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Edited Transcript of AHT earnings conference call or presentation 1-Mar-19 4:00pm GMT

Q4 2018 Ashford Hospitality Trust Inc Earnings Call

DALLAS Mar 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Ashford Hospitality Trust Inc earnings conference call or presentation Friday, March 1, 2019 at 4:00:00pm 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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* Arpine Kocharyan

UBS Investment Bank, Research Division - Director and Analyst

* Chris Jon Woronka

Deutsche Bank AG, Research Division - Research Analyst

* Michael Joseph Bellisario

Robert W. Baird & Co. Incorporated, Research Division - VP and Senior 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, ladies and gentlemen, welcome to the Ashford Hospitality Trust Fourth Quarter 2018 Year-end Results Conference call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Jordan Jennings, Investor Relations for Ashford Hospitality Trust. Please go ahead, sir.

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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 fourth quarter and full year 2018 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. The results, as well as a 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 that are being make 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 conference 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 February 28, 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 fourth quarter of 2018 with the fourth quarter of 2017.

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 fourth quarter progress. I want to begin with providing an update on the success we're having with our ERP initiative with Ashford Inc., then I'll review our financial review results and other items.

Given our approximately 17% insider ownership of Ashford Trust, we believe we have 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 ERP is one of these initiatives and will provide meaningful benefits to improve our competitive position as well as increased shareholder value.

As we've discussed previously pursuant to the ERP initiative, Ashford Inc. is committed to provide $50 million to the company on a programmatic basis, equating to approximately 10% of each new investment's acquisition price to be used for the purchase of FF&E and properties owned by the company. We believe the ERP program has the opportunity to significantly improve returns on hotel acquisitions and benefit us by effectively expanding cash available for future investment or other purposes. The attractiveness of the ERP is to make good deals, great deals. The existence of this program is also advantageous given the improvement in deal flow for properties that fit our focused investment criteria of upper upscale, full-service hotels. A very competitive bidding equity environment for acquisitions today, we see this program providing us with a significant advantage to win deals with accretive returns. We intend to be successful on our efforts as we balance expected returns, underwritten growth and our cost of capital. Since establishing the ERP, 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 ERP funding.

To that end, in October, we completed the acquisition of the 157-room La Posada de Santa Fe in Santa Fe, New Mexico for $50 million. The purchase of La Posada was the company's second hotel acquisition to benefit from the ERP with Ashford Inc. committing to fund $5 million. The acquisition increases our ownership presence in a very attractive Santa Fe market. With its strong Marriott brand affiliation and high-quality amenities, La Posada is positioned as one of the leading properties in the lodging market with excellent demand and supply characteristics. The hotel performed exceptionally well during the fourth quarter with RevPAR index growth of 9.8% and 7.3%, respectively, since we acquired the property. Additionally, Remington Lodging, who also manages our Hilton in Santa Fe, took over management of the property upon completing the acquisition. And we expect to realize significant value-add operational synergies from Remington's management of both properties.

Our momentum carried into 2019, when, in January, we acquired the 310-room Embassy Suites by Hilton New York Midtown Manhattan for $195 million. In connection with this acquisition, Ashford Inc. has committed to provide Ashford Trust with approximately $19.5 million under the terms of the ERP. We expect this newly constructed 41-story hotel ideally located near Bryant Park and Times Square to benefit from being the only Embassy Suites in the dynamic Manhattan market. Additionally, as our 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. Having recently opened in 2018, this property is still ramping up operations. We believe there are significant upside at the property, and we expect the ERP contribution to this investment will significantly increase the returns for our shareholders.

Additionally, this week, we purchased the Hilton Santa Cruz Scotts Valley in Santa Cruz, California, for $50 million. Our latest acquisition to take advantage of the ERP has 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 31% premium to yesterday's stock price. We also assumed $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. has committed to provide us with $5 million as part of the ERP.

We believe these acquisitions are highly favorable investments on their own. However, with the ERP, the returns 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. We strongly believe that ERP provides us not only with a competitive advantage, but it is also structured to substantially enhance shareholder value.

