Ashford Hospitality Trust, Inc. (AHT) Q3 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the Ashford Hospitality Trust Third Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.It's now my pleasure to introduce your host Jordan Jennings. Please go ahead.

Good day, everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the third quarter of 2019 and to update you on recent developments. On the call today will be Douglas Kessler, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Chief Operating Officer. The results, as well as the notice of the accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday afternoon in a press release that has been covered by the financial media.At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the Safe Harbor 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 the 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 October 29, 2019 and may also be accessed through the company's website at www.ahtreit.com.Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. Also, unless otherwise stated, all reported results discussed in this call compare the third quarter of 2019 with the third quarter of 2018.I will now turn the call over to Douglas Kessler. Please go ahead, sir.

Good morning and welcome to our call. I'll begin by giving a brief overview of our third quarter 2019 results, followed by the progress we've made, executing on our strategy to pursue value added transactions, disciplined capital markets activity, and aggressive asset management initiatives. After that, Deric will review our financial results, and Jeremy will provide an operational update.Our third quarter performance benefited from our geographically diverse portfolio consisting of high quality well-positioned assets across the U.S. We believe that this geographic profile provides some very distinct advantages with respect to operating performance. Our actual RevPAR for all hotels for the quarter increased 3.5%, while comparable RevPAR for all hotels increased 1.4%.Comparable total RevPAR increased 1.9% for all hotels, highlighting our focus on growing ancillary revenues. For the third quarter comparable RevPAR for hotels not under renovation increased 1.7%. Additionally, we reported AFFO per share of $0.28 and adjusted EBITDAre of $103.1 million. We believe our portfolio is currently realizing the benefits from our recent CapEx spending, which is evidenced by the outperformance in our operating results.As we stated earlier this year, going forward, we anticipate our CapEx spending will be more consistent with our long-term historical levels. Our approach focuses on how to best capitalize on lodging and financial market opportunities, while at the same time being fluid in our strategic efforts. For example, despite the attractive features of our enhanced return funding program, we currently do not plan to add to our portfolio unless we can transact accretively without increasing our leverage. While we strongly believe the ERP improves our projected investment returns, we're prepared to be patient before accessing more ERP capital for new deals given the current stock price.Additionally, disciplined capital recycling is important component of our strategy. When we evaluate asset sales, we take into consideration many factors such as the impact on EBITDA, leverage, CapEx, RevPAR, et cetera. Towards this end, during the third quarter, we sold the 251 room Marriott Plaza San Antonio in San Antonio, Texas for $34 million. The sales price inclusive of the buyer’s estimated CapEx represented a trailing 12-month cap rate of 4.9% on net operating income and a 17.1 times hotel EBITDA multiple as of June 30, 2019.After the loan payoff and transaction costs, the net proceeds from this sale were proximity $6 million. We also completed the sales of the 156 room Courtyard Savannah Downtown in Savannah, Georgia, and the 128 room Hilton Garden Inn in Wisconsin Dells, Wisconsin, for $37.8 million. The combined sales price inclusive of the buyer’s estimated CapEx represented a trailing 12 months cap rate of 5.3% on net operating income, and a 16.2 times hotel EBITDA multiple as of June 30, 2019.Proceeds from the sales were used to pay down debt. Note that these sales EBITDA multiples were significantly higher than where overall portfolio is probably valued in spite of our portfolio having higher RevPAR than each of these sold hotels. We strongly believe this is indicative of a greater intrinsic value of our assets when compared to current market metrics. Regarding asset management, I'll provide some highlights, Jeremy will cover in more detail.We continue to engage in beneficial strategies that we believe will create long-term value. This month we announced the sale of a 1.65 acre parking lot adjacent to the Hilton St. Petersburg Bayfront to a condo developer for a total consideration of $17.5 million to be paid over time. This price exceeded appraised value. Net proceeds from the first payment tranche