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Edited Transcript of AINC.A earnings conference call or presentation 2-Aug-19 4:00pm GMT

Q2 2019 Ashford Inc Earnings Call

DALLAS Aug 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Ashford Inc earnings conference call or presentation Friday, August 2, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Deric S. Eubanks

Ashford Inc. - CFO & Treasurer

* J. Robison Hays

Ashford Inc. - Co-President, Chief Strategy Officer & Director

* Jeremy J. Welter

Ashford Inc. - Co-President & COO

* Jordan Jennings

Ashford 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

* Stephen Biggar

Argus Research Company - Director of Financial Institutions Research

* Tyler Anton Batory

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

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Presentation

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Operator [1]

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Good day and welcome to the Ashford Inc. Second Quarter 2019 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jordan Jennings. Please go ahead.

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

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Good day, everyone, and welcome to today's conference call to review results for Ashford for the second quarter of 2019 and to update you on recent development. On the call today will be: Robison Hays, Co-President and Chief Strategy Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Co-President and Chief Operating Officer.

The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday afternoon in a press release that has been covered by the financial media.

At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information are being made pursuant to the safe harbor provision 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 August 1, 2019, and may also be accessed through the company's website at www.ashfordinc.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 compared to second quarter of 2019 to second quarter of 2018.

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

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J. Robison Hays, Ashford Inc. - Co-President, Chief Strategy Officer & Director [3]

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Good morning, and welcome to our call to discuss our financial results for the second quarter of 2019. I will begin by giving a brief overview of our quarterly results and then will discuss our recently announced definitive agreement to acquire the hotel management business of privately held Remington Holdings. I'll also provide an update on our Enhanced Return Funding Program or ERFP with Braemar Hotels & Resorts and Ashford Trust. I'll conclude with an update on our investor outreach efforts. Afterwards, Deric will review our financial results, and Jeremy will then provide an update regarding our strategic initiatives, our strategic investments as well as other initiatives and then we will open it up for questions and answers.

We delivered strong operating and financial performance in the second quarter and are pleased with the groundwork we are laying for the continued success of the platform. For the quarter, revenues increased by 16%, adjusted EBITDA was $9.6 million and adjusted net income per share was $2.04. Ashford Inc. is a growth platform, and we are pleased with these results and believe they demonstrate the benefit to our strategy.

I'd now like to discuss our recently announced agreement to acquire the high-margin, low CapEx hotel management business of privately held, Remington Holdings. The transaction which is expected to close sometime in the fourth quarter of 2019 will immediately add scale, diversification and an enhanced competitive position for Ashford in the hospitality industry. We'll also expand the breadth of services we offer to our advised REITs. Importantly with deep industry experience and a mutual exclusivity agreements in place with our advised REITs, we believe the acquisition of Remington's hotel management business represents a compelling opportunity for Ashford to further diversify its earnings streams and moving forward, the potentials to expand business to new clients.

Remington is an independent hotel management company with over 40 years experience in the hospitality business, providing top quality service in the area of hotel property management. Remington's track record of success demonstrates a significant understanding of the hotel business in all phases of the economic cycle. Remington's hotel management business currently provides comprehensive and cost-effective hotel management services for both Ashford Trust and Braemar. Remington's hotel portfolio consists of almost 90 hotels with over 17,400 rooms of full-service and select-service properties representing over a dozen brands across 28 states in the District of Columbia.

At this time, Remington's hotel management business currently has very little third-party business outside of the -- our advised REITs, which will be an immediate growth opportunity and an area of focus going forward. Strategically, after the completion of this transaction, we will add hotel property management to our growing list of hotel-related businesses, which includes our asset management business, Premier Project Management, Pure Wellness, OpenKey, JSAV, RED Hospitality & Leisure and Lismore Capital.

Now when our advised REIT platforms acquire hotels, we will have the exclusive rights to provide all of these services to those hotels. These services include hotel asset management, hotel property management, project measurement, design, architecture, procurement, construction management, audiovisual services, financing services, advisory services, property sales services, mobile room key services, hypoallergenic hotel rooms and water sports activities.

Financially, this transaction rapidly builds operating scale, increases earnings potential and is expected to be immediately accretive to adjusted net income per share. In short, we are surely excited about the opportunities this transaction provides and look forward to updating you as closing approaches later this year.