Let me now turn to our fourth quarter and full year performance. Our actual RevPAR for all hotels for the full year increased 1%, while comparable RevPAR for all hotels during the fourth quarter decreased 0.6%. For the fourth quarter comparable RevPAR for hotels not under renovation increased 0.6%. For the fourth quarter, we reported AFFO per share of $0.18, and we reported adjusted EBITDAre of $89.8 million. For the full year, AFFO per share was $1.26, and adjusted EBITDAre was $411.5 million.

As for our balance sheet, we believe in the benefits of an appropriate amount of nonrecourse leverage to enhance equity returns. Over the past couple of years, we've been very active in refinancing majority of our existing loans, both to improve the spreads compared to the prior loan terms and to extend our maturities.

We also seek to maintain a high cash and cash equivalents balance between 25% to 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 fourth quarter of 2018, our net working capital totaled $398 million equating to approximately $3.29 per share, representing a significant 61% of our current share price as of yesterday's close.

We continue to make progress on our investor outreach efforts, and during 2019, we intend to get out on the road to meet with investors to communicate our strategy and the attractiveness of an investment in Ashford Trust. We look forward to speaking with many of you during the upcoming events.

Looking ahead to 2019, we have a high-quality, well-diversified portfolio. And we remain focused on accretive transactions as well as proactive asset management initiatives. We're 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 fourth 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 fourth quarter of 2018, we reported a net loss attributable to common stockholders of $65.4 million or $0.66 per diluted share. For the full year of 2018, we reported net loss attributable to common stockholders of $169.5 million, or $1.75 per diluted share.

For the quarter, we reported AFFO per diluted share of $0.18 and for the full year of 2018, we reported AFFO per diluted share of $1.26. Adjusted EBITDAre totaled $89.8 million for the quarter, while adjusted EBITDAre for the full year was $411.5 million.

At the end of the fourth quarter, we had $4 billion of mortgage loans with a blended average interest rate of 5.8%. Our loans were 9% fixed rate and 91% floating rate. All of our loans are nonrecourse, and we have a well laddered maturity schedule. Interest rate caps are in place for virtually all of our floating-rate loans. Including the market value of our equity investment in Ashford Inc., we ended the quarter with net working capital of $398 million.

As of December 31, 2018, our portfolio consisted of 119 hotels with 25,060 net rooms. Our share count at year-end stood at 121 million fully diluted shares outstanding, which is comprised of 101 million shares of common stock and 19.9 million OP units.

With regard to dividends, the Board of Directors declared a fourth quarter 2018 cash dividend of $0.12 per share or $0.48 on an annualized basis. Based on yesterday's stock price, this represents a 9% dividend yield, among the highest in the hotel REIT space.

On the capital markets front, during the quarter, we completed a $25 million property level mortgage financing for the La Posada de Santa Fe. The loan is a 2-year initial term with 3 1-year extension options subject to the satisfaction of certain conditions. The loan is interest only with a rate of LIBOR plus 2.55%. Subsequent to quarter-end, in January, in connection with the acquisition of Embassy Suites, Manhattan, we entered into a $145 million nonrecourse mortgage loan. The loan has 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 the balance of approximately $23.5 million. The loan bears interest at a fixed rate of 4.7% and matures in March of 2025. We also issued approximately 1.5 million OP units to the sellers at a price of $7 per unit.

This concludes our financial review. 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 0.6% during the fourth quarter of 2018. However, this performance represented a 20 basis point gain relative to our hotel's competitors. Comparable RevPAR for hotels not under renovation grew 0.6% during the quarter. For the year, comparable RevPAR for the entire portfolio grew 0.1%.

Holiday shifts did not significantly impact results during the fourth quarter and the government shutdown led to minimal impact in December. However, our portfolio did experience a large downward year-over-year impact from the markets that experienced a boost last year from hurricane-related business, which were Houston, Miami, Orlando, Tampa and Atlanta.

Before highlighting some of our results for the fourth quarter, I want to address the impacts felt from the government shutdown. While we do not see much impact during the fourth quarter, the government shutdown is certainly playing a more prominent role during the first quarter of 2019. We own 9 hotels in the Washington, D.C., Maryland, Virginia area, and Washington, D.C. area ranks first in terms number of rooms and hotel EBITDA in our portfolio. Currently, the estimated impact of the government shutdown is north of $1 million as comparable RevPAR for our Washington, D.C. area hotels during January decreased by 12.3%. Though negligibly affected by the government shutdown, our fourth quarter RevPAR was affected by the midterm elections and renovations at our 2 largest D.C. hotels, Marriott Gateway and Embassy Suites Crystal City. Excluding D.C., our entire portfolio's comparable RevPAR would have been positive for the quarter.