resulted in $8 million of debt pay down.When finished, the project will provide us with upgraded covered parking for our hotel guests. Also in October, we entered into a new franchise agreement with Marriott International to convert our Crowne Plaza Key West La Concha to an Autograph Collection property by July 2022. The agreement includes a $13.7 million property improvement plan, of which approximately $7.8 million we believe is incremental and should yield a 19% unlevered internal rate of return. We anticipate the conversion will create a distinctive theme and style for the hotel that is commensurate with the upper upscale Autograph product. With its prime location in Old Town Key West, the upbranding of this landmark hotel should elevate the property into a desirable niche in a very attractive high barrier to entry high RevPAR Key West market.We also recently announced the new franchise agreement for the 252 room Hilton Alexandria Old Town whereby the hotel transitioned from being Hilton managed to being managed by Remington Lodging. We believe that there's a valuation premium for franchised hotels and this management conversion did not trigger a property improvement plan. Hilton Alexandria, La Concha and Hilton St. Pete are excellent examples of how we go about unlocking embedded value in our portfolio.Turning to our balance sheet, we believe in the benefits of an appropriate amount of non-recourse property level financing to enhance equity returns. We have a targeted range of net debt to gross assets of 55% to 60% and we anticipate returning to that range over time. In fact, you can see that we are working to make progress given that most of our recent sales proceeds were applied to reduce outstanding loan balances. Our loans are mainly floating rate, which we believe provides a natural hedge to our cash flows, and positions us to benefit from recent interest rate movements.At the beginning of this year LIBOR was 2.51% and currently it is 1.79%. Every 50 basis point reduction in LIBOR would result in approximately $19 million of annual interest savings based upon our current capital structure. In addition, with all of our refinancing activity, we believe we have an attractive well laddered maturity schedule.We also seek to maintain a high cash and cash equivalents balance between 25% and 35% of our equity market capitalization for financial flexibility. We note that this excess cash balance can provide a hedge during uncertain economic times, as well as requisite funds to capitalize on attractive investment opportunities as they arise.As of the third quarter of 2019, our net working capital totaled $346 million, equating to approximately $2.79 per share, which represents a significant 107% of our current share price as of yesterday's close. This is really remarkable when you consider that on top of this net working capital, we have a portfolio of 118 high quality predominantly upper upscale hotels. Apparently, these assets, many of which have been recently refinanced at reasonable loan to value levels are not getting much equity value credit in the public market.To help address what we see as an intrinsic value gap, we continue to be active with our investor outreach efforts. We recently held a well intended Investor Day in New York. If you were not able to join us, I encourage you to go to our website and watch the webcast. For the remainder of the year and into 2020, we will expand our efforts to get out on the road, to meet with investors and to communicate our strategy and the attractiveness of investment in Ashford Trust. We look forward to speaking with many of you during upcoming events.In summary, we remain committed to generating solid operating performance, completing opportunistic transactions, and proactively managing our balance sheet. We believe we have multiple core competitive advantages that should lead to outperformance, and that make Ashford Trust an extremely attractive long-term investment. For example, our investment focuses predominantly on upper upscale full-service hotels, but we also have balance in our portfolio given that we own select service hotels as well.With respect to our asset management initiatives, we remain diligent in exploring ways to increase profitability and create more value in our existing assets. Our affiliate companies are high quality service providers that seek to maximize the value of our assets and improve guest satisfaction. Adding to the list of competitive advantages is our capital markets execution given that we believe we have proven our financial expertise over multiple cycles.With approximately 17% insider ownership, we believe we have tremendous alignment with our shareholders, which encourages us to think and act like owners to maximize long-term total shareholder returns. Looking ahead, we remain confident that we are well positioned to outperform.I will now turn the call over to Deric to review our third quarter financial performance.