I'd now like to provide an update on our ERFP agreements with Braemar and Ashford Trust. The ERFP with Braemar, which was announced earlier this year is $50 million funding commitment from Ashford designed to produce strong returns on hotel investments at Braemar and strong fee growth at Ashford. Similar to our ERFP with Ashford Trust, it does this in a very simple way. Ashford effectively provides capital Braemar in order lower the amount of equity that Braemar has to put into a hotel investment. That reduction of equity can materially improve equity returns to Braemar, and in-turn, Ashford has paid incremental fees it customarily receives from Braemar and its assets.

Today, Braemar utilizes ERFP to complete its 2019 acquisition of the Ritz-Carlton Lake Tahoe for $103 million. Also, we continue to make progress with ERFP that we have in place with Ashford Trust. Today, Ashford Trust has closed on $406 million of acquisitions that have utilized ERFP including the Hilton Alexandria Old Town, La Posada de Santa Fe, Embassy Suites New York, Manhattan At Times Square and Hilton Santa Cruz/Scotts Valley. These acquisitions bring utilization of ERFP funds with Ashford Trust to approximately 80% of the original $50 million commitment. While the ERFP is working as we anticipated, adding hotel management for growing list of services businesses could further increase returns to our shareholders from ERFP. I'd also like to point out that over the past 12 months, we estimate that we have saved over $8 million in taxes as a result of ERFP.

Moving forward, we are excited about the future prospects of these programs and their positive benefits for Ashford as well as for Ashford Trust and Braemar. Bottom line is, we believe the ERFP is sizable, predictable and repeatable. With an innovative structure, we believe we can drive -- that can drive strong returns at all the companies involved.

And I'd now like to discuss our growth strategy, which is built around our ability to leverage the combined expertise of our management team to grow both our company and the platforms we advised. We believe we have one of the most highly aligned, stable and effective margin teams in the hospitality industry acting like shareholders has distinguished us from others in our industry and we consider it one of our main competitive advantages. Ashford currently advises 2 publicly traded REIT platforms, Ashford Trust and Braemar, which together owns 134 hotels, with approximately 29,000 rooms and approximately $8.2 billion of gross assets as of June 30, 2019. Ashford is a high-growth fee-based business model with diversified platforms at multiple fee generators. We believe it to be a scalable platform with attractive margins. Additionally, as a very stable cash flow basis, the advisory agreement with the REIT stipulate that the base fee is maintained at a level of at least 90% of the previous year's base fee. We have a fee structure in place that incentivizes Ashford to create shareholder value at its advisory platforms with our base fee driven by their share price performance and our incentive fee based on total shareholder return performance outperforms versus their REIT peers. Our management team's primary focus is maximizing returns.

Currently, our company is focused on 3 areas of growth. First, we would like to accretively grow our existing REIT platforms. Second, we would like to add additional investment platforms. Third, we're working on -- we are working diligently on opportunities to buy, investing or incubate businesses related to the hospitality industry including Premier Project Management, OpenKey, Pure Wellness, JSAV, Lismore Capital and RED Hospitality & Leisure. Then through our connections and relationships with our advisory platforms and leveraging our asset management expertise, we can accelerate their growth dramatically. Toward this end, subsequent to quarter end, we now set RED Hospitality & Leisure completed the acquisition of substantially all the assets of Sebago, a leading provider of watersport activities and excursion services based in Key West Florida for approximately $2.5 million in cash and $4.5 million of Ashford's common stock. Based on unaudited financials provided by the seller, Sebago's adjusted EBITDA for the trailing 12-month period ended April 30, 2019, was $1.6 million. The implied adjusted EBITDA multiple based on the total purchase price was 4.4x, which we believe represents an attractive potential return on investment. After giving the effect to the transaction, Ashford will own approximately 84% in the common equity of RED Hospitality.

We continue to be excited for all of our strategic investments and are optimistic about the prospects for our 2 advisory platforms. Additionally, we see great opportunity for this platform to grow and deliver superior returns to our shareholders by adding additional investment platforms as well as investing and incubating in other hospitality-related businesses.

