Greetings. Welcome to Ashford Hospitality Trust First Quarter 2021 Results Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Jordan Jennings, Investor Relations for Ashford Hospitality. Thank you. You may begin.

Good day, everyone and welcome to today’s conference call to review the results for Ashford Hospitality Trust for the first quarter of 2021 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 Jeremy Welter, Chief Operating Officer. The results as well as notice of the assessability of this conference call on a listen-only basis over the Internet were distributed yesterday afternoon and a press release. 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 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 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 May 4, 2021 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 compared to first quarter of 2021 with the first quarter of 2020. I will now turn the call over to Rob Hays. Please go ahead, sir.

Good morning and welcome to our call. I will start by providing an overview of the current environment and how Ashford Trust has been navigating the recovery. After that, Deric will review our financial results and Jeremy will provide an operational update on the portfolio. First, I’d like to highlight some of our recent accomplishments and the main themes for our call. First, we had strong earnings in the first quarter that exceeded both Street estimates and our internal budgets. We reported positive hotel EBITDA for the quarter for the first time since the first quarter of 2020. Second, early in the quarter, we secured a $200 million strategic financing with additional future commitments of up to $250 million to provide multiple years of liquidity for the company. Third, we have de-levered our balance sheet by over $500 million during the past 12 months. And lastly, even with an already attractive loan maturity schedule, we have successfully modified property loan extension tests on two large pools for 2023 and 2024 as well as another large loan pool for 2024 and 2025 making it easy for us or easier for us to qualify for those extension options. This loan modification initiative will continue to be a focus for us going forward. There have been numerous positive developments for both our company and the hospitality industry over the past few months. We highlighted many of them in an updated investor deck that we put out in early April. We encourage you to review that deck. It is available on our website. As it relates to our liquidity and as we mentioned on our last call, in January, we completed a crucial strategic financing. We drew $200 million at the closing of the financing and have the option to draw an additional $250…

Thanks, Rob. For the first quarter of 2021, we reported a net loss attributable to common stockholders of $91.6 million or $1.10 per diluted share. For the quarter, we reported AFFO per diluted share of negative $0.30. Adjusted EBITDAre totaled negative $5.2 million for the quarter. At the end of the first quarter, we had $3.9 billion of loans with a blended average interest rate of 4.1%. Our loans were approximately 11% fixed rate and 89% floating rate. We utilize floating rate debt as we believe it is a better hedge of our operating cash flows. However, we do utilize caps on those floating rate loans to protect the company against significant interest rate increases. Our hotel loans are all non-recourse, and as Rob mentioned, nearly all of them are currently in cash traps, meaning that we are currently unable to utilize property level cash for corporate-related purposes. As the properties recover and meet the various debt yield or coverage thresholds, we will be able to utilize that cash freely at corporate. We ended the quarter with cash and cash equivalents of $225.4 million and restricted cash of $67.7 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts. At the end of the quarter, we also had $11.8 million in 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 also ended the quarter with net working capital of $223 million compared to net working capital of $9.8 million at the end of the previous quarter which highlights the improvement in our liquidity and financial position. From a cash utilization standpoint, our portfolio generated hotel EBITDA of $9.8 million in the month of March. Our current…

Thank you, Deric. Comparable RevPAR for our portfolio decreased 50.9% during the first quarter of 2021, while hotel EBITDA flow-through was a strong 60.8%. We are extremely encouraged by the strong signs of the recovery that we are seeing across our portfolio. Occupancy has accelerated through the first quarter, with January at 36%, February at 41%, and March at 49%, the highest occupancy we have seen in the past year. We are seeing green shoots across all segments, while leisure continues to lead the way. March had more new definite group business booked than any other month in the last year. As a result, we expect April occupancy numbers to exceed our strong March numbers. In the past and especially now during the recovery, we have benefited from the diversity of our portfolio. Our select-service hotels recovered an incredible 70% of comparable occupancy in the first quarter relative to the comparable 2019 period. Similarly, our full-service hotels recovered a solid 52% of comparable occupancy in the first quarter relative to the comparable 2019 period. We are seeing significant pent-up leisure demand in states that are relaxing restrictions. This was particularly evident over spring break at our Florida assets. Our La Concha Key West Hotel had first quarter occupancy of 89%. March occupancy was 96%, driven by the strength of the spring break period. In fact, that occupancy level is higher than it was in March of 2019. While capitalizing on the strong demand, we were able to increase seasonal premiums on upgraded room types and increased seasonal blackouts to discounted programs contributing to a GLP margin of 63% for the first quarter. Another hotel that is experiencing strong performance is the Hilton Santa Cruz/Scotts Valley, which achieved an 18% increase in first quarter occupancy relative to the comparable 2019 period.…

Thank you. [Operator Instructions] Our first question is from [indiscernible] with Janney Capital Markets. Please proceed.