Thanks Douglas. For the third quarter of 2019, we reported a net loss attributable to common stockholders of $41.8 million or $0.42 per diluted share. For the quarter, we reported AFFO per diluted share of $0 28. Adjusted EBITDAre totaled $103.1 million for the quarter, which represents a 1.3% increase over the prior year quarter.At the end of the third quarter, we had $4.1 billion of mortgage loans with a blended average interest rate of 5.3%. Our loans were 9% fixed rate and 91% floating rate. We focus on floating rate financing as we believe it has several benefits. Also, as Douglas mentioned, we believe we have a well laddered attractive maturity schedule, with a weighted average maturity of 5 years assuming all loans are fully extended.Our loans are non-recourse and we have no corporate debt. In terms of upcoming maturities, we have zero final maturities remaining in 2019. When you see loans in our debt table that have extension options, most of those extensions have no test in order to extend except that we purchase an interest rate cap and that the loan not be in default. That's why we include another schedule in earnings release which shows our debt maturities assuming all extension options are exercised.I will also point out that we have interest rate caps in place on almost all of our debt to protect us against any sort of spike in rates. Additionally, the current forward LIBOR curve shows LIBOR coming down through the remainder of 2019, which would potentially lower our interest costs even further.Looking at our cash and net working capital, we ended the third quarter with $256 million of cash and cash equivalents and including the market value of our equity investment in Ashford Inc. we ended the quarter with net working capital $346 million. As of September 30, 2019, our portfolio consisted of 118 hotels, with 25,017 net rooms. Our share count at quarter end stood at 124.1 million fully diluted shares outstanding, which is comprised of 102.1 million shares of common stock and 21.9 million OP units.With regard to dividends, the Board of Directors declared a third quarter 2019 cash dividend of $0.06 per share or $0.24 on an annualized basis. Based on yesterday's stock price, this represents a 9.2% dividend yield.In October, we entered into a stock purchase agreement with Ashford Inc. Under the agreement Ashford Inc. purchased 393,077 shares of its common stock for $30 per share, resulting in total proceeds of approximately $11.8 million to the company. The purchase price reflected a premium of approximately 20% based on the closing price of Ashford Inc. common stock on October 1, 2019. We also announced a plan to distribute the remaining 205,086 shares of Ashford Inc. common stock on a pro rata basis to Ashford Trust common shareholders and unitholders. The pro rata distribution is expected to be completed on November 5, 2019, to shareholders of record as of October 29, 2019.This concludes our financial review. I would now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Thank you, Deric. Comparable RevPAR for our portfolio grew 1.4% during the third quarter of 2019. Comparable RevPAR for those hotels not under renovation grew 1.7%. This growth represents a 1 percentage point gain and a 0.8 percentage point gain relative to the total United States and the upper upscale class nationally respectively. Year-to-date comparable RevPAR for the entire portfolio has grown 1.6%. During the third quarter, hotel EBITDA was essentially flat, decreasing 0.3%, year-to-date hotel EBITDA has grown $4.4 million.I want to update you on the performance of some of our most recent acquisitions, which were acquired in combination with funds from the Enhanced Return Funding Program that we have in place with our advisor Ashford Inc. First is the Hilton Alexandria Old Town, which we acquired in June 2018. Comparable RevPAR increased 5% during the third quarter. The RevPAR growth represents an increase of 0.5 percentage points relative to the Washington D.C. Maryland, Virginia market. The hotel benefited from July and August citywide compression. When we acquired the hotel, we had the right to convert it from Hilton-managed to a franchise. We exercised this right, and Remington Lodging took over management of the property on October 1st. Remington is budgeting higher RevPAR growth going forward for the hotel than Hilton management was either forecasting or actualizing, indicating untapped potential.In addition, in December, we will begin the build-out of a new lobby grab-and-go market that will be completed during the first quarter of 2020 and should provide additional total revenue upside.Our next ERFP acquisition was La Posada de Santa Fe, which is a hotel in Marriott’s Tribute portfolio that we acquired in October 2018. During the third quarter, comparable RevPAR grew 8.8%, driven by 4.8% occupancy growth and 3.9% rate growth. This RevPAR growth represents 3.6 and 3.3 percentage point growth relative to the hotel’s competitors and the New Mexico North market, respectively.Year to date, comparable RevPAR has grown 12.7%. Versus the same benchmarks, this growth represents increases of 9.1 and 10.8 percentage points. We continue to see significant growth in transient booking following the Marriott reservation merger. In addition, Marriott Bonvoy redemptions have provided an additional $50,000 of revenue per month. During the third quarter, we were not only able to realize strong revenue growth, but we also saw a 22.6%, or $356,000, increase in hotel EBITDA, with hotel EBITDA flow-through of 67%. Year-to-date, hotel EBITDA has grown 27.4%, or $641,000.Another ERFP success story has been the acquisition of the Embassy Suites New York Manhattan Times Square in January of this year. Comparable RevPAR during the third quarter grew 14.5%, driven by 10.6% occupancy growth and 3.6% rate growth. This RevPAR growth represents increases of 16.7 percentage points and 16.5 percentage points relative to the New York City market and the Midtown South submarket, respectively. Year-to-date, comparable RevPAR has grown 23.7%.Our revenue optimization team has focused on driving longer stays in order to cover shoulder nights. Year-to-date, Hotel EBITDA has grown $1.7 million, or 42.0%. We plan to