Q4 2023 Ashford Hospitality Trust Inc Earnings Call

Presentation

Operator

Hello, and welcome to Ashford Hospitality Trust fourth quarter 2023 results conference call. (Operator Instructions) As a reminder, this conference call is being recorded.
At this time, I'd like to turn the call over to Jordan Jennings, Director of Investor Relations. Jordan, you may now go ahead and start the conference.

Good day, everyone, and welcome to today's conference call to review results for Ashford Hospitality Trust for the fourth quarter and full year 2023 and to update you on recent developments.
On the call today will be Rob Hayes, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer, and Chris Nixon, Executive Vice President and Head of Asset Management.
The results as well as the facility of this conference call on a listen-only basis over the Internet were distributed yesterday afternoon in a press release. At this time, I remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the Safe Harbor provisions of the federal securities regulations.
Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors more fully discussed in the company's filings with the Securities and Exchange Commission.
Before looking statements included in this conference call are only made as of the date of this call. The Company is not obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or solicitation of an offer to buy any securities. Turning to the offer by means of our efficient statement and a prospectus which can be found at www.sec.gov.
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. It has been filed on Form 8-K with the SEC on February 28, 2024 and may also be accessed through the Company's website at www.ast.com.
It certainly 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 the call compared to fourth quarter and full year ended December 31, 2023 with fourth quarter and full year ended December 31st, 2022.
I will now turn the call over to Rob Hayes. Please go ahead, sir.

Good morning and welcome to our call. After my introductory comments, Deric will review our fourth quarter and full year financial results, and then Chris will provide an operational update on our portfolio.
As we announced earlier this year, we are keenly focused on paying off our strategic corporate financing in 2024. We believe this is a crucial step in positioning Ashford Trust back in the path of growth and as necessary in order to reinstate the common dividend in the future.
Our plan to accomplish this is multifaceted and provides us with significant optionality to accomplish our goal that includes raising sufficient capital through a combination of asset sales, mortgage debt refinancings and non-traded preferred capital raising.
We currently have more than a dozen assets at various stages of the sales process. And while we're unlikely to sell all of those assets, we are working diligently to determine which assets are capturing most attractive valuations while also providing the largest impact to our deleveraging efforts.
We now have five assets undersigned purchase and sale agreements up from the three we announced several days ago and another asset under letter of intent. These six assets have a combined sales price of approximately $225 million.
And as a demonstration of the significant progress we are having in these efforts this morning, we announced we've signed a definitive agreement to sell the 390 room Hilton Boston Back Bay and Boston, Massachusetts for a $171 million or [$438,000] per key. When adjusted for the Company's or our anticipated capital expenditures. The sales price represents a 7.3% cap rate on 2023 net operating income or 12.3 times 2023 hotel EBITDA multiple.
The sale is expected to be completed next month in March. It is subject to normal closing conditions. We expect the net proceeds from the sale to be approximately $70 million. After repayment of the underlying mortgage debt and closing costs. We anticipate using the net proceeds to pay down our strategic financing.
In addition, subsequent to the quarter end, we announced that we signed a definitive agreement to sell our residence in Salt Lake City, Utah for $19.2 million. As sales expected to be completed here early March and subject to normal closing conditions. When adjusted for anticipated CapEx, the sale price represents a 4.6% NOI cap rate on 2023 net income or 18.2 times 2023 hotel EBITDA multiple.
We expect to use all the proceeds from this transaction to pay down debt. We're also working with lenders to refinance a loan secured by the Renaissance Nashville in Nashville, Tennessee, the Morgan Stanley pool loan with 17 hotels located in several states loans secured by the Marriott Gateway in Arlington, Virginia in a loan secured by the Indigo, Atlanta, Georgia.
We believe there could be substantial excess proceeds from the refinancing of Renaissance Nashville loan, which could be used to pay down the company's strategic financing. The Princeton Westin, which we are currently running a sales process process on will be unencumbered as part of this financing to the extent that is completed.
We also continue to be excited about our non-traded preferred stock offering. We continue to build the selling syndicate and currently have 42 signed user agreements, representing over 5,840 representatives selling security. To date, we've raised approximately $105 million of gross proceeds, including $21.9 million during the fourth quarter.
Given the progress we're making across the three main thrusts of our strategic financing payoff plan for asset sales, mortgage refinancings and the nontraded preferred offering, we continue to believe that we are on the right path to pay off the strategic financing 2024.
In terms of hotel performance, we are very pleased the strong operating performance and RevPAR growth we achieved in the fourth quarter were clearly seeing the benefit of a broadly diversified, high-quality portfolio that's balanced across leisure, corporate and group demand sources.
RevPAR for all hotels in our portfolio increased 1.6% in the fourth quarter compared to the prior year quarter. This RevPAR growth was led by average daily rates which increased 3.4% over the prior quarter. We are also pleased that this strong performance is continuing into 2024 with our January total revenue growth of 5.3% for the portfolio.
I will now turn the call over to Deric to review our fourth quarter financial performance.

Thanks, Rob. For the fourth quarter, we reported net loss attributable to common stockholders of $31.3 million or $0.90 per diluted share. For the full year, we reported a net loss attributable to common stockholders of $193.7 million or $5.61 per diluted share.
For the quarter, we reported AFFO per diluted share of negative $0.36, and for the full year, we reported AFFO per diluted share of $0.72. Adjusted EBITDA REIT for the quarter was $62.5 million and $324.5 million for the full year.
At the end of the fourth quarter, we had [$3.3 billion] of loans with a blended average interest rate of 8%, taking into account in the money interest rate caps, considering the current level of sulfur and the corresponding interest rate caps, [92%] of our debt is now effectively fixed as almost all of our interest rate caps are now in the money.
During the quarter, we extended our Morgan Stanley loan pools secured by 17 hotels, which we extended for one year with no paydown. We ended the quarter with cash and cash equivalents of $165 million and restricted cash of $146 million.
The vast majority of that restricted cash is comprised of lender and manager held reserve accounts and $2.5 million related to trapped cash held by lenders. At the end of the quarter, we also had $22 million due from third-party hotel managers, this primarily represents cash held by one of our property managers, which is also available to fund hotel operating costs. We ended the quarter with net working capital of approximately $209 million.
As of December 31, 2023, our consolidated portfolio consisted of 90 hotels with 20,549 rooms. At the end of the year. Our share count consisted of approximately 39.4 million fully diluted shares outstanding, which is comprised of 37.4 million shares of common stock and 2 million OP units.
In the fourth quarter, our weighted average fully diluted share count used to calculate AFFO per share included approximately 1.7 million common shares associated with the exit fee on the strategic financing we completed in January 2021.
While we are currently paying our preferred dividends quarterly or monthly, we do not anticipate reinstating the common dividend for some time. As an update, during the quarter, we completed the transfer of ownership of the hotels that secured the keys app loan pool to the lender. And we continue to work with the lender for the keys A&T's B loan pools on a consensual transfer of ownership of those hotels to the lender. At this time, we are unable to provide an estimate on the timing of when that transfer will occur.
This concludes our financial review, and I would now like to turn it over to Chris to discuss our asset management activities for the quarter.

Thank you, Deric. For the quarter, comparable hotel RevPAR for our portfolio increased 1.6% over the prior year quarter, marking 11 consecutive quarters of year-over-year RevPAR growth. Full year comparable hotel RevPAR increased 9.5% over the prior year. Our full year RevPAR growth was nearly double the national average.
I would like to take a few minutes to highlight some of the work from our team, including actively increasing our group position across our portfolio, strengthening our food and beverage outlets and capitalizing on high demand events and some of our major markets.
Group room revenue for the full year exceeded the prior year by 16%. This was a strong quarter for group booking activity. We started the quarter with approximately $34 million and on the books group room bookings for the fourth quarter.
During the fourth quarter, we added over $19 million in additional group room revenue. As a comparison on a more stabilized basis in 2019, we added just over $18 million of group revenue during the fourth quarter. As we enter the year, our group room revenue for 2024 and 2025 is pacing up 8% and 13% respectively.
A hotel that had strong group performance this quarter was one of our largest hotels, the Marriott Crystal Gateway, where group room revenue grew by 21% compared to the prior year quarter. During the fourth quarter, the hotel was successful in increasing group room nights, which allowed the team to yield out lower rated transient and government per diem business, much of the increased production occurred over the traditionally slower holiday pattern between Christmas and New Year's.
Food and beverage revenue per occupied room grew by 8% and food and beverage margin improved by 284 basis points compared to the prior year quarter. On a full-year basis, food and beverage revenue grew 18% and food and beverage margin improved by 227 basis points compared to the prior year.
This was led by the Hyatt Regency Savannah and Renaissance Nashville, which achieved full year food and beverage revenue growth of 22% and 18%, respectively compared to the prior year. Ramp-up National had a record-breaking year with banquet revenue growing 24% compared to the prior year, the team was successful in backfilling lower-rated citywide demand with self-contained groups that had higher banquet and catering spend.
Hyatt Regency Savannah benefited from a brief shopping initiative, which we ran across our entire portfolio. This initiative optimized menu prices by benchmarking comparable items across an array of menus. In addition, our team aggressively increased the required minimum spend on catering contracts. These efforts throughout the year helped us achieve full year banquet revenue growth of 34% over the prior year.
Several key markets within our portfolio had strong quarters for example, our DT. hotels, which make up 12% of our portfolio by key count, increased comparable hotel RevPAR by 6% during the fourth quarter compared to the prior year quarter.
During the fourth quarter, despite the headwinds related to the potential government shutdown, which resulted in occupancy declined 50 basis points. Our hotel proactively remix into non government segments that drove rate by 6% compared to the prior year quarter.
Moving on to capital expenditures. In 2023, we completed the renovation of the lobby and bar at the Ritz-Carlton Atlanta, the meeting space at Embassy Suites Crystal City and relocated the concierge lounge and added a premium suite at Renaissance Nashville.
Across our entire portfolio, we spent approximately $110 million on capital expenditures in 2023, excluding development projects. For 2024, we anticipate spending between $85 million and $105 million on capital expenditures.
We reported outsized performance in revenue and profitability for 2023. And looking forward, group business is pacing favorably and positioning us well for the coming years. Food and beverage is strengthening and we are increasing ancillary revenue capture.
We continue to evaluate several new initiatives across our portfolio, such as additional brand conversions, strategic partnerships and higher renovations.
This concludes our prepared remarks, and we will now open up the call for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Tyler Batory, Oppenheimer.

Hi, good morning. This is Jonathan on for Tyler. Thanks for taking our questions. First one from me. With the Hilton Boston Back they announced this morning and the $70 million of expected net proceeds. Does that change how you're thinking about the remaining potential asset sales and the dollar amount or number of sales that you need to get comfortable paying off the Oaktree loan?

It does impact the overall analysis. Obviously, what we're attempting to do is just keep as much optionality open as we can in terms of determining what's the right path to get the financing paid off and off the net proceeds of $70 million have a decent-sized chunk of being able to pay down the financing.
So yes, so it does kind of impact it again, as we said in our remarks, we're unlikely to sell all of these assets. And but just given how choppy sometimes the sales markets have been, we've had, for example, a couple of of the assets that were previously under ally that fell through that we just wanted to create as much optionality as we can.
So it does seem like the odds, I think, of getting some these deals over the finish line continues to improve as the financing markets are improving, and we're seeing that ourselves as we're in the market as well.
I mentioned in our comments on several loans and refinancings. And so we have seen spreads come in. We've seen rates come down a little bit. So I think we're hopeful that that translates into the transaction market and we can get a handful of these assets over the finish line to be able to take out the financing.

Okay, excellent. Thank you for the color there. And then switching gears to the refinancing and can you maybe walk us through how you think about that, the gains that are potentially embedded there and any potential timing of when those refinancings can be completed?

Sure. I think most of the refinancing that we've mentioned are mostly like for like where they'll just be have refinancings of existing proceeds levels. The exception to that is the Renaissance Nashville that we mentioned, where we do think we've got the ability to pull some, what I would consider material proceeds out of there.
And we're not talking $1 million or $2 million, but potentially [$10 million]. And at the same time, unencumber Princeton, which is on our for-sale asset list. And so to be able to sell that here in the next several months. Unencumbered is obviously very helpful. And we think can generate a sizable amount of proceeds given the performance of that asset to continue to improve.
So we're looking -- we've got a handful of these loans in the market for most of them. We'd like to get them done in the next 30 to 60 days. But again, we'll see how the financing markets continue to you have to move.

Okay, great. I appreciate the color. And then maybe last one for me, Rob, I'll give you and the team a lot of credit for the communication and execution on the plan of first section in the cash trap.
Now working to take out the strategic financing, can you maybe walk us through the playbook of what comes after that strategic financing taken out? I mean, will the focus be on continued deleverage or maybe step on the growth pedal going forward or kind of how are you thinking about that?