Throughout 2018, I've discussed the impact of renovations on our portfolio. I'm now excited to discuss a few of these transformational renovations and how they are positioning us for long-term success. Since I was just discussing Washington, D.C., I would like to turn to our largest D.C. area hotel, the Marriott Gateway in Arlington, Virginia. We're in the final stages of a major renovation completing the last remaining ballroom to Arlington ballroom, the pre-function space and the public restrooms. The remaining portions of the lobby have also been renovated. The ongoing final items are painting the exterior of the building and adding pavers and lining to the driveway and porte cochere. This major renovation at our largest property, in terms of the room count, will position us well going forward. With the announcement by Amazon that Crystal City will be their second headquarter location, we're even more enthusiastic about this hotel's future operations, given its proximity to Amazon's HQ2. Additionally, with 2 other sizable hotels in Crystal City, we have over 1,200 rooms in this dynamic and growing market.

Next, I would like to discuss the Renaissance Nashville, our largest hotel in terms of total hotel revenue. The first phase of the comprehensive first floor restaurant and lobby renovation was completed in September, including the successful opening of the new restaurant, Little Fib. During the fourth quarter, food and beverage revenue increased by $1.3 million, with food and beverage departmental profit increasing by $810,000 or 245%. The second phase of the lobby renovation was completed in January of this year, including the opening of the market, coffee bar and quick service food outlet. The final phase of the remaining space renovation in the former Nashville convention center space is scheduled for completion in the third quarter of 2019 and includes an additional 10,000 square feet within the new Fifth + Broadway development adjacent to the hotel. Additionally, the presidential suite renovation has been completed.

Performance during the fourth quarter and throughout 2018 has been impressive, given the ongoing renovation. During the fourth quarter comparable RevPAR grew 1.1%, representing growth of 120 -- 110 basis points relative to the hotel's competitors and the Nashville CBD upscale and above chains submarket, respectively. Hotel EBITDA grew $890,000 or 17.5% with hotel EBITDA flow-through of 54%. For the full year 2018, hotel EBITDA flow-through was 67%. We believe that with the Marriott Gateway and the Nashville Renaissance, our 2 largest hotels in terms of rooms and total hotel revenue, coming out of comprehensive renovations, they are well positioned for success within 2 of the country's top markets.

The last phase of renovation, I'd like to discuss is the Ritz-Carlton Atlanta downtown. The $18 million guestroom renovation commenced in February 2018, with a significant portion of the work completed by the end of the fourth quarter. Despite the ongoing renovation, during the year, comparable RevPAR grew 1.5%. The new rooms product has allowed us to drive rate, which increased 4.1% in the fourth quarter. This RevPAR growth represented a 570 basis point increase relative to the Atlanta luxury class market. This solid performance highlights our affiliate Premier Project Management's strategic approach to renovations and their project management program, which incentivizes the project managers to minimize RevPAR index impact during the renovation. All work at the property was finalized in January 2019, 10 days prior to the Super Bowl. Completion prior to the Super Bowl allowed guests to enjoy brand-new guestroom experience, while maximizing revenue for the property during this high-demand event.

During the roughly year long project, only about 2 floors or 45 rooms were out of order at any given time. Guestroom upgrades include new soft goods, case goods and shower conversions for the king rooms. We also expanded the club lounge by 320 square feet, increasing its seating capacity by 25. The initial response from our guests has been overwhelmingly positive. On another note, by the end of 2018, J&S Audio Visual was in 13 of our hotels, including 3, I just mentioned: Marriott Gateway, Renaissance Nashville and Ritz Carlton Atlanta. Results from integrating J&S into our hotels have been positive, with average revenue per group room night up 21% and average customer satisfaction scores up 15% since the transition occurred from the prior AV provider, highlighting J&S' incredible levels of services. We will continue to work to get J&S into more of our hotels.