continue to build on the success experienced since the property’s opening in 2018.Following the favorable performance of our recent acquisitions, I want to call attention to the diversity of our portfolio and how we see this as a benefit, especially given where we are in the current cycle. During the third quarter, industry wide RevPAR for the top 25 markets decreased 0.4%. RevPAR growth for all other markets in the United States was up 1.3%. We expect our RevPAR to continue to benefit from the diversity of our portfolio, especially from those hotels outside of the top 25 markets.Not only is the diversity of our portfolio important, but we are always looking to leverage the value of our assets, as Douglas highlighted earlier, by determining their highest and best use. To that end, we recently announced that our Crowne Plaza Key West La Concha will be converting by July 2022 to Marriott’s Autograph Collection, a diverse portfolio of approximately 180 upper upscale luxury hotels around the world. Approximately $7.8 million in incremental capital expenditures will be needed to update the exterior, guestrooms, guest bathrooms, corridors, lobby, restaurant, lounge, pool, and meeting space under the Property Improvement Plan. The limited availability of full-service Marriott branded product in the heart of supply constrained Old Town Key West presents us with this unique opportunity to upbrand our hotel and capitalize on Marriott’s strong distribution capability.Another way in which we are creatively maximizing the value of our assets is evident at the Hilton St. Petersburg Bayfront, where we were able to sell the parking lot adjacent to the property at above appraised value to a developer who will be building a 35-story condominium and parking garage. The end result will be an adjacent potential demand generator along with upgraded covered parking where we will own 205 spaces. We also negotiated a restriction that prevents a future competitive hotel or use as temporary lodging.While we are discussing the Hilton St. Petersburg Bayfront, I would be remiss to not mention that, during the third quarter, comparable RevPAR grew 10.2%, and hotel EBITDA grew 28.1%, or $178,000. The RevPAR growth represents increases of 9.8 and 6.5 percentage points relative to the Tampa/St. Petersburg, FL market and the St. Petersburg, FL submarket, respectively. Year to date, Comparable RevPAR has grown 11.9%, and Hotel EBITDA has grown $358,000. The future of this hotel and market look bright.In addition to our focus on continuously looking for ways to maximize asset value, I will highlight a number of other steps we are taking in order to control costs and drive ancillary income. The following list is meant to be illustrative, but not exhaustive. First, we have analyzed our hotel’s competitors to find opportunities in our restaurant and banquet prices which led us to roll out price increases at many of our properties over the summer. We are also focused on directing e-commerce spending to various digital programs to increase visibility and advertising to the leisure and group segments. For example, in the group segment, we are working diligently to increase exposure to group leads.In terms of cost management, we are utilizing programs to introduce more efficient methods of performing work duties to reduce payroll hours. To save costs and reduce environmental waste, we have added wall-mounted soap and shampoo dispensers in the guest bathrooms at our independent hotels. And lastly, we continue to complete operational deep dives at our properties to ensure expenses are at the proper levels. Given all of the above efforts, we are proud to say comparable total hotel revenue, excluding rooms revenue, has increased 4.4% year-to-date, or $9.8 million.During 2019, we will continue to invest in our portfolio to maintain competitiveness. In total, we estimate spending approximately $145 million to $160 million in capital expenditures during the year. This estimate is more in line with industry averages as a percentage of revenues compared to the significantly higher amounts we have deployed in recent years. We have completed guestroom renovations at Marriott DFW Airport, Embassy Suites Crystal City, Hyatt Regency Coral Gables, and five select service hotels. We have also completed lobby renovations at Marriott DFW, Marriott Crystal Gateway, and Westin Princeton. We continuously identify opportunities to create value throughout the portfolio. To that end, the first and second phases of the Renaissance Nashville redevelopment are complete, which included the build-out of meeting and event space. Furthermore, we have identified accretive opportunities to add additional keys within our portfolio, including two keys at the Embassy Suites Crystal City and one key at the Hyatt Regency Coral Gables.I want to elaborate more on the Renaissance Nashville. Despite being under major renovation throughout most of 2019, comparable RevPAR has grown 3.1%. Incredibly, this RevPAR growth represents increases of 5.7 and 4 percentage points relative to the hotel’s competitors and upscale and above chain hotels in the Nashville, CBD submarket. Hotel EBITDA has grown $4.8 million, or 26.0%, with hotel EBITDA flow-through of 55%. Let me take this opportunity to highlight even further the incredible job our affiliate Premier Project Management has done during this major improvement project. Using their stealth renovation program, which is designed to significantly minimize the impact to guests, Premier has contributed to the hotel gaining significant market share despite being under a substantial ongoing renovation.Following the renovation, Q4 group pace is up nearly 20% and 2020 group pace is up 15%. Catering pace is up substantially for both of these time periods as well. Not only has Premier helped our bottom line through their work during this renovation, but they were also recently recognized by Marriott for the incredible design and space they created. In addition to Premier’s positive impact on the property, I want to also note that since JSAV audiovisual took over audiovisual services at the hotel, revenue per group room night has increased over 50%.That concludes our prepared remarks and we will now open the call for Q&A.