Yes, that's a good question. And I think that's obviously where we want to get focus here is to kind of move past this stage of the kind of the HT story and move into the next one on. And that's why we're so focused on strategic financing, and they've been great partners. But the capital has been expensive and we think it's a demonstration that we're moving on to the next phase of the company.
I think it's a combo of things. I think one is at some point in time, we'd like to obviously turn a dividend back on. It's unlikely to be sizable right out of the gate, but it's something where we want to signal some health in the company by turning on dividends.
I do think this is a crucial part of why our non-traded preferred and all of the partnership that we have with Ashford Securities is so important because we do see that as potential growth capital to be able to go do deals that we like and to continue to grow on that side.
And I do think you'll see, I think, selective sales in order to delever and I think predominantly to clean up the portfolio just continue to invest in our higher quality assets. Assets we think are longer term. And we do have some assets, some lower RevPAR, full-service assets and a variety of select service assets that we don't think are necessarily key long term assets that we'd like to kind of clean up over time.
So there's there will be public at several moving pieces here. I think the improving the portfolio continue to delever, but then going on offense with the help of the Ashford Securities platform.

Great. I appreciate all the color and thank you. That's all from me.

Operator

Michael Bellisario, Baird.

Good morning, everyone. Rob, just first question, the $225 million of gross proceeds just for modeling purposes, how should we think about the net proceeds above and beyond the [$70 million] for Back Bay?

It's going to be probably somewhere, probably an incremental [15 to 20].

That's helpful. And then as were thinking about you paying off Oaktree, can you remind us what's the exit fee? What's the calculation there? How many more dollars might need to go out of your pocket above and beyond the stated principal balance and then any other share dilution potential?

Sure. I think the biggest factor in that is just really the exit fee and the exit fee is a total of 30% of the total principal balance that was drawn -- a 15% of the total principal balance that was drawn down, which was $30 million, and we currently have the ability to pay up to half of that in stock. So it's somewhere between $30 million cash to $50 million of cash on top of that [$183 million].

Got it. Understood. And then you didn't talk about it, but this sterling rate that you guys have created, I think it's seeded with four assets, but what are the longer-term plans there? Is there a thought to contribute more assets to that platform? And then how should we think about the fundraising for that non-traded rate versus what you're trying to do at the corporate level for your non-traded preferred fundraising?

Yes, let me take the first part of that, and I'll have Derek step in this to more actually involved on the sterling side than I am, but it is something where we want to contribute those for select service assets. We thought those were very high-quality assets. And it's just not consistent with what we hope to be the long-term strategy of Ashford Trust.
And it was so a way that we thought that potentially over time, if sterling is successful that there could be opportunities potentially to it sell assets over there for trusts on potentially for cash. But as we sit here today, we've got no intention, I think to contribute more assets into it. And it's something where it's just kind of a way to get them started. There were some benefits to trust to, again focus its strategy so but I'll let Derek take kind of the longer-term view on it.

Yes, in terms of the sterling Hotels and Resorts platform markets, it's a process to get that up and running, we are raising capital through Ashford Securities, which will go through a network, a syndicate of broker-dealers and RIAs.
And so that the process is being privately offered to accredited investors and we're optimistic that it's a pretty interesting way to raise capital. And especially when a scenario we've got hotel ResREIT trade at a discount to NAV and we can raise capital at NAV and allow investors to have some liquidity to get out at NAV that we think it will be a pretty interesting vehicle and structure for hotel investment going forward.

Got it. Understood. And then for the time being AHT effectively owns 100% of the shares and that runs through the P&L. Those hotels are just excluded from the comp base, correct?

That's right. So it's not exactly 100%, but very close to 100% currently. And that as we raise capital on that platform, that ownership will be diluted down, I anticipate that at the end of the fourth quarter, those Sterling properties were consolidated on Ashford's financial on Ashford Trust financial statements. That will be the case until that ownership is diluted down. So it's still kind of TBD on wind, those assets will become unconsolidated.

Helpful. Thank you.

Operator

Bryan Maher, B. Riley Securities.

Thanks, and good morning. Just trying to clarify the math a little bit. I think you said you had five assets under purchase sale, one under LOI. So six total $225 million. Does that $225 million includes [$171 million] from Boston?

Yes, those are all combined.

And does that number also include the Residence Inn in Utah?

Operator

Yes. It does.

Okay. So the other ones are kind of going towards a fairly low price together?

[It is full-service of] assets.

Got it. And you said that some were for sale, the transactions fell through. Can you give us any color on kind of why somebody would fall through and mainly who are buyers you're talking to that is that you're still marketing or the bigger entities? Are they local buyers?

Yes, to your question, I had actually been extremely encouraged by the kind of the breadth of buyers out there. And it's basically exactly, as you said, I mean, it's a combination of private equity have a variety of sizes.
I mean, it's everything from the big boys that we all could name two smaller funds that have been started up kind of looking to get their foot in the door, maybe it maybe it's groups and it started in select service assets and looking to get into the full-service side.
But then as well as these assets are ones that do have kind of regional pipes to them. I mean, there are a lot of local owner operators that are around Princeton, New Jersey that are in Florida. They're in the Southeast and with Savannah. So we're finding a good mix of both.
And in terms of why things are falling out, it's been typically of financing related or kind of just I know sometimes people get a little aggressive, maybe in trying to lock up a deal and trying to preempt a process. And then once they kind of get into it a little bit I realize maybe they got over their skis, but on each one kind of in its own little story and it's only been a few of them.
But again, that was one of the kind of the impetus to create, again, more optionality, just still see where we can get movement so that we're not just executing and trying to execute on one or two realize that process is going well or getting into Finish Line and having to pull through and then have to start all over again, we're trying to be much more aggressive and thoughtful about and putting lots of lines in the water and those that can create value the quickest and create a proceeds for us to move on from the strategic financing then they're going to win.

So are the assets that you're marketing for sale? Are you looking at it purely on an economic standpoint where you can get the most bang for your buck or are there assets in there where you're looking to lighten up on a market for one reason or another?

You're exactly right, price, both, but the frustration that we have is that as those markets or that asset may not be the one getting the traction that I wish. Right and so that's kind of the tension now but I would say that we had equal interest and equal kind of value on all of the assets.
And yes, that's absolutely something where there's maybe certain assets that have a lot of CapEx coming due. Maybe it's a franchise agreement expiring, maybe already have a lot of exposure there, whatever it may be and that all things being equal, I'd prefer that asset over another. But M&A, we just have to kind of, again, put them all out there and see what we're what we're dealing with.
And from a market and transaction standpoint, and then just do the best we can to navigate both. And there's obviously some of these assets that we're selling that I really like and that I would I would prefer to keep, but the reality that we've got to generate some proceeds. And so I'm kind of trying to minimize number of those and those assets that are selling trying to sell more of the ones I'd prefer to keep or reduce market exposure. But yes, we'll see how that process plays out in the next couple months.

And then just last for me, on pooled A and B, I mean this process has been going on for like at least six or seven months. What is the hold hold up on the banks taking these back. I mean, one would think that as long as the market is in a fairly decent out there and some hotels are transacting at that, there are buyers that they would take these things and flip them and what's holding this up?

Yes. So I'll give you a little bit of color that, hopefully because I promise you your frustration and our shareholders' frustrations do not match our frustration folks. And so what happens at least there's a little bit of complication around them like one, their CMBS loans. And just when you're dealing with CMBS trusts and you're dealing with the servicers and special servicers, they just aren't empowered to move as quickly and make decisions as quickly as a balance sheet lender.
So there's just a certain amount of process and their hand in buy the documents. And they are loath to do anything outside of those documents, just reliability reasons and then whatnot. So there's a very, I think, defensive minded aspect to just the process itself.
The keys S ended up moving a little bit quicker because one of the pieces someone was willing to step into the meds and buy it from one of the existing meds holders and that therefore it didn't have to go through kind of all of the same process, right? They could step into it much more quickly via the men's. So that's why that moved before this one.
This A and B is one where it seems that the MET isn't going to be participating and isn't going to be in it. And so that itself takes up time and process too and basically moved them out of the capital structure. Our understanding is that is recently been completed. And so we are hopeful that that therefore, is now clearing the path for this to move quicker.
But as we said in our comments, we don't know and so I literally do not know if I get notified today that this is going to be happening in a SAP or it's still going to be a little bit longer but what I can say is that there has been movement in some of this process and we are hopeful that it will be soon, but it's just a very complicated process and we are dealing with CMBS servicers and special servicers, or it just tends to be slow given the nature of the document.

Thank you. That's very helpful.

Operator

As of right now, we don't have any raised hands. I'd now like to hand back over to the management for their final remarks.

Thank you, everybody, for your time on this call today. We are very committed to getting the strategic financing paid off. We appreciate your support as we continue to execute and execute on this plan, and we will talk to you during our next quarterly call.

Operator

Thank you for attending today's session. We hope you have a wonderful day.