During 2019, we will continue to invest in our portfolio to maintain our competitive position. In total, we estimate spending approximately $130 million to $145 million in capital expenditures during the year, which compares very favorably to last year. This will primarily be comprised of guestroom renovations at the Marriott DFW Airport, Fairfield Inn & Suites Kennesaw, Embassy Suites Crystal City, Hilton Garden Inn, BWI Airport, Hyatt Regency Coral Gables and Hampton Inn Buford.

Additionally, we are continuously identifying opportunities to create value throughout our portfolio such as adding 4 KEYS in Hilton Boston Back Bay, 2 KEYS at the Marriott Bridgewater as well as capitalizing on projects to reduce energy consumption.

That concludes our prepared remarks, and we will 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) We'll take our first question 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 [2]

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First, to start off, and Jeremy, I think, you touched on this in the opening remarks. But I'm just curious if you can provide a little bit more detail on this. When we look at your hotels, ex renovations for the quarter and the year, it looks like you lag some of your peers in the broader U.S. hotel market. So I'm just trying to understand what exactly is driving that. So can you talk a little bit more and expand on your RevPAR index, for both the year and the quarter? And I'm also just curious how RevPAR for the fourth quarter came in versus your internal expectations?

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

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Sure. I can take that. For the year, we lost market share, about, call it, maybe 0.7%, and then, for the quarter, we were up 20 basis points. As for the fourth quarter, we actually outperformed our competitor sets, but for the year, we did lose share. And I can talk to you that a little bit, but as you know that the previous 4 years, for this portfolio, we gained market share. And so this is the first share loss that we had in the last 5 years. And one of those reasons is that we had a change in our team. The Head of our RO, Revenue Optimization, actually was promoted to oversee Remington, and so we had to backfill some of those positions. So we've got that team in place, and I can tell you that, we've got a lot of momentum heading into this year from a market share perspective. So I'm pretty optimistic that we should see some share gains on a go-forward basis. As it relates specifically to the fourth quarter, there are a lot of moving parts that I kind of want to walk through one of which is, D.C., we've got a large D.C. -- presence in D.C. Election years are always tough for D.C., as you know. So that did weigh in on the quarter. It wasn't the government shutdown, but it was just the impact of the midterm elections; plus we had some heavy renovation activity at Marriott Crystal City Gateway that displaced a lot of revenue because we had our ballroom out. Aside from that, you can look at the markets that were down. Miami was down quite a bit. It was down, call it, north of 15%. And when you look at the quarter of 2017 -- fourth quarter of 2017, it was up 16%. And so the comparable there is related to all the good business that we got associated with Hurricane Irma, which as you know, hit in the fourth quarter of 2017 -- I guess, the -- sorry, the third quarter of 2017, but created a lot of long-term good business associated with recovery efforts. And so we had a decent amount of pickup in markets like Miami, Houston, Atlanta as well as some other Florida markets. And specifically on Houston, we were down double digits in the fourth quarter of 2018, but when you wind back the clock to the fourth quarter of 2017 that market was up 20%. And so it's just some really difficult comps associated with some of those markets that benefited from the hurricanes. And obviously, Houston was a different hurricane than Irma, but there was a lot of good business that we had to pickup that we had in the fourth quarter associated with those -- with that business. Does that help?

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

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Yes. No, it's very helpful. I appreciate all that color. And then second question I had just on the Embassy Suites, Manhattan. Can you talk a little bit more about the upside potential of that property? And certainly, we see the better New York City RevPAR trends, but it still seems like a tough market from an operations perspective. So can you speak to what your expectations are for labor and managing expenses in that market?

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [5]

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Sure, Tyler. It's Douglas. I'll start off and Jeremy will follow up. Look, we have -- we made this investment in New York, this was our first purchase of a direct hotel in New York City since we've been a public company. We looked at a lot of deals over the years, we've evaluated the timing to get into New York, and we really felt like this was an exceptionally good time to enter into the market, just from a macro level. RevPAR for New York, obviously, as you're well aware, increased 6.4% for upscale change in 2018, and overall, the market was up 3.4%. When you look at New York, this is a long-term growth market. Its CAGR since 1991 has been about 4% in terms of RevPAR and that compares to about 3.5%, I believe, to the other top 25 markets. So long term, it's a good market to be in. Picking your times to enter, I think, is what's key. And I think we nailed it in terms of the timing to enter into this market. After multiple years of increasing supply growth, according to Smith Travel, the number of new hotel rooms that opened decelerated by 32% compared to 2017. And then, moreover demand growth continues to outpace supply growth and that was the case in 2017 and in 2018, and that's really been the first time that's occurred since 2013. So year-to-date, the occupancy was really at all-time highs in that market. And so we look at that, and we realize the profitability is turning the corner for hotels in New York. We're very excited about all the room demand. It was eighth consecutive record-breaking year for room demand and in terms of visitors in New York. And obviously, there's many infrastructure enhancements that are taking place in the city, what is already a dynamic market, but obviously, the changes that are taking place at LaGuardia, the Hudson Yards development, which is the largest private real estate development in the U.S. in its history, that will increase demand. And so when we look at this opportunity it was as follows. We basically acquired a brand new, well located, near Times Square and Bryant Park hotel, that is the only Embassy Suites in Manhattan. It's a very efficient box. It has some very attractive amenities including some patio suite rooms, it's got a sky lawn, it's got a great fitness area, restaurant. It really is a great hotel asset for us. And it met our criteria on many levels. We felt that the financing that we got with this hotel was attractive, combined with the ERP capital. We have a view that while the asset opened up in 2018, it is ramping up exceptionally well. The property had a RevPAR, for the past 3 months through December of 2018 of $254 with a 92% occupancy and an ADR of 276 and continues to still ramp up. So we look at this on a per key basis with the inclusion of ERP just over $0.5 million, and we found that to be not only attractive purchase price, an attractive timing of the cycle, attractive financing, with operational upside, with Remington taking over management, and so all in, we're very upbeat and positive about this investment. Jeremy, you want to add anything?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [6]

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I don't have a lot to add. And I think that we spend a ton of time on this from an underwriting perspective. And for New York, you're right, it has been a challenging market. Last 10 years, RevPAR has been down. We stayed on the sidelines. A lot of folks asked us to get into the market, and we've been very disciplined. We think this is the right time and with this hotel being brand new, the only Embassy Suites in the market and then its location within the market, I think, it makes it a very attractive investment. If you look at where the supply is coming around in New York, there's virtually none coming into Times Square as well as the adjacent tract that we're in as well, the supply is coming in within that tract on the west side, which is that Hudson development. So we think we're uniquely positioned, and we think our timing is right.

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Operator [7]

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We'll take our next question from Michael Bellisario with Baird.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst [8]

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On the acquisition front, can you maybe update us on kind of how you're balancing leverage today relative to your target, but also still trying to get the remaining ERFP capital out the door?

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [9]

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Sure. I'll talk about the ERP and kind of the transaction pipeline, and then Deric might want to chime in a little bit on the balance sheet. I think, since the announcement of the ERP, back in the summer of last year, certainly, under a lot of deals, but I think given the 4 deals that we acquired, the Hilton Alexandria, La Posada de Santa Fe, Embassy Suites New York and the Hilton Santa Cruz, it clearly demonstrates discipline in what we've acquired. All the assets have a materially higher RevPAR than our portfolio. All of them for our projections are forecasted 5-year IRRs inclusive of the ERP to be well into the 20-plus percent range, so very excited about that. We don't have an appetite to grow just for growth sake. And I think that as we've always said, our high insider ownership really aligns us with shareholders to make sure that we're just not growing to grow, we want to grow accretively. And when we think about growing from a transaction standpoint, we, obviously, have purchased quite a bit over the past 9 months or so, $406 million of assets, and that utilized approximately 81% of the ERP capital. So when you take into account, ERP is 10% of the purchase price, that's $40.6 million of committed ERP capital, leaving us with just over $9 million. So if you wanted to perfectly fit the puzzle pieces together, that would give us the opportunity to buy just over a $90 million asset to round out the ERFP initial tranche of the committed capital from Ashford Inc. Obviously, the agreement contemplates more potentially by mutual agreement, if both parties want to extend or expand the ERFP. But when we look at the transaction pipeline today, we've been very excited about what we've acquired. In terms of what's out there right now, I'd say that it's -- there are a decent number of deals, but in terms of relative to what we're looking for, we are stretched kind of then in terms of seeing some deals that really appeal to us. I think we hit the sweet spot from a timing standpoint in the rollout of the ERP. And when we look at what we consider, we, obviously, have to take into account our share price, we have to look at the cash on the balance sheet, we have to look at our leverage levels when we're considering additional acquisitions. And I think for right now, we are exercising even a little bit more patience given capital market situations, obviously, stock price taken into that account, particularly right now. And so maybe a little bit more prudence on the pace of the acquisition activity. Deric, do you want to make any comments on balance sheet?

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Deric S. Eubanks, Ashford Hospitality Trust, Inc. - CFO & Treasurer [10]

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Yes, sure. So Mike, it's Deric. And as we sit here today, we're slightly above our targeted leverage level. And I think, as Douglas mentioned, we were comfortable going above that because we saw some very attractive acquisition opportunities that we think will generate great returns for our shareholders. But also because of the attractive maturity schedule that we have, we've got very few near-term maturities. We've got a lot of cash on our balance sheet. So we were comfortable going a little bit above our target or the high end of our target for these acquisitions. But I'd say, in terms of where we go from here, I'd say, we're not really inclined to increase our leverage much from where we sit here today.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst [11]

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Got it. And then just on those 3 of the 4 recent deals, excluding New York, any bigger or big CapEx plans in terms of PIPs or any renovations planned for this year or next year for those 3 assets?

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [12]

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None really to speak of that are significant, obviously, New York newly built and the Santa Cruz asset had recently got some CapEx, and so anything would be fairly minor with respect to the 3 properties.

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [13]

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Yes. I think you can assume, actually for all, including Alexandria as well, and Santa Cruz, La Posada and New York that we should be able to spend within escrow for any other CapEx we need on a combined basis. So I think, we're in pretty good shape for the foreseeable future.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst [14]

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That's helpful. And just lastly maybe on the disposition front. Any updated thoughts on your select service assets that you own or any changes that you're seeing in the transaction market for your portfolio transactions versus one-off sales?

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [15]

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Well, I'll give you the macro view. Obviously, last year was a significant year from overall transaction volume standpoint. I think it was up about 50% over prior year, a lot of that had to do clearly with some significant portfolio trades that occurred. But even single asset transactions were up, both full-service and select service. So a fairly healthy year last year from a macro standpoint. And in addition, the deal volume being up, prices were up, just about 2% according to some third-party metrics. So when we take that all into consideration, I think, we're looking sort of holistically at our portfolio, not really focused on a select strategy here or a full-service strategy there other than our investment strategy, which is to focus predominantly on upper upscale full-service hotels. Having said that, we have conducted some broker opinions of value on our hotels, that's something that is fairly common for us to undertake. We've stated, I think, previously, that we're going to be opportunistic with respect to asset sales. In the past year, we sold $43 million of select service assets, that I think accomplished some themes generally, namely, selling lower RevPAR assets at what we believe to be attractive all-in cap rates once you take into consideration what the buyer would have to spend on CapEx following the acquisition. And we're also, as part of that analysis, evaluating the future CapEx spend on those assets relative to the EBITDA, looking at that ratio in conjunction with any sales proceeds and the relative debt payoff. So when I say a more holistic view, I think it's -- it is not undertaking a strategy just for strategic's sake. As I've said previously, it is about undertaking an economic strategy to maximize the value of our portfolio to the extent any reshaping is done by selling lower RevPAR assets to improve cash flow and balance sheet as well. So to the extent we have any sales of whether it's select service or full-service hotels in the future, we'll be doing so to achieve portfolio performance enhancement.

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Operator [16]

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We'll take our next question from Chris Woronka with Deutsche Bank.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [17]

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Maybe to follow-up a little bit on the last question from Michael. I -- you guys have been a little bit different on strategy. You've acquired some 4-star kind of these upper upscale hotels, you haven't sold a lot of those hotels. A lot of your peers are walking away from that segment selectively to the extent maybe they have commodity hotel. What's your kind of outlook for the -- I guess, it's a broader question, but what's your outlook for that kind of 4-star upper upscale segment that maybe attracts you to it more than others?

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [18]

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Well, I think it's more of a -- an effort perhaps by our peers to buy RevPAR and buy the multiple story on that. I think that, for us, what we see is a balance. And we've said this, that the trade-off of RevPAR and initial yield that you're buying as well as value add, all sort of comes together for us I think in the segment combined with the fact that there is a greater number of transaction opportunities from which we can cherry-pick and select. And I think that when we look at achieving a high enough RevPAR and I think, these 4 acquisitions clearly indicate a movement and a higher RevPAR, but not necessarily chasing the highest RevPAR because we feel that the yields on those assets are not conducive to paying a dividend at the level that we have. And on top of it, we believe that many of the assets that we're looking at have more of an opportunity for us to put in place third-party management, namely our affiliate, Remington, to add value to the properties. So combine that with more of those transactions available to select from, we think that, that's smart from a transaction standpoint. Now from an overall utilization, is -- are 4-star hotels, less desirable? No, absolutely not. We're buying upper upscale full-service hotel. So I think that I'm not sure if that's what you're suggesting, but these are high-quality, high-demand hotels and the locations that we're in, I think are top locations given the demand generators that are near these properties. So we're very excited. As to why some of the other groups are selling, I can't really comment on their strategy much more than that.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [19]

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Yes, that's great. And maybe just a quick supply question. I guess, if you kind of look back on 2018 or maybe even go back to '17 as well, are there any -- as the competitive supply around some of your maybe select service hotels, has that impact been more severe than maybe you initially thought or less severe? And what's your general outlook for supply in '19 and '20?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [20]

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Yes. I can take that. I mean, we've had -- I think that's a general -- your general thesis on some of the select-service hotels. They're just -- they're more susceptible to new supply growth, and I think that holds true for us. If you look at over the last 12 months, we've absorbed within our markets close to about 2.8%, close to 3%, new supply coming into all of our hotels on a revenue-weighted basis, okay? Going forward that number is coming down closer to 2% over the next 2 years. So a lot of the -- I think we've kind of hit the, hopefully, the high point of some of the supply coming in. And then it varies by market. You can look at a market like Nashville that has had a ton of supply over the last several years, but the demand has always been pretty strong as well. So it's not only just select service, it's -- it is definitely location driven. But we've absorbed a decent amount of supply over the last couple of years, and we're starting to see that taper off just a little bit.

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Operator [21]

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We'll take our next question from Robin Farley, UBS.

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Arpine Kocharyan, UBS Investment Bank, Research Division - Director and Analyst [22]

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This is Arpine up for Robin. Marriott just mentioned that within group their lower commissions earlier on might have impacted business. Did you see any impact from that at all? And then, just your general views on health of the group business for '19? And what is paced for growth -- pace of growth for this year?

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Jeremy J. Welter, Ashford Hospitality Trust, Inc. - COO [23]

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Yes. This is Jeremy. I can take that question. I'll just give you our group pace for 2019. We're up about 300 basis point for our portfolio. So it -- we don't really see a big impact from the change in the commission structure, especially since most of the other major state brands have done the same initiative as well, that you're familiar with. We did see when they did announced that they were going to cut commissions, we saw an acceleration of some of the bookings when it was still under the 10%, but that has kind of normalized now. And so when you look at -- for 2019, we're up 300 basis points, 3% in group pace, and that's representing close to 70% of what we have on the books for the year. Fast forwarding to 2020, group pace is quite a bit stronger, but it's a much lower number in terms of what's on the book, so it becomes a lot less relevant at this point where we are right now.

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Arpine Kocharyan, UBS Investment Bank, Research Division - Director and Analyst [24]

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That's really helpful. And then, one quick follow-up. You mentioned some cautiousness regarding transactions. Does that also mean that for now you will hold off upsizing with Ashford Inc. the returns program?

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

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Well, we continue to look at transactions, it's just that, what we see out there right now doesn't come across as appealing as what we've recently acquired. I think, in terms of any additional tranches of ERP, let's just see, if we round out the remaining ERP, which is approximately another $90 million worth of deals before we engage in those discussions.

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Operator [26]

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Ladies and gentlemen, this will conclude today's question-and-answer session. At this time, I'd like to turn the call back to management for any additional or closing remarks.

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Douglas A. Kessler, Ashford Hospitality Trust, Inc. - President & CEO [27]

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Thank you, everyone, for joining us today. We look forward to speaking with you next time on our next earnings call. Thank you. Have a good day.

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Operator [28]

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Ladies and gentlemen, this concludes today's discussion. We appreciate your participation.