On investor relations front, we believe we're having an active investor outreach effort and broadening our investor base are important areas of focus. To that end, since beginning 2019, we've held over a 120 meetings with sell-side analysts, existing shareholders and potential shareholders. Over the coming months, we've planned to attend a number of investor conferences targeting a wide range of investors for smaller and mid-cap focus funds to industry-dedicated investors as well as family offices and retail holders. We believe the exposure to these conferences will provide further opportunity to tell our story, providing meaningful dialogue with potential investors, which should in turn continue to have a positive impact on expanding at our investor base. We also plan to host an Investor Day on October 3, at the St. Regis Hotel in New York City and hope to see many of you there.

I will now turn the call over to Deric.

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

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Thanks, Robison. Net loss attributable to common stockholders for the second quarter was $3.2 million or $3 per diluted share compared with net income of $9 million or $0.93 per diluted share for the prior year quarter. For the second quarter, total revenues were $63.5 million reflecting a 16% growth rate over the prior year quarter. Adjusted EBITDA for the second quarter was $9.6 million, adjusted net income for the second quarter was $8.7 million or $2.04 per diluted share. At the end of the second quarter, the company had $38.2 million in corporate cash, and we currently have a fully diluted equity market capitalization of approximately $94 million. Also as of June 30, 2019, the company had $2.8 million fully diluted total shares of common stock and units. At June 30, we had 2.5 million common shares issued and outstanding, 0.2 million common shares earmarked for issuance under our deferred compensation plan and the balance relates to the GAAP treatment for in-the-money stock options, put options associated with minority interest of our strategic investments and some restricted stock. In our financial results, we also include 1.45 million common shares from our series B convertible preferred stock. During the quarter, we purchased $8.1 million of FF&E from Ashford Trust as part of our ERFP commitment associated with its acquisition of the Embassy Suites New York, Manhattan at Times Square.

Additionally, during the quarter, and subsequent to quarter end, we purchased $10.3 million of FF&E from Braemar as part of our ERFP commitment associated with its acquisition of the Ritz-Carlton Lake Tahoe.

I will now turn the call over to Jeremy to discuss our strategic investments and other initiatives.

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [5]

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Thank you, Deric. We are excited to provide updates on our hospitality products and services businesses and the strong results and accomplishments during the second quarter.

To explain this strategy more fully, our products and services initiative is a unique investment strategy in the hospitality industry, where we strategically invest in operating companies that service the industry, and we act as an accelerator to grow these companies.

In doing so, we believe we are able to establish synergies for our hotel platforms, providing an attractive pricing and higher levels of service than they would receive from a third-party vendor. We're also able to grow our portfolio companies in a number of ways by referring them to hotels owned by our advised REITs by leveraging our vast industry relationships and by consulting on best-operating practices.

Premier Project Management provides comprehensive and cost-effective design, development, architecture, procurement and project management services in the hospitality industry. Their first 3 full quarters of ownership, we have been focused on executing several initiatives and branding exercises to accelerate growth and profitability over the long-term. To that end, we have seen early returns on Premier's new architecture service, which was launched in February 2019 with $347,000 of architecture revenue in the second quarter and $1.2 million of architecture revenue for the year-to-date period through the second quarter.

Secondly, we are excited about the appointment of Donald Kelly as Co-Chief Executive Officer in May. Don joins Premier as an accomplished executive and industry veteran with deep commercial and operational expertise and he most recently served as a Chief Commercial Officer of Onyx CenterSource, a leading provider of B2B payment processing and recovery solutions. We're excited about the opportunity to expand Premier's services to our other owners, property managers and institutions in the hospitality industry.

In the second quarter, Premier generated $7.7 million of revenue and $3.5 million of adjusted EBITDA. For the year-to-date period through the second quarter, Premier generated $15.5 million of revenue and $7.3 million of adjusted EBITDA. We continued to see significant opportunities going forward for this business.

JSAV is a leading single-source solution for meeting and event needs with an integrated suite of audiovisual services. Including show and event services, hospitality services, creative services and design and integration. We continued to see outstanding growth at the company with revenue up 29% in the second quarter compared to the prior-year period and 31% for the year-to-date period through the second quarter compared to the prior-year period. Additionally, the company's acquisition of BAV in the first quarter of 2019 is already providing meaningful upside with BAV revenue up 29% in the second quarter compared to the prior-year period. Furthermore, BAV achieved monthly revenue records in March, April and May during our first three full months of ownership. For the trailing 12 months ended June 30, 2019 pro forma revenue for the combined company including BAV is over $100 million highlighting an incredible achievement by JSAV to grow into additional markets and hotels and increasing its ability to scale into the future and gain market share. Additional initiatives being implemented to support future growth and profitability include integrating a new executive management team highlighted by CEO, Chuck Bauman, retailing the company's show services business unit to optimize performance, integrating and optimizing BAV sales processes and cost sharing and optimizing the continuing ramp-up of newly transitioned hotels.

We also continue to see positive results from integrated JSAV in the Ashford asset management hotels with average revenue per group room night up 14.6% and average customer satisfaction scores up 9.5% from the prior AV provider, highlighting JSAV's incredible service level.

In the second quarter, JSAV executed 4 new non-Ashford hotel contracts and 7 Ashford hotel contracts increasing the number of multiyear contracts in place with hotels and convention centers to 93 compared to 59 at the end of 2017, representing 58% growth. Since the beginning of 2018, we have engaged JSAV in 27 hotels owned by our advised REITs. We expect to have JSAV in more Ashford hotels by the end of the year. After JSAV partners with the hotel, it can take a year or 2 for AV operations to ramp-up, so we believe there are still significant growth opportunities for JSAV at our hotels. We see a tremendous opportunity for integrating JSAV in more hotels in the U.S. and internationally given the company's outstanding reputation as a leading service provider in the industry.

RED Hospitality & Leisure is a leading provider of watersports activities and other travel and transportation services in the U.S. Virgin Islands. We remain excited with the growth prospects of the company, including opportunities to expand into other hotels at our advisory platforms, expansion in the U.S. VI and expansion elsewhere in the Caribbean market.

To that end, RED Hospitality recently closed in the acquisition of substantially all the assets of Sebago, a leading provider of water sports activities and excursion services based in Key West, Florida, for approximately $2.5 million in cash and $4.5 million of Ashford's common stock. Based on unaudited financials provided by the seller, Sebago's adjusted EBITDA for the trailing 12-month period ended April 30, 2019, was $1.6 million. The implied adjusted EBITDA multiple based on the total purchase price is 4.4x, which we believe represents an attractive potential return on investment.

Sebago is Key West premier provider of watersports excursions, maintaining 3 TripAdvisor's, 10 highest-rated tours in the market. With over 25 years of operating history, we're excited about the opportunity to grow into new strategic markets and integrating the Sebago business, which has an excellent track record of customer services and superior services.

Additionally, we continue to see significant ramp of the existing operations of RED Hospitality, including the Ferry Transportation Services and beach and water sport services to the Westin St. John Beach and water sports services to the Ritz-Carlton St. Thomas Club, the timeshare and rental property adjacent to the Ritz-Carlton St. Thomas Hotel and increased direct bookings and private charter business.

In the second quarter, the company generated $1.9 million of revenue and $409,000 of adjusted EBITDA representing 397% and 579% growth, respectively, over the prior-year period. Year-to-date, through the second quarter, the company generated $3.5 million of revenue and $880,000 of adjusted EBITDA representing 441% and 459% growth respectively over the prior year period. Moreover, the company has generated 4.4x more adjusted EBITDA for the year-to-date period through the second quarter than in the full year of 2018. We remain optimistic about growth outlook for RED Hospitality going forward. We continue to remain active in evaluating additional investments in operating companies, and hope to share some more details on that front in the coming quarters. That concludes our prepared remarks. And we will now open the call up 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 Bryan Maher from 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. On the Remington managed hotel business that you're acquiring, how come that hasn't expanded outside the Ashford pool of hotels kind of previous to the acquisition here? Just a little history there would be helpful.

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [3]

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No, it's good question, Bryan. I think the rationale primarily by Monty and Archie had been that they wanted the focus of Remington to be on Ashford because I think they did view at times that they had concerns, I think early on when we first launched Ashford, there had been those conversations of business. Some sort of conflict that you have this private management company and this public REIT, and I think they -- one wanted to demonstrate that they had a lot of value and a lot of their net worth in at that time Ashford Trust stock alone, and so they didn't want any sort of perception that they were spending an extraordinary amounts of time or energies outside of the kind of the Ashford companies and the public companies. And so I think for them it was just more of they wanted to make sure that there was execution and focus on maximizing value at Ashford Trust and then later Braemar. So it's really more of -- I think, less of a financial decision, more of a broader strategic decision given the other REITs.

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

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Okay, and then moving on to RED and Sebago. So I know Sebago from Key West. Is the plan to just keep it in Key West or expand it throughout the Florida Keys or expand it throughout Florida in general? What's the thought process on the growth there?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [5]

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This is Jeremy. So initially the plan is to expand it in Key West. We believe we have a lot of opportunities to leverage a lot of our practices that we do in the U.S. Virgin Islands and expand some of the services, some of our booking charges, some of our tours, expand that throughout Key West as well as some additional services within our sales that we own in Key West as well and some other ones because they don't really do some of the same services that the RED does at the resort side, which we think could be pretty synergistic from a revenue perspective to be able to expand the service offering itself. In terms of expanding Sebago outside of Key West, we haven't really made that determination from a branding perspective whether or not we'd use RED or watersports or increase the watersports, which is another sub-brand of RED or Sebago when we go into the markets, but we have identified additional markets that we'd like to go into within -- certainly within Florida, and elsewhere in the U.S. This was a strategic acquisition for us. I think you'll find that when we go into other markets, a lot of the expansions in other markets will actually be incubating and creating our own business and getting into the markets. Key West is a little bit different because it has a lot of high barriers to entry because the Marina is very limited on the amount of slips that it has.

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

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Right. And then kind of flipping back to RED again for a second. The Caribbean is a pretty big place and there's a lot of resorts and a lot of islands. I mean how big do you think you could grow RED in let's say kind of a 3-, 5-year period of time?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [7]

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Yes, I don't know if we're prepared to go into that level of detail from a projections perspective, but I think that there is a great opportunity to expand into other markets certainly in the Caribbean. I think we'll be more focused initially within Florida. You'll see that we buy these businesses or we expand them if we add both or other services. We're doing it at a very, very attractive cash on cash return. When we originally actually contracted Sebago, it was at a 5x EBITDA multiple, but performance continued to go up and we thought it was because Key West is rebounding from Irma as well as you know, but when you look at it post-close, the cash and cash returns are fantastic and so the business does generate a decent amount of cash flow and we're planning to take that cash flow and reinvest it into expanding the business. Previous ownership of RED and then it was actually operated under a different name. They just distributed the cash flow and kept it for themselves. So I know our leadership, Chris Batchelor at RED is very excited because we do plan to continue to grow it. In terms of pace, I don't know that we're going to do much more initially than one market per year. So I would expect that we get into another market in 2020 and then 2021 probably another market, maybe 2 at that point, but we're really trying to get that infrastructure of that scale and really trying to create a company that is scalable from market to market and then if you have an experience in Sebago or whether or not you are at U.S. Virgin Islands, you have a very similar positive experience and feel the experience that we have to offer for you.

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

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And then just lastly, shifting back to the ERFP, I think Deric said there is $38 million of cash at the end of the second quarter, correct me if I'm wrong, but does that cash component in conjunction with where the shares are treading, which are probably half of where they were trading the last time you issued equity at Ashford Inc. Does that kind of go into consideration when it comes to expanding the ERFP with Trust and Braemar? Or is cash flow so great that it's not a consideration? Or would you be inclined to borrow as opposed to issue equity to raise additional capital to expand ERFP?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [9]

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I mean, Bryan, we -- that's a good question. I mean, we don't have any intention of raising equity at these sorts of prices. So I think when we look at the expansion of the ERFP, it would be funded by some mix of existing cash flow of cash on balance sheet, and potential financing because I do think there is the ability to potentially get some additional financing, but we have an undrawn credit facility, we could perhaps turn that from a credit facility and to some other sort of loan if we wanted to. So I think there is -- and there is even private capital that we could do if we wanted to go that route as well. So there is a variety of opportunities to access cash if we want to expand ERFP. As was kind of discussed on the trust call, given where the Reach share prices are right now, it seems unlikely that they are going to be in the market buying assets here in the near-term. So when we get closer to potentially looking to upsize, it will take all those factors in account and move forward from there.

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

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And is it an all or none or can you upsize it another $25 million, not necessarily up another $50 million?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [11]

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That's a good question. The existing contract kind of it prewired it in a sense that it just said that it could kind of duplicate these terms for an additional $50 million on each platform by mutual agreements, but I think if and when we come to that point in time, I'm sure there may be issues on both sides that may want tweaks and changes and updates and things to improve. I mean, we -- it's not like we created the absolute perfect structure, we put some together that we thought made sense for both platforms and there may be ways to improve it and make it better, and so we'll -- I'm sure, as part of whatever there is an ERFP 2.0, I would anticipate it would probably have some tweaks and changes and improvements to it.

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Operator [12]

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And next, we'll move on to Tyler Batory with Janney Capital Markets.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [13]

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So just a few follow-ups for me. I apologize if I missed a few of the details here, but just to start on the Remington proposed transaction. Can you discuss the private letter ruling? I think if I recall correctly, there was a hurdle previously a few years ago to getting that done that involved the private letter ruling. So can you talk about what's changed on that front?

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

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Yes, Tyler, this is Deric. So the private letter ruling relates to Remington continuing to qualify as an eligible independent contractor for REIT purposes for managing the hotels of Braemar and Ashford Trust. And we went through this process with the IRS about 4 years ago when there was another contemplated transaction and ultimately, we're not able to get the inacceptable private letter ruling, but had an idea of the structure that we would need within the private letter ruling to get it completed and so this time, we feel higher level of confidence that we will be able to get inacceptable private letter ruling. That is still in process, it has not been received yet so that is still one of the conditions to closing the transaction.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [15]

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Okay, got it. That's helpful. And then I know we're maybe a little bit early to talk about this, but when you think about the opportunities to expand the third-party business at Remington, I mean, do you need to layer on a significant amount of cost to do that? Or with the structure that you have right now was it maybe just a shift in strategy and what not to try to add some additional hotels outside of the Ashford pool hotels that you already manage?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [16]

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Yes, this is Jeremy. In terms of additional cost, there's some business development costs that need to be added, some general marketing costs, traveling, entertainment costs, and then also a couple of positions and those positions would be Chief Development Officer, Chief Investment Officer type position as well as a little bit of support from a financial analyst perspective. Aside from that, when Remington actually does get the new business and lands a contract with the new third-party hotel, that business we'd anticipate to be very incrementally profitable for Remington. So not a lot of operating costs, but some business development cost that need to be added.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [17]

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Okay, perfect. And then switching gears to the Premier Project Management. Can you provide an update there as far as growing that third-party business? How that's going? And I'm also curious of the cost structure and margins, how that is versus some of your underwriting in your expectations there?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [18]

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Yes. I think we're even more bullish on Premier today than we were when we acquired it. As we get into the marketplace, we're seeing that there is a tremendous amount of opportunity to expand our business by offering our suite of services to different ownership groups that's really typically do contract individually for maybe architecture, individually for design, individually for procurement, individually for project management. We can come to someone and basically run the entire project from start to finish and I think that's a big competitive advantage. In terms of the timing to grow that business, it is a little slow because you're familiar with the way groups work is that they do a full capital planning and budget process and a lot of those decisions were made typically at the end the year and what they want to do with upcoming renovations. So there is a little bit of lead-time associated with getting new business, but I don't think that we will have challenges getting new business because we do have a pretty compelling offering and we have some very successful renovations that we've done. If you just look at just this year, Premier has done 4 incredibly, incredibly complicated renovations, one being the Ritz-Carlton St. Thomas, the other 2 being the courtyards that are owned by Braemar, they are being up branded into autographs, which is I'm not aware if that's never been done before and certainly when we went to Marriott in Ashford, they were very skeptical on our ability, not necessarily Premier's ability to pull it off, but the ability for anyone to pull that off and then we also had that very complicated renovation. In Nashville, that's still ongoing where they assumed the old Nashville Convention Center and we had operating hotel that was a group hotel and they were able to sequence the renovation to where we didn't really have a lot of impact in the overall underlying business of the renaissance and it's a major, major transformation of that hotel and anyone of those renovations, I think would be incredibly, incredibly challenging for a renovation company to be able to execute upon, but they're doing 4 simultaneously. And I can tell you that as you travel and if you go to St. Thomas and you see what we pulled off at St. Thomas, if you go to Philadelphia and see the conversion we did in Philadelphia, if you go to San Francisco and see what's going on at the plant see and as well as what's been done in Nashville, I think you'd be incredibly, incredibly impressed with the quality we've done there and the fact that we've done that within budget.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [19]

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Okay, very helpful. I appreciate that. And the last question for me, on the JSAV, on the BAV acquisition, as you already discussed that a little bit, you rattled off some growth numbers for that, I mean, can you provide a little bit more detail at a high level about why the growth is so high? What are you doing to drive the growth of that business? And if some of those REITs are sustainable going forward?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [20]

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This is Jeremy as well. I think there are a couple of components. One is, BAV, as they had incredible growth and I think they were up close to 30% in the last 3 months. I think that we can't any credit for that. I think that was just we timed the acquisition very well and they had some really good piece of business that they were able to put on the books and we just benefited from a timing perspective and that was a little bit unique and actually part of that is that the prior year was down before. When you looked over to JSAV and the growth that we've done, we've been able to achieve within that company, which is now going to be a combined company with JSAV and BAV of course. It's been pretty phenomenal and it's not only just been within our existing portfolio, but they have been able to achieve additional growth by landing new business with other third-party ownership groups. And the reason why is because there is really not a lot of options in the audiovisual space anymore and they provide a unique offering and I think folks like to have options and folks who've done business with JSAV that they have existing clients are able to retain those clients relationships, but then also as those ownership groups or management companies gain additional hotels, they naturally put JSAV in those hotels, and so they are very, very good about expanding the share of the wallet so to speak of their different clients from a hospitality perspective. And then when you look at their show services segment, which is a totally different piece of business, they have just done a good job executing that business as well and in fact, they did recently execute on a multiyear contract with a large piece of business with a big corporate client that you'd be familiar with that stems over, I believe, 3 years, but it's multiples of millions of dollars. So they've done a great job growing. So going forward, I would expect that they would have some similar growth through the balance of the year as some of the hotels ramp up. But as I would model it, I would anticipate that growth to probably slow down a little bit in the future.

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Operator [21]

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(Operator Instructions) And we'll take our next question from Stephen Biggar with Argus Research.

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Stephen Biggar, Argus Research Company - Director of Financial Institutions Research [22]

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For Premier project, I picked up on the release about the new revenues from architectural services about -- it looks like it's about 5% of Premier's revenue line for the quarter so that was a nice addition. So I'm just wondering if you could expand on that as a new line of business. Is that a partial quarter of activity? Are those revenues accrued over a longer contract term? I'm just trying to understand if that figure is a good potential run rate going forward? And if that's a nice 5% growth contributor going forward?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [23]

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Yes, I think it's probably a good assumption. We just started doing architecture in February, and what we did is, we closed on Premier and we do what we always do as we look at all the different opportunities within any of our existing companies and we recognize that we are outsourcing architecture and that just didn't make any sense. So we went out and hired some fantastic, incredible architects and built that business up very quickly and rolled it out in February.

(technical difficulty)

Year-to-date is essentially almost 6 months. Maybe you'd assume maybe a little bit higher percentage of the total because it's ramping up a little bit, there were a couple of projects that were ongoing that we continue to outsource and I think we'll -- over time, we'll continue to in-source more and more of our architecture and not utilize as many third parties.

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Stephen Biggar, Argus Research Company - Director of Financial Institutions Research [24]

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Okay, thanks. And then in terms of the enhanced funding program, you mentioned pricing, I guess, maybe as an impediment, but you had that initial burst of activity soon after each of the programs was announced and it has been more quiet. So is there any -- could you give any update on just as the opportunity set? Has that changed at all? Is there anything else in today's macro environment that might be hindering additional deals at this point? And just broad strokes maybe in the next 12 to 18 months?

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Jeremy J. Welter, Ashford Inc. - Co-President & COO [25]

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I don't know if there's anything significant or material. I think it's more where that continue on as usual as we've been doing here recently looking for right opportunities. And if they come, we'll jump on them. But I don't think if we have anything that we see that materially changes that outlook.

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Unidentified Company Representative, [26]

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Yes. It really bows down to the cost of capital question for the REITs and their ability to acquire assets that would be accretive and that's one of the things that I think is one of the challenges today.

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Operator [27]

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And that does conclude today's question-and-answer session. I would now like to turn the conference back over to management for any additional or closing remarks.

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J. Robison Hays, Ashford Inc. - Co-President, Chief Strategy Officer & Director [28]

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Thank you for joining us on our second quarter earnings call. We hope to see at our Investor Day in New York on October 3, and we look forward to speaking with you again on our next call.

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Operator [29]

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Thank you. That does conclude today's teleconference. We do appreciate your participation. At this time, you may now disconnect.