Thank you. Good morning. I appreciate all the detail thus far. First, a lot of investors focused on the labor situation out there right now, what that might do to the cost structure at least in the short term? Can you elaborate a little bit more on the flow-through for the quarter, but also talk a little bit more about what you are seeing on the labor front and discuss how you are thinking about the pace of bringing back more employees as occupancy starts to build here?

Well, I would say from a flow-through standpoint, I think we were extremely pleased with the performance of our asset management team and Remington. I think our flows were over 60% for the quarter. So, on the heels of what we are dealing with on the revenue side, I thought those flows were extremely strong and showed themselves very well relative to the industry. But you’re right, we’re undoubtedly seeing some, I guess, some issues at the property level in terms of getting people back to work, and it’s obviously not something just that we’re seeing, but we’re seeing across the industry and across other industries as well. There is no doubt that the additional unemployment benefits that go through September. Are an incentive for people not to come back from furlough or not to come back to work. And that is a struggle that we’re dealing with, and it’s something that I think we are trying to communicate with the AHLA and other people in D.C., letting them know that it is a hindrance right now to getting people back to work is they are just not incented to. So I think we’re trying to do things with the operators that we work with at Remington and the brands are trying to do things to have referrals and different signing bonuses and whatnot. And I think we’re hopeful that it’s a transitory thing until the fall when some of these benefits burn off. But it’s no doubt something that that we think is probably a shorter-term issue than maybe a longer term issue. Jeremy, I don’t know if you had any other color?

Yes. We want to bring people back to work. It’s been a huge focus, as Rob mentioned, our largest management company, Remington, launched what they call the spring forward campaign and actually set corporate team members to every single one of their properties to get a pulse on what we’re seeing and there is no question that we are running very lean at our assets, and there is a good amount of capacity to add more labor, and that’s what we’re focused on because we don’t want to burn out our teams. I think that in the short-term, we will still continue to see stronger flows and maybe stronger relative margins just because we can’t find the labor that we need but I do think that’s a short-term issue, hopefully, but it’s going to be one that we’re going to have to deal with, at least through probably September, October time period.

Okay, great. And then following up on the operating environment broadly, clearly, positive results and commentary, it’s great to hear that April looks better than March. Can you talk a little bit more about some of the green roots that you’re seeing out there on the corporate transient side of things?

Sure. I think, well, there is no doubt that where we’re seeing most of the green shoots is still in leisure. And I think we – as we look over the next quarter, I think we are – you’re seeing probably occupancy gains. Probably, right now, we think it’s going to be each month of the quarter. So we think April is men more than March, May over April and June over May. And so that’s very exciting because we haven’t had that experience in a while. And that’s with us trying to push rate back. Right now, if you look at the first quarter, our rates were down about 35 – 30% to 35% versus 2019, which I think is lower than what we were hoping for some time a few months ago, but as we’re going forward into the rest of the year, I think we’re going to – that the team here is going to be really pushing on that rate to see if we can get that reduction versus 2019 to materially be reduced. I think on the corporate transient side, it’s still – like I said, it’s still relatively small, though we have had these gains that are month-over-month. The real question obviously, is what’s going to happen post Labor Day. And it’s just – it’s hard to say. I think our hope is that psychologically people as they hit the road this summer, realize that can travel the airports, go the hotel rooms, feel safe, have a great experience and will be ready to go for the second half of the year. I mean you’re seeing a lot of the large companies still have travel kind of travel bands through June kind of through the second quarter. Those are going to start leasing up.…

Okay, great. And then just the last question for me, some moving pieces here, on the balance sheet side of things, obviously, you made a lot of progress. Help us think more about your leverage, how it might evolve over time, both the rest of this year and then looking a little bit farther out. And also, help us think about when you might shift gears from the focus on the balance sheet, more leverage, perhaps looking to take advantage of some of the dislocation out there and capitalize on some of the opportunities as the recovery plays out?

