]

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Okay. Great. And then how about on the cost front? Have you changed your expectations for labor expenses or any other costs?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [24]

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No. I don't think -- the one thing is -- insurance is -- continues to be difficult for us, we're in the market right now pricing our program, and that renewal will hit in June of this year. We had a decent sized increase last year that provided some headwinds going into this year. But there's been a lot of issues, not necessarily with our portfolio or assets, but just the market in general and capacity of the insurance market, which has been challenging.

So that's something that I'm a little concerned about as we kind of go into the renewal but that's not going to be a huge overall cost for us, but it's probably going to be potentially a decent percentage increase. And then labor continues to be a challenge for us. Right now, our franchised assets, we pulled the data and their labor and benefits combined are up 3.8% we're projecting for the year, which is certainly higher than what we'd like to see.

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [25]

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Just to add onto that just from a macro perspective, I'd say that our comparable EBITDA margins were down 25 bps, which we feel generally pretty good about in light of some of the headwinds that Jeremy highlighted, the insurance and the labor cost. And that was against the backdrop of 2.9% increase in our hotel revenue in which there was a slightly more disproportionate amount related to food and beverage, which obviously has lower margins associated with that.

So I'd say that everyone is in the same boat here with respect to labor costs and I think everyone's probably experiencing the cyclical shift in insurance costs given what happened across the country over the past year. And so I think we're doing a very good job of holding margins despite some of those headwinds.

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Operator [26]

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(Operator Instructions) And we'll go next to [Amanda Sweitzer] with Baird.

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Unidentified Analyst, [27]

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I wanted to start with a higher-level question. Can you talk about how the return profile of CapEx spending has maybe changed over the past year? And then how do you think about the relative attractiveness of ROI projects today versus some of the returns you're seeing in the acquisition market?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [28]

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This is Jeremy, I'll take that. We have -- we continue to mine our hotels for opportunities and what we're finding as we've - we're doing new rooms renovation, we're finding opportunity to add new keys here and there. We've been moving some of our lounges down to the main level, which is a lot of set keys and some other opportunities as well. I mentioned, we just recently bought Embassy Suites Manhattan, and they are -- there's a big opportunity to add double queens, which is premium in New York, and so that's something that we're going to do as well. Most of the other ROI projects we've done, we've already implemented in the assets that we've owned. We've been very, very creative in how we have approached that and what we've done.

So I don't see a ton of value added CapEx that we see in the horizon within the trust portfolio, but as it relates to just CapEx spend in general, I do think that we probably define ROI a little bit different than our peers. I think our peers take a much looser definition of what is truly ROI versus what we view as brand standards and continued upgrades that we have to do to stay competitive to be in the business, whether it's taking stuff out, putting showers in, that's a nice return on investment and the guest is happier, I don't see that we're going to get a lot of return on that incremental spend.

So a lot of what we see that we're doing is just to stay competitive, to be very competitive. I think we've done a great job at that. If you look over the last -- with the exception of last year, the previous 4 years, we gained market share. So 4 out of 5 years, we gained market share. We gained a tremendous amount of market share in the first quarter, which I'm very, very proud of. And so we're on track, hopefully, to gain 5 in the last 6 years, which I think is amazing that we accomplish that. And I think that's a reflection of how we approach pretty prudent and diligent CapEx spend within our portfolio.

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Unidentified Analyst, [29]

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That's helpful. And then just as a housekeeping question, maybe for Deric. Can you talk about how the Embassy Suites New York impacted the overall portfolio during the quarter, both in terms of the RevPAR growth margin and then absolute EBITDA contribution, just given that, that hotel was ramping?

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Deric S. Eubanks, Ashford Hospitality Trust, Inc. - CFO & Treasurer [30]

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Sure, [Amanda]. Thanks, this is Deric. So as we mentioned, the total portfolio had 1.9% comparable RevPAR growth. And if you back out New York, the portfolio would have been a 1.5%, which we think is still attractive results there. In terms of margins, total portfolio EBITDA margin, comparable EBITDA margin was down 25 basis points. If you pull out New York, it would have been down 31 basis points. So it affected margins there by 6 basis points.

And then in terms of impact overall EBITDA growth, total portfolio comparable hotel EBITDA growth was up $2.3 million. And if you pull out New York, it would've been up $1.5 million. So still attractive results for the overall portfolio even when you pull out New York, which obviously had a great quarter.

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [31]

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And I'll add on just market share in general for the first quarter, I already mentioned that without the Embassy Suites Manhattan our market share, we'd gain 180 basis points versus our competitive sets. If you include the Embassy Suites on the entire portfolio, that goes up 30 basis points to 210 basis points on market share gains.

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Operator [32]

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We'll go next to Robin Farley with UBS.

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Unidentified Analyst, [33]

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This is [Jake Westfall] on for Robin. Just a quick question, can you give an update on your supply outlook, and specifically around the select service portfolio where the industry supply forecasts to be a little higher going forward?

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [34]

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Sure. It's Douglas, and then Jeremy will make a few comments. I think when you look at our major markets, we've got a pretty good supply situation. Obviously, the industry overall is tapering off on the supply pipeline, but most of what's coming in as I think you're alluding to is in the select service segment. When you look at our major markets in terms of, let's say, revenue -- large markets by revenue, in D.C., we're seeing 1.2%, 1.3% of new supply growth over the next couple of years, Atlanta next at just over 2% supply growth. The San Jose, Santa Cruz market, next in line would be less than 1.5% supply growth. Boston in the 3% range. Nashville, one of our larger markets, has had new supply coming in, but it's also one of the more dynamic markets with lots of demand coming in as well.

And so that market has somewhat continued to defy gravity in terms of RevPAR performance. So overall, I think one of the benefits we have in our portfolio is I do believe we have one of the most geographically diverse footprints and as a result of that, we get sort of the ebb and flow of supply and new demand coming in, and so we're very happy with our footprint in light of what seems to be a market that overall is showing a reduction or at least a cresting of supply in the near term.

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [35]

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I don't really have anything more to add than what Doug said.

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Unidentified Analyst, [36]

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Okay. And then maybe could you just talk about the strong F&B performance? What were some of the drivers in the quarter and kind of a what trends are you seeing and expect going forward?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [37]

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Yes. We had an increasing group of business for the quarter and a lot of that actually is because of the Nashville Renaissance. If we broke out that property, I believe they were up 30% in total revenue for the quarter, and so that was a big impact.

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [38]

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Yes. About half of the dollar growth in F&B revenue was a result of the Renaissance Nashville having its meeting space back.

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Operator [39]

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And as we have no further questions, I'd like to turn the conference back over to management for any additional or closing remarks.

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [40]

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Thank you for joining today's call, and we look forward to speaking with you again next quarter as well as seeing you in New York at NAREIT.

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Operator [41]

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And ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect.