Q1 2024 Ashford Hospitality Trust Inc Earnings Call

Participants

Jordan Jennings; IR Contact Officer; Ashford Hospitality Trust Inc

J. Robison Hays; President, Chief Executive Officer, Director; Ashford Hospitality Trust Inc

Deric Eubanks; Chief Financial Officer, Treasurer; Ashford Hospitality Trust Inc

Chris Nixon; EVP & Head of Asset Management; Ashford Hospitality Trust Inc

Presentation

Operator

Thank you for standing by and my name is Greg and I will be your conference operator today. At this time, I would like to welcome everyone to the Ashford Hospitality Trust first quarter 2024 results conference call. (Operator Instructions)
I would now like to turn the call over to Jordan Jennings, Vice President, Investor Relations. Jordan, please go ahead.

Jordan Jennings

And to everyone, and welcome to today's conference call to review results for Ashford Hospitality Trust for the first quarter 2024. And to update you on recent developments on the call today will be Rob Hays, President and Chief Executive Officer, Deric Eubanks, Chief Financial Officer, and Chris NexCen, Executive Vice President and Head of Asset Management, 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.
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 this anticipated.
These factors 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 any statements made during this call do not constitute an offer to sell or solicitation of an offer to buy any securities securities will be offered only by means of a registration statement and prospectus, which can be found at www.SEC.gov.
In addition, certain terms in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables. One can't help but have been filed on Form 8- K with the SEC on May 7, 2024 may also be accessed through the Company's website at www.ahtreit. com. It us encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. Also, unless otherwise stated, all reported results discussed in this call compare the first quarter ended March 31, 2024 the first quarter ended March 31, 2023.
I will now turn the call over to Rob Hays. Please go ahead, sir.

J. Robison Hays

Good morning and welcome to our call. After my introductory comments, Deric will review our first quarter 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 of approximately $107 million remaining. We are making tangible progress with the plan.
We now have to pay this loan down by almost 50%. And we believe this is a crucial step in positioning Ashford Trust back on the path of growth. Our plan to accomplish this is multifaceted and provides us with significant optionality to accomplish this goal. It includes raising sufficient capital through a combination of asset sales, mortgage debt refinancings and non-traded preferred capital raising. We currently have several assets at various stages of sales process.
And while we're unlikely to sell all of the assets we are working diligently to determine which assets are capturing the most attractive valuations, also providing the largest impact to our deleveraging efforts. We have sold three assets we have another three assets under signed purchase and sale agreements and another five assets under letter of intent.
These 11 assets have a combined sales price of approximately $625 million as a demonstration of the significant progress we're making in these efforts. In March, we closed on the sale of the 144 room Residence Inn located in Salt Lake City, Utah for $19.2 million and adjusted the company's anticipated CapEx.
The sales price represented a 4.6% capitalization rate on 2023 net operating income for an 18.2 times 2023 hotel EBITDA. Excluding the anticipated capital spend, the sales price represented a 6% capitalization rate on 2023 net operating income or 14 times 2023 hotel EBITDA. All the proceeds from the sale were used to pay down debt. In addition, subsequent to quarter end, we closed on the sale of a 390 room Hilton Boston Back Bay and Boston, Massachusetts for $171 million, $438,000 per key.
All of the proceeds from the sale were used for debt reduction, including approximately $68 million to pay down the company's strategic financing also subs. Also subsequent to quarter end, we closed on a sale of the 85 room Hampton Inn in Lawrenceville, Georgia for $8.1 million. The sales price represented a 6% capitalization rate on trailing 12 months net operating income through March 2024.
Post these transactions, the remaining balance on our strategic financing is now approximately $1.7 million. And going forward, we plan to make further regular paydowns of proceeds from the sale of our nontraded preferred stock and other asset sales. Additionally, we recently announced to transfer the Company's possession and control of hotel properties securing the $180 million KEYS A Loan Pool and $174 million keys, Cielo keys B loan pool to a court appointed receiver.
We have been fully cooperating with the servicer for consensual foreclosure or deed in lieu of foreclosure on these properties since July 2023. As a result of this transfer, we have no further economic interest in the operations of these hotels. We're also working with lenders to refinance a loan secured by the Renaissance Nashville and Nashville, Tennessee, Morgan Stanley pool loan with 17 hotels located in several states, the loan secured by the Marriott Gateway in Arlington, Virginia, and a loan secured by the Indigo, Atlanta and Atlanta, Georgia.
We believe there could be substantial excess proceeds from the refinancing of the Renaissance Nashville loan, which can be used to pay down the company's strategic financing. Princeton, Westin, for which we are currently running a sales process will be unencumbered as part of this financing to the extent it is completed, we also continue to be excited about our non-traded preferred stock offering.
We continue to build up the selling syndicate and have signed 43 new agreements, representing over 5,884 representative selling the security. To date, we have raised approximately $122 million of gross proceeds, including $23 million during the first quarter. Given the progress we're making across asset sales, mortgage refinancings in our non-traded preferred offering, we continue to believe that we are on the right path to payoff the strategic financing in 2024 in terms of hotel performance, while our March operating results were a bit soft, which we directly attributed to the Easter holiday shift.
We saw market improvement in April with revenue growth for other of approximately 3% for the portfolio. We are seeing the benefit of a broadly diversified, high-quality portfolio that is balanced across leisure, corporate and group demand sources. And as we look for the remainder of 2024, we believe our high-quality geographically diverse portfolio remains well positioned to outperform.
I'll now turn the call over to Deric to review our first quarter financial performance.