Sure. So to your – the first part of the question is we do feel strongly that the – our leverage level needs to come down over time. I spent quite a bit of time earlier this year having calls with both you all on the buy side, investors on the sell side, investment bankers, other industry participants to get a sense and feel for what they thought we could do better, what we could improve on. And one of the comments that came back pretty consistently was to improve the leverage profile of the company. That’s something that’s going to take years. That’s not going to happen over the short-term. So we have that perspective where, right now, it’s going to take a little bit of time to get there. At the same time, there is some tension that exists because what was a liability and has been a liability for us from a balance sheet perspective is also, in some sense, a great asset. As you’re going into a recovery, having the leverage that we have on our properties, which is not replicable. I mean, both at it from a rate perspective and an LTV perspective that is something that is a benefit to us. As we accelerate into this recovery. And so that is something that can benefit shareholders as EBITDA comes back. But it is something that we’re going to have to chip away over time. And I think realistically, it won’t be – we won’t be able to address some of the leverage levels in earnest until we have probably paid off our friends over at Oaktree and with the strategic financing that we have. And then as we get into loan extensions that are occurring in 2023, 2024, that will be the moment where it will give us the ability to potentially pay off or pay down some loans, reorganize them, so they make a little bit more coherent sense in terms of what we’re trying to do long-term. So right now, we’re – we’ve been focused on opportunistically handing back assets that we thought were uneconomic. We think, by and large, that process is done. I wouldn’t expect as of now to be paying back anything else that’s material to the platform. We’ve been focused on converting these preferreds to common. We think that’s helpful in terms of both removing the preferreds that are senior to our common shareholders, removing those building accruals and providing significant more equity float. That was a struggle that we had, we think, in previous cycles, was our equity float was too small. This is another way to help solve that. And so I think you’re going to see it will be a chipping away over time as we address leverage.

Okay. That’s all for me. Thank you for the details.

Our next question is from Bryan Maher with B. Riley Securities. Please proceed.

Good morning. I should say good afternoon and thanks for those comments thus far. Kind of sticking with the preferred to common exchanges is the goal there to ultimately eliminate the preferreds. I mean, we were a bit surprised to see that continue on and at a higher ratio kind of post the Oaktree transaction. Can you elaborate a little bit more on what you do with the balance of the preferreds and over a period of time?

Sure. I think in the idea well, Bryan, I would like to get rid of all the preferreds I think it simplifies our capital structure. It removes fixed charges, which I think as we are looking at our total leverage on a go-forward basis, I am one, and this is probably maybe a little difference between me and Doug was that I do see preferreds as a more levered type structure. And so those are ones what I’m looking at our leverage level, I kind of look at debt to preferred EBITDA. So I would like to remove them over time. Several of those series are callable they have 5-year non-calls. They – I think about three to five series will be callable by the end of this year and then the last ones will be by the end of next year. So I think the – our game plan is to continue to do these exchanges as we can strategically if they make sense to reduce them, reduce those accruals. And then depending upon how the industry recovers, we will see over time if we want to either tender or call them. That’s obviously a TBD is what happens over the next couple of years in recovery.

Got it. And then just on the cash trap conversation, I get it that the cash needs to stay at the hotel level. But I am assuming that the cash that’s generated from the properties can go towards the debt to service those properties. Is that correct?

That is correct.

Okay. That’s correct.

And most of the loans, Brian, are – they usually have tests that are somewhere around usually kind of 1.2 type coverage ratios kind of each loan is a little bit different, but it’s kind of a probably a decent estimate of when those loans would actually be able – and it’s usually over several months. So it’s usually not a one-time test, it’s over a rolling 3 months or over a quarter before you can actually extract those extract that cash. But yes, you can use it for interest. But the problem is you may have certain assets that are covering their own pool because they are, say, in Florida or Texas or certain geographies are more transient. And then you have other assets like assets in Boston or San Francisco, whatever, that are more urban that aren’t able to, but you can’t transfer the cash over. And so it obviously makes sense so that you’ve got additional cash needs coming from corporate that we can’t address quite yet.

Got it. And with all the discussion and concern about inflation possibly rearing its head here this year and I understand, having covered the company for 18 years, the goal of kind of having more floating because you can kind of move RevPAR the RevPAR would tend to move higher as things get better, etcetera. But given where we’re at with interest rates currently and with the outlook for potential inflation, is there an opportunity or desire to shift a little bit more to fixed from floating at this point?

That’s a good question. I mean it’s something that we obviously look at and are open to, but as we’ve gone through numerous cycles and look through analyses on would you have been better swapping from floating to fixed, the amount of time that, that actually made sense and paid off over the next 5 years or over the next term of your debt, it’s very, very rare. And so we try to address that by putting caps in place, which we have on all of our floating rate debt to protect against any sort of hyperinflationary sort of scenario. But by and large, as you know, Brian, inflation would be outstanding for us. I mean that would be one of the best things that ever happened to us because when you look back, even back to the ‘70 when you had hyperinflation scenarios, hotel rates pace and actually exceeded the increases in interest rates. And so – and obviously, us, as a company that has higher leverage than we’d like to have over time, that is a way to very quickly de-lever as to have your EBITDA and revenues grow at rapid rates. So I think inflation is welcome if you – from our perspective.