Thank you. We will now we be conducting question-and-answer session. [Operator instructions]. Our first question today is coming from Tyler Batory from Janney Capital Markets. Your line is now live.

First question probably for Jeremy. Can you talk a little bit more about the demand environment and general trends in the quarter? I think it might be tough with the hurricane and some holiday shifts, but your results obviously outpaced the [SDR] data? So just curious how the quarter came in versus your budgets? And then additionally, I understand that you don't give guidance, but as your view on where we are in the lodging cycle change at all, just given some of the data that's been out there the past couple of months?

Sure. Okay, so for the quarter, group and government were both healthy in Q3. And in fact, group grew over 5% or just under 5% for the quarter in terms of year-over-year RevPAR growth. And we believe the government demand actually helped our D.C. hotels perform pretty strongly. You can look at market, D.C. stood out as an outperformer for us in the quarter. We also think our D.C. exposure is going to help us in tougher times analyzing cycle. Transient growth for the quarter was just under 1%. And then when you segment that out, our negotiated was up slightly, and our leisure was down slightly. But overall transient growth was up 1% for the quarter.And then we experienced growth in direct booking channels, so our brand dot com channels continue to outperform. The OTA channels were down year-over-year, which is obviously a good thing for us. And then when you look at -- to the latter part of your question kind of turning the corners to future quarters or 2020, we don't give guidance and it is -- there's some elements out there that I'm pretty optimistic about, when you look at the TravelClick data across all the different top 25 markets, for the first time and probably the last, maybe six weeks and we've been tracking it. We've seen an uptick in occupancy, but a lot of that is going to be obviously group positioning for the entire industry. So given that most of our bookings and most of the industry bookings are three to four weeks out, I wouldn't read into that too much. But for our portfolio, we do see some healthy potential increases in negotiated rates.We're in that process right now and I would estimate that we're going to land somewhere between 2% to 3%, year-over-year increase in our special corporate negotiated rates. And then from group perspective, as we stand right now we have 50% on the books as -- if you compare like our 2018 total group rooms revenue, 50% of that's already booked, where we stand right now and that's up 3% in terms of group pace for all next year.

Hey Tyler, it's Douglas. Let me just maybe comment also on just a broader view of the economy and whatnot. Obviously, there's a lot of talk about a recession. And I think that people are looking at maybe slight fissures in economic reported information and expanding them into cracks, because they want to talk about a recession. And I think that while there certainly feels like there's some softness in some of the numbers, we're obviously monitoring and we’re planning for both upside and downside. But when you look at our portfolio and you look how it compares to the national averages, if you think about some of the trends, so 11 of the top 25 markets had negative RevPAR for the third quarter.We have both top 25 market exposure, as well as non-top 25. And for us, only eight of our top 25 markets had negative RevPAR. But we also have 26% of our EBITDA, which is outside of the top 25. And so I think that the balance of our portfolio, as we commented in our prepared remarks helps us and along with the recent movement in interest rates helps us and I think that we've been through recycles before and I think that we are staying on top of every movement to the positive or to the negative hoping to see catalysts in the economy but also preparing for the continued up and down movement of various data points and seeing how that impacts the lodging demand numbers.So, I think we're taking all the right steps across many levels of the platform, also having in mind the fact that we spent a lot on our assets in the recent years. And so I think we're well positioned and we continue to grab greater market share as a result of that.

And just a follow up. Obviously, you have a lot of financial flexibility here, cash on the balance sheet. Any updated thoughts on what you could do with some of that capacity, when would share repurchases start to make more sense than paying down debt?

So we’ve got I think a really good track record of exercising buybacks, if you look at our history. And when we think about what to do with our cash, we're obviously looking at a lot of opportunities. We're trying to also seek a balance in our cash position, our leverage, transactions that are available in the market and the opportunity to buy back stock, but also taking a view on what impact that could also have on decreasing our float. And so share buybacks are in options for us clearly at the right time and we're hopeful though that our strategy of selling some assets, improving our operational performance and working to lower our leverage will actually results in improved share price. But it's something that's -- specifically share buybacks continue to be on our radar and we'll just see how the few quarters progress with respect to that.

Thank you. Our next question is coming from Michael Bellisario from Robert W. Baird. Your line is now live.

I know you made a quick comment on CapEx, but can you maybe give us your high level initial thoughts on 2020 CapEx plans and maybe just directionally how you're thinking about spend next year versus this year?