Deric Eubanks

Thanks, Rob. For the first quarter, we reported net income attributable to common stockholders of $67.4 million or $0.6 per diluted share. For the quarter, we reported AFFO per diluted share of negative $0.35. Adjusted EBITDA for the quarter was $59.5 million. At the end of the first quarter, we had $2.9 billion of loans with a blended average interest rate of 8.1% 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.
We ended the quarter with cash and cash equivalents of $113 million and restricted cash of $136 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts and $2.7 million related to track cash held by lenders. At the end of the quarter, we also had $24 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 $183 million as of March 31, 2024 our consolidated portfolio consisted of 75 hotels with 18,021 rooms. At the end of the quarter, our share count consisted of approximately 42.1 million fully diluted shares outstanding, which is comprised of 40.2 million shares of common stock at 2.0 million OP units. While we are currently paying our preferred dividends quarterly or monthly, we do not anticipate reinstating a common dividend in 2024.
This concludes our financial review, and I would now like to turn it over to Chris to discuss our asset mix.

Chris Nixon

Thank you, Derek. For the quarter, comparable hotel RevPAR for our portfolio decreased 1% over the prior year quarter. Despite the RevPAR decline, our portfolio still achieved comparable total hotel revenue growth above the prior year quarter. Our team has been actively rolling out several initiatives targeted at our food and beverage and other revenue departments, which were up 4% and 17% on a per occupied room basis, respectively, compared to the prior year quarter.
Additionally, our first quarter business transient segment revenue was up 6% over the prior year quarter. I would like to take some time to dive into some of the success across our portfolio, including actively expanding our position, strengthening our food and beverage profitability and driving growth in one of our largest market group pace continues to accelerate across the portfolio.
Group rooms revenue for the full year is pacing ahead of last year by 7% with the second quarter through the balance of year pacing ahead by 8%, grew business both in the quarter for all future dates was secured at a 9% ADR premium over the business that was booked during the prior year quarter. Increases in group bookings are primarily being driven by association, multiyear and multi hotel bookings that are extending the overall group booking window.
Our 2025. Group rooms revenue pace is ahead by 15%, while year over year group lead volume has started to normalize. Conversion rates remained strong and the average group booking size continues to increase. As mentioned earlier, we are seeing success across the portfolio at our restaurants, bars, room service and banquet services.
Our food and beverage department profit was up 5% on a per occupied room basis compared to the prior year quarter. Broadly, we are seeing an increase from the banquet department. This includes audiovisual services, meeting room rental as well as food and beverage. One hotel that benefited from this was our Embassy Suites in Las Vegas, which was up 29%.
And the food and beverage department profit on a per occupied room basis compared to the prior year quarter, knowing that demand would be high surrounding the Super Bowl, our team proactively increased food and beverage requirements with each group adding a material amount of banquet and catering in order to secure their books.
Additionally, we influence each of the groups that have overlapping states to select similar menus, which reduce labor cost and food waste. We've been pleased with the strong performance of our assets and the Washington DC market, which accounts for 13% of our hotel count in the portfolio. These assets increased total revenue by 6% compared to the prior year quarter.
Additionally, hotel EBITDA margin expanded by approximately 99 basis points relative to the prior year quarter one hotel that I would like to highlight is the Embassy Suites Crystal City, which achieved total revenue growth of 19% compared to the prior year quarter. First quarter group rooms revenue exceeded the prior year quarter by 114%.
The hotel booked one of the largest revenue-producing groups in the history of the hotel. It was a short term military group that needed a building with qualified security measures, which allowed us to drive a rate premium. This group produced approximately $1.3 million in room revenue.
Group business generally provides an opportunity for additional profit, which helped expand the hotel EBITDA margin at Embassy Suites in Crystal City by 632 basis points during the quarter compared to the prior year quarter even when you exclude the extraordinary performance from the Embassy Suites Crystal City, collectively, our eight remaining Washington D.C. hotels experienced hotel EBITDA margin expansion.
Moving on to capital expenditures during the first quarter, we initiated a comprehensive renovation of the guestrooms and public space at the Embassy Suites, Dallas and a guestroom renovation at Marietta should have. Additionally, we are continually making progress towards the upcoming conversion of two of our properties with contract Key West, which is undergoing conversion into an Autograph Collection hotel and the conversion of PVR New Orleans into a Tribute Portfolio hotel.
Both conversions are expected to be completed later this year and will benefit from various robust sales, distribution and loyalty platforms. For 2024, we anticipate spending between $85 million and $105 million on capital expenditures. As mentioned earlier, our portfolio is building a solid foundation of our business. Our food and beverage department is excelling, and we are experiencing strong demand in various markets. The team has taken aggressive steps to drive margin and propel revenue. We continue to out to evaluate several new initiatives across our portfolio brand convergence, strategic partnerships and high-yield renovations.
That concludes our prepared remarks. We will now open up the call for Q&A.