Yes, Brian, this is Deric. The other thing I would add to that is that not only do we believe the floating rate provides a natural hedge to our cash flows, but it also provides more flexibility. Fixed rate debt tends to tie our hands a little bit more. So we put some value on that flexibility. And so as I have looked at the loans that we’ve done over my 18 Ish years at Ashford I’ve never done a floating rate loan that I regret is doing. But almost every time we’ve done a fixed rate loan, I look back and wish we had done floating. And we may be at this unique time where rates do go up from here, we would been better locking it in which is something we are talking about. But we also value that flexibility that we have. And so that’s something else that we take into account when we’re thinking about these decisions.

Great. And just last for me, the Reddit crowd, I’m sure you’ve noticed has kind of latched on to the Ashford Trust name. What’s the best way to kind of take advantage of that exposure maybe or enthusiasm for lack of a better term? Is it through issuing through the CETA or other ways, I guess you can’t do the ATM right now, when you have rallies in the stock to kind of hit that bid? And how quickly can you move on that?

Yes. It’s a good question. I mean we obviously have gotten some traction with retail shareholders. There is a lot of benefits that come from that. I mean, obviously, our trading volume has been significantly improved. By the – I said, the tension from the retail crowd. That, I think, is – could be a great benefit to our shareholders over time to be able to build position and get positions as needed. They also unduly bring a certain amount of enthusiasm that’s enjoyable to kind of be around and I think if you go through a lot of what is being said, I think there is a lot of them that have the right perspective, which is over the medium or longer term, that there is a reopening play that is that they are trying to participate in. I mean there is always going to be some shareholders that are just in and out in a very short period of time. And again, that can at least accentuate volume but I think the ones that really are doing their due diligence and doing their work are looking at the longer reopening play here and how Ashford Trust coming from a pretty difficult spot as we’ve been it is a real opportunity to participate in that. How do you take advantage of it, there is obviously a lot of things that can happen. And I think the decisions that we will make will be not dependent really upon the nature of our shareholder base, but what happens to our share price and what happens to the industry recovery, that’s going to be the basis for us making decisions, not to our shareholder bases at any one moment.

Got it. Thanks for the color.

[Operator Instructions] Our next question is from Chris Woronka with Deutsche Bank. Please proceed.

Hey, good morning guys. I think the original SEDA agreement maybe expires really soon. And I was curious as to whether you have any other kind of ATM or other equity issuance programs kind of in effect for the rest of this quarter right now?

Chris, it’s Deric. So just to be clear, the SEDA that we put in place, we have exhausted, and we have raised the equity was allocated for that SEDA. We did have a second equity line that was put in place, which has also been exhausted. So I don’t think we’re ready to provide any comments in terms of what we could do next or what might happen from here. But I just want to be clear that everything that we have put out there at this point has been exhausted from an equity rating standpoint.

Okay. Thanks, Deric. And I think as of March 31, the preferred balance was around $272 million. Is that – can we assume it’s still around there?

We continue to be active and opportunistic on exchanging the preferred for common. So we will just – we will point you to the public comments that we’ve made. But as Rob said, as long as it makes sense, and we’re able to exchange those preferreds at a ratio that we believe works for our common shareholders and is less than the par amount of, then that’s something that’s a strategic initiative for us.

Okay. That’s fine. And then just kind of a housekeeping, is it possible to get a pro forma 2019 EBITDA that reflects the asset sales or give back you guys have done to date and the I guess, where you think corporate run rate SG&A and advisory fees are? Can we get a ballpark number for that?

We can talk about providing the 2019 pro forma hotel EBITDA, which I’m not sure if that was in our deck that we published in April or not, but it does probably make sense to refresh that number. In terms of run rate for corporate costs, I mean, that’s something that we have provided, and I provided in my prepared remarks that from a corporate G&A and advisory standpoint, we believe the current run rate is about $4 million a month. And for interest expense, currently, it’s about $11.4 million a month run rate.

Okay.

Just to be clear – yes, Chris, just to be clear, that corporate G&A number I gave you includes base advisory fees.

Right. Right. Okay, got it. Thanks. Deric.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Alright. Thank you, everyone, for joining today’s call. We look forward to speaking with you again the next quarter.

Thank you. This does conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.