So we've been spending quite a bit as over the past few years on CapEx well above the kind of the industry averages. We've been sort of in the 13% to 15% of our revenues, which again I think has positioned our hotels well and we expect to see tailwinds from that impact of refresh properties relative to their competitive set. And I think that's proving up in our numbers, as we demonstrated this quarter.For 2019, we clearly stated and are showing that we're spending less than the approximate $207 million that we spent in 2018. And in our prepared remarks, we're going to be in the 150-ish range as we said in our CapEx spend for 2019. We're working on the 2020 numbers, and it's a little bit early to tell. But I would say that generally they're going to be commensurate with this year, perhaps slightly lower, but in that general range but more work to be done on that point. And we're excited about what we completed on our hotels. We've currently announced a couple of other really exciting additional opportunities such as the upcoming conversion of the Key West La Concha property to an Autograph Collection, which we think is going to be a big benefit to that asset in improving its market share and improving RevPAR and just delivering better results relative to what we've been able to achieve out of that asset. So opportunities like that we think really can move the needle with respect to our CapEx expenditures.

And just thinking about the Remington transaction, does it fully combine Ashford Inc. change the way you guys underwrite either renovations or new investments. And then should we be thinking about any potential operational lift at the property level once the transaction is complete?

I think the general view would be no real change. It’s business as we've been conducting business. I think the real benefit is in the Ashford Inc. platform with the consolidation of all of these various ancillary services that really create a very unique company with respect to hotel services and hotel financing and hotel operations and hotel project management. And so that's a very special entity that has I think, numerous growth opportunities, with respect to the companies that they own, potentially companies that they will acquire, as well as the growth of new platforms potentially to enhance the revenues coming into that company.Ashford securities was recently announced as a potential source of capital to grow assets under management within that operation. With respect to impact on Ashford Trust, we will continue to benefit from the exceptional service that we get, cost effective, great delivery that we've been experiencing over the years and we're excited about that combination, maybe slightly a little bit more fluid. But other than that, no real change in what we would expect out of that relationship.

And then just lastly a housekeeping item, what's the timing of that next tranche for the Hilton St. Pete proceeds?

That is still subject to some work that the developer needs to take in order to hit certain thresholds for whether it's commencing construction or obtaining the construction financing and then getting the certificate of occupancy. So it's multiple tranches of receipt of that payment. And I'd say at this point, when we have time limits on the actual receipt hereof those funds, it's still just kind of kicking off with respect to that. So it's going to be over time.

It sounds like it’s a few years out then, is that correct?

Sorry, say that again.

It sounds like it's a few years out then, if not two or three quarters from now?

It's possible that we could start getting additional payments in the near-term, but I think it's really a staged payment to us as certain thresholds are achieved.

Our next question today is coming from Bryan Maher from B. Riley. Your line is now live.

So staying on St. Pete for a minute. Is that lot currently used for hotel guests and what happens to the hotel guest parking when that goes under construction?

So the lot is currently used by hotel guests for parking, surface level parking. And we have clearly made arrangements to protect the parking access either through valet parking on nearby surface lots and with payments for that coming from the developer to pay for that cost from a valet standpoint. It’s something we clearly studied, evaluated the efficiency of being able to do that. And then at the end of the day when the development is complete, instead of just surface parking, we will have the benefit of a beautiful parking garage with 205 owned covered spaces.

Yes, Bryan, this is a heavily negotiated and evaluated part of this overall transaction. And so I would -- for your purposes we just don't see that there's going to be an operational impact, if anything because of some of the subsidies we negotiated. There might actually be a little bit of a net positive in terms of the bottom-line, but I wouldn't assume this is really going to impact property.

And then just shifting gears you guys have dribbled out a few hotels over the past quarter. Should we continue to expect maybe one or two asset sales per quarter? And if so, are those inbound calls you're receiving or are those kind of marketed transactions?

The assets that we sold recently have been marketed transactions and I think anyone todaythat has a high quality portfolio is also getting inbound calls, just because of the lack of product that's on the market today and we evaluate inbound calls. We also look at our asset base. And as we’ve talked about in the past, we're very thoughtful about how we think through the decision to sell an asset. We take into account what its RevPAR relative to our portfolio is, what the potential future CapEx is and what the return might be on the CapEx. We look at the leverage levels. We look at the debt pools that the assets are in. And so I think what you've seen us do so far has been executed quite well. We sold lower RevPAR assets, many of which were in either weaker markets or at a higher CapEx than we really do think that we will get value out of. And that we sold those assets at materially higher multiples than where our portfolio trades today, even though our portfolio has a higher overall RevPAR than those assets that are sold. So I think that's great execution. And we've always said that we're going to not sell just for the sake of a sales strategy, but we're going to be very economic about our approach and we don't comment on future sales until they actually occur. So we will just leave it at that for now.

And just stay on that for one second. On the inbound calls that you're receiving more, are kind of opportunistic buyers or just buyers that need or want to be in a specific market and your hotel happens to be there?