Question and Answer Session

Operator

(Operator Instructions)
Tyler Batory, Oppenheimer & Co.

Good morning. This is Jonathan on for Tyler. Thanks for taking our questions. First one for me. Maybe for Rob or Chris, you guys noted the improvement in the portfolio in April compared to March. Can you talk a little bit more on that improvement? How much of that month-over-month again, do you think it's attributable to a favorable calendar share shift versus a pickup in demand?

J. Robison Hays

Yes. Thanks, Jonathan. We take the So March was down in RevPAR about 300 bps for the portfolio. And then as Rob cited, we saw April pop in revenue by about 300 bps. But the major factor is the holiday shift that probably accounts for at least half of that kind of shift. But in Q1, we also had warmer weather across the portfolio, which was not great for our portfolio. We saw there was a bit softer demand coming out of the Northeast for some of our destination markets.
Our airport hotels saw a reduction in distress passengers. And so we felt that in kind of a number of different fronts and all of which we think are kind of anomalies for Q1. So April definitely been it from the hub benefited from the holiday shift but there were some other factors that we don't expect to continue as we get into Q2 and beyond.

Okay. Very helpful. And then switching gears to the asset sales in the quarter. Can you help us think about how you're balancing doing some of these smaller deals, which seem to be getting pretty attractive cap rates versus larger sales like the Boston Back Bay asset? I mean, is it all just normal capital recycling? And is there a preference to do one type of asset sale versus another?

J. Robison Hays

It's a good question. I mean, there's a couple of different factors going on. I mean, one is, as we've said, historically, we'd like to reduce some of the exposure we have in the limited service side anyway over time, we obviously see that that portfolio will be more likely more focused on the full-service side. These had some loans that were coming due over the next this year.
And so the combination of loans coming due. Basically as a result, you could sell them on the loan. They were crossed with large numbers of other assets and focusing on strategy. It made sense to generate some proceeds for them. And you're right, we have seen that some of these smaller buyers are able to simply achieve cap rates that are and more attractive in some software seen on the on the bigger boxes.
But it's about that because there are some assets that we all things considered would maybe prefer not to sell, but they can generate significant proceeds, which is very important to us given the need to pay down our strategic financing. But then there's some other assets where they may have some significant CapEx coming up. I mean, even looking at the Boston asset, well, it has been a great asset for us. It does have a franchise agreement that's expired.
And next couple of years, we did think that CapEx that was going to go into was significant. And so as we looked at it was that the best use of capital across our portfolio. I think it was definitely for debate. And so that's kind of ticked a couple of different boxes for us on why to sell the asset.
So it really just kind of a mix and so I think as you see the other the assets that will continue to sell and it will be a balancing of Symlin service assets that will also continue to generate proceeds some less strategic long-term assets that maybe are avoiding CapEx dollars and then a couple of maybe higher quality assets that are able to generate some significant proceeds to the parent IT finance.

Okay. Thank you for all the for all the color. Then maybe last one for me. Can you talk about preferred rates, how that has rent compared to your original expectations and maybe remind us how much longer how much available room you have left on that?

Deric Eubanks

Yes, Jonathan, this is Derek. I'm happy to comment on that. I'd say we've been pretty pleased with the ramp in the capital raising. We've kind of hit a pretty consistent size where about $8 million to $10 million a month are coming in, and we hope that it will ramp up as we continue to make more progress in our deleveraging and paying off our strategic financing. We've almost paid off 50% of that.
So we're making a lot of progress there and because that's something that the dealers in the market and these investors like to see. So as we continue to make more progress there, we anticipate our syndicate of dealers that are in that range will expand. The raise goes through May right now May of 2025. So we've got some time left. There's an opportunity there to extend it if we wanted to. But I would say at this point, we're very pleased with the our level of capital raising and expect it to actually ramp up as we move forward.

Okay. Great. Appreciate all the color and thank you for the time, everyone and best of luck in your future endeavors. Rob.

J. Robison Hays

Thank you.

Operator

(Operator Instructions) And it looks like there are no further questions at this time. I will turn the call back over to management for closing remarks.

J. Robison Hays

I thank you for joining today's call. Steven Z, gray and the team. Look forward to speaking with you all next quarter.

Operator

Thank you. And ladies and gentlemen, that concludes today's call and thank you for joining, and you may now disconnect.