I think it's a variety. Look what's fascinating I think if you look at the public market versus the private market, there's clearly a value disconnect between public market, lodging REIT values versus how the private market is valuing assets. And there is this abundance of capital in the private side that we’d like to be in hotels. And yet when you think about the transaction activity this year, one survey that I looked at showed that there was a 28% decline in the number of single asset sales and a 42% decline in the dollar volume of single asset sales. And just when you look at the third quarter data, you realize that there's just not a lot of product out there. So it's easy to target the public companies whose portfolio is readily accessible on websites and people can look at and say, I'm an owner operator in this market, I like that hotel, I have two other hotels in the vicinity, I see operational synergies or people that just have an interest in being in a certain city. So there's a wide variety of interest both coming from private equity funds, as well as regional owner operators when it comes to unsolicited appetite.

And to that end, look, I mean Douglas, you know we speak with a lot of buy side investors. And from our vantage point, we talked to a lot this summer that we think it might sell though to them if you continue down that course and redeploy, I don't know, one-thirds the share buybacks of net proceeds and two-thirds the data or something like that. But I think a lot of people we've spoken with thought for sure you guys would have been in the market sub $3 buying back stock, particularly with how much cash you guys have.

So I think in my earlier comments with respect to the balance that we're trying to achieve across the items that I mentioned, holds true. And yes, you've seen us clearly execute on a share buyback strategy that had significant benefit to shareholders at the time that we executed on it. And we're trying to find the right balance between that strategy, as well as sales of assets, cash flow, all the things that I mentioned and others that really are relevant to a longer-term perspective on seeking to increase total shareholder returns.

I understand that and I heard what you spoke with Tyler about. But I would just suggest that I think would play really well with the investing community to see some split on the net proceeds, because it just leaves everybody scratching their heads as to what is the level that you step up to the plate? Is it $1? Is it $2, where is it? We don't know, but I think a lot of the people we spoke to thought it was something below $3. So I just wanted to put that out there. But that's all I have.

I appreciate that Bryan.

Thank you. Our next question today is coming from Robin Farley from UBS. Your line is now live.

My question was related to the last topic, not so much on the share repo, but on the idea of your comments about the intrinsic value being greater than what the market is giving you credit for. And I know you said, you won't comment on things before they're sold. But maybe if you could just give us a sense of -- increases your appetite, you want to sell some assets. And then are you seeing that type of demand that you talked about, the abundance of private capital? Are you seeing that type of demand across your whole portfolio? Or were there sort of property specific reasons that the transactions you did announce went at those levels? Thanks.

Well, for the assets that we've taken out to market, we've been very pleased with the execution. So whether it's a deep buyer pool for some assets or just that one buyer who strategically wants that asset in their portfolio, the pricing we've been happy with. Otherwise we won't execute it if it's not something that we feel that we're going to get value and benefit from. I can't really comment on the rest of our portfolio, because we obviously haven't -- that would take a widespread marketing effort to evaluate what the demand is for some of those assets.But I think the way that I would reference kind of the level of interest, which is, when I think about some of the other assets that have been put up for market and the depth of the buyer pool, because we may still be looking at assets, even though we're not actively seeking to deploy our capital at the current share price, we still stay in the flow of deals. And I look at some of the prices and the depth of buyer pool and it's interesting, because the cap rates are holding up and if you look at some of the national averages even from CBRE cap rates are relatively flat over this time period compared to last year. The one comment I would make is that it would appear that there's some slight improvement in cap rates in terms of lower cap rates for secondary and third tier cities, whereas some of the more urban markets which have experienced a little bit more new supply, there's been a very slight uptick in cap rates but not meaningful either way other than just a comment that cap rates are generally flat across the board, which I think indicates the more bullishness that the public -- or excuse me the private market has relative to the public market where you're seeing multiple contraction.

And we've been focused on the lower quality assets. And so you can look at the assets we bought, much higher quality on average in our portfolio, and so I think we continue to elevate the quality of our overall portfolio.

And then just maybe the last question when you're giving commentary on business transient versus leisure transient. Is this the first time -- it’s like maybe the first time you commented that leisure transient was down. It seems like that's been over the last few quarters. I am just wondering if you have any insight on to what's driving that?

I don't have any insight and I don't know that it is necessarily a trend at this point. It was just a mix in our business for the quarter. But it was nice to see that we had a healthy increase in corporate demand as that our portfolio is much more weighted towards corporate and leisure.

Thank you. [Operator instructions]. Our next question today is coming from Chris Woronka from Deutsche Bank. Your line is now live.

I had a question I guess for -- I had question for Jeremy. Jeremy, I think you mentioned earlier in the prepared comments that you're hoping to get maybe 2% to 3% increase on the corporate negotiated rates. Can you maybe tell us what you’ve got for '18? And then are some of the renovations, is that kind of -- if you were lower than that for '19, was that maybe due to some of the renovation activity?

Yes, sure. So we were actually we were actually hopeful that we’re getting 2% to 3% for '19 and that's where we landed but some of the accounts that were lower rated accounts grew more than the higher rated accounts. And so that mix kind of actualized. I think we're trending a little bit under 2% for this year in terms of where we actually end up. And it's hard to predict because there are movements between all of your accounts, but as it stands right now all things being equal we’re in the 2% to 3% range for next year. The second part of your question was on how CapEx raise has impacted, is that correct?

Yes, that's right.

Yes, I think it does and we certainly leverage the investment we put in our portfolio both from a group and from a business standpoint and really market our properties I think very, very well coming out of renovation and if you look at Nashville being an incredible example where this is mainly on the group side, but the type of the quality the group business, the outlook of the group business we have with that renovation has been phenomenal and that has been a direct result on our teams working with the property teams to really market and advertise the investments that we've done and we do that certainly as part of the special corporate or negotiated rate process as well.

And then just kind of going back to the commentary about corporate being a little bit stronger in the third quarter. Is there any, I guess discernible trend among bigger accounts or smaller accounts or industries or anything like that, that you feel changed since earlier in the year?

Now, I'm not prepared to comment on any initial trends at this point just because it could change very quickly, as you know. And I think if you look, six weeks ago, we looked at actually really over the last probably year and a half, we always look at forward-looking data for our hotels, as well as all the top 25 markets. And the only trend I've seen is that for the first time in quite some time, we've seen a pretty good healthy outlook across the board in commitments and bookings.Again, a lot of that's group related and it's just hard to know is that going to be a continued trend on a go forward basis, because, so mentioned, our average booking window is three, four weeks out, it's just really, really difficult to kind of see if that could actually actualize where we stand right now.

And then I guess one for Douglas, come back to the capital allocation maybe a slightly different way, which is, do you guys have internally some -- is it kind of a formulaic view on capital allocation in terms of where you might repurchase stock or deleverage or is it more of a gut feel or based on your expectations of the economy or interest rates. Just trying to get a sense for a little bit of a peel backing on how you guys look at it internally?

I think it's all of those Chris and others as well that we're looking at. It's a 360 degree view of where's the best place to allocate capital and not necessarily at the immediate moment, but also a perspective on where the industry or where the economy is headed that leads into that decision making. So it's tough to do that on a purely formulaic base, because the variables are constantly moving. And I think you have to have some judgments, some experience and a perspective on obviously the metrics, the impact that it does have on the various key features of our platform, liquidity, our view on share price, our view on leverage levels, our view on a lot of different components to arrive at a decision.And sometimes that decision may be just to wait and see what direction things go. And so, we have experienced, we've been through numerous cycles. And so I think keeping all those in the right perspective will help us arrive at the appropriate decisions when it comes time to utilize that capital for whatever purpose it may be used for.

And then just a quick follow up to that, Douglas. Have you guys -- again, like internally, do you take a view of the market and have you studied? I'm trying to get a sense I know you guys do a lot of analysis I know and that can be helpful. And I'm just curious as to whether kind of you have a internal view of the market itself that maybe drives some of the -- again, some of these other decisions that factor into allocation?

But we definitely are analytical and I think we come through more data both hotel related, as well as broader based economic information, financial information to arrive at our strategies. And I think that just one general comment I would provide is that I feel like this cycle is different than any prior cycle. We have certain features to it that look and feel different. For example, home sharing is a bigger component of this cycle than prior cycles. I also feel like the financial situation with the direction that LIBOR is headed is somewhat unique. We're not in a recession technically, but the rest of the world is showing greater weakness. And so we're responding here with lower interest rates on more of a preventative measure for the fed as opposed to a reactive measure. So they're little bit here and there that are that are different in terms of how this is all playing out from a cycle standpoint and we oftentimes look back on reference points in prior cycles to help us evaluate the direction that things are going, but it's fluid. And so our analysis doesn't stop, but sometimes analysis doesn't give you all the answers. So there's judgment involved in this as well.

Thank you. We’ve reached end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

Thank you for joining today's call and look forward to speaking with you all again next quarter as well seeing those of you who may be attending May REIT in Los Angeles in mid November. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.