Greetings. And welcome to Ashford Hospitality Trust First Quarter 2022 Results Conference Call. [Operator instructions] As a reminder, this conference is being recorded. I would now turn the conference over to your host, Jordan Jennings, Manager of Investor Relations. Please proceed.

Good day, everyone, and welcome to today’s conference call to review the results for Ashford Hospitality Trust for the first quarter of 2022 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 Nixon, Senior Vice President and Head-Asset Management. The results as well as notice of this sensibility of this conference call on a listen-only basis over the Internet were distributed yesterday afternoon in 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 and the company’s filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company’s earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on May 3, 2022, 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 used in this call compare first quarter of 2022 with the first quarter of 2021. I will now turn the call over to Rob Hays. Please go ahead, sir.

Good morning. Welcome to our call. I’ll 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 then Chris will provide an operational update on our portfolio. I would first like to highlight some of our recent accomplishments and the main themes for our call. First, we saw sequential RevPAR improvement each month as we moved through the first quarter and that improvement has continued into the second quarter. Second, our liquidity and cash position continue to be strong. We ended the quarter with approximately $609 million of networking capital, which equates to approximately $17 per diluted share. With yesterday’s closing stock price of $7.32, we believe we are trading at a meaningful discount to both our net asset value per share and our networking capital per share. Third, we have lowered our leverage and improved our overall financial position. Since its peak in 2020, we have lowered our net debt plus preferred equity by over a $1 billion. According to a decrease in our leverage ratio defined as net debt plus preferred equity gross assets by approximately 12 percentage points. Fourth, during the quarter, we’re extremely pleased to announce that we filed a preliminary registration statement with the SEC for the future offering of a non-traded preferred equity. Importantly, this announcement demonstrates our strategic pivot from defense to offense, as we believe this offering will provide an attractive cost of capital and allows to accretively grow our portfolio over time, subject to future market conditions. We believe access to this attractive growth capital is a significant competitive advantage, particularly given the fact that lodging REITs are trading at material discounts to their net asset values. We expect to commence issuing limited amounts…

Thanks, Rob. For the first quarter of 2022, we reported a net loss attributable to common stockholders of $58.5 million, or $1.71 per diluted share. For the quarter, we reported AFFO per diluted share of negative $0.04. Adjusted EBITDAre totaled $40.2 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 4.4%. Our loans were approximately 8% fixed rate and 92% 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 currently 90% of our hotels are in cash traps. This is down from 93% last quarter. A cash trap means 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 $548.6 million and restricted cash of $102.3 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 $21.9 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 approximately $609 million. As Rob mentioned, I think it’s also important to point out that this net working capital amount of $609 million equates to approximately $17 per share. This compares to our closing stock price from yesterday of $7.32, which is an…

Thank you, Deric. We are extremely proud of the work that our asset management team has done to drive operating results. RevPAR improved each month during the quarter with March RevPAR down only 13% compared to March 2019. The team is also seeing other strong indicators of future demand returning. While leisure continues to lead the recovery, group business continues to accelerate rapidly. Gross group bookings in March exceeded 2019 bookings by 19%. We’ve also seen our corporate transient business come back strongly, accelerating rapidly during the back half of the quarter. Guest satisfaction is the strongest it has been since 2019 and our property level forecasts continue to improve for the balance of the year. I would now like to spend some time highlighting a few of the recent success stories across our portfolio. Crowne Plaza La Concha Key West had a strong first quarter with Hotel EBITDA exceeding comparable 2019 by nearly 40%. The Key West market is experiencing an incredible amount of transient demand, and our hotel was able to capitalize on this by successfully petitioning the brand to limit the terms of brand promotions for the hotel. Additionally, the team identified an opportunity to strengthen mid-week performance by partnering with a local Navy group, which contributed to an increase in group room nights by nearly 250% during the first quarter relative to comparable 2019. These strategic changes positioned the hotel for success, which contributed to first quarter RevPAR increasing nearly 36% relative to 2019. Similarly, our team was able to capitalize on transient demand at the La Posada Hotel in Santa Fe, which exceeded 2019 RevPAR by more than 27% during the first quarter. Our team reengineered the hotel’s pricing strategy to maximize rates during weekends with high transient demand, which resulted in first quarter weekend…

At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question is from Tyler Batory with Oppenheimer. Please proceed with your question.

Good morning. Thanks for taking my question. First, for me just on trends in the business certainly some optimistic commentary with the direction we’re moving into Q2 here. Are you seeing any signs of consumer weakness or perhaps macro softness impacting things? And I’m also really curious, the business travel commentary sounds quite good. Have you seen the leisure side of things slow down at all the past month or so any indication that’s, perhaps there’s a little bit more price sensitivity on the leisure side as well?

Hey, Tyler, this is Chris Nixon. I can give you some color on kind the broad trends we’re seeing. Everything that we’re looking at suggests that there are no signs of this slowing down. As you mentioned, we’re seeing very strong trends out our corporate travel. That’s accelerating as we look ahead to Q2. Q2 from a corporate standpoint is currently pacing ahead of Q1 by about 16%. And we passed a milestone earlier this month in May where we’ve booked more corporate bookings for the next 30 days than we did in 2019. And so that was huge for us. We’re also seeing from our corporate traveler more corporate rate codes that are staying through the weekend than we’ve ever had before. And so we think that that goes really well for us long term, in terms of helping us on shoulder nights, and even out kind of the production. From a group standpoint, as you mentioned, we’re seeing very strong trends. In March, we saw more group bookings than in 2019, and what’s more encouraging are the group bookings that we had in Q1 had 9% higher ADR than the bookings we had in Q1 of 2019. And so again from that segment, very little rate resistance and continued acceleration. Leisure continues to lead the way, it’s showing no signs of slowing down our weekend ADR continues to accelerate. And that’s the case as we look ahead to Q2 and beyond. And so on the whole, we’re seeing probably the most optimistic signs that we’ve seen thus far coming out of the recovery.

Okay. Very helpful. Just as a follow up question, in terms of the cash traps, and I think you’re 90% right now, you’re at 93% in the prior quarter. Just talk a little bit, if you could about when that percentage might move substantially lower, what might need to happen in the broader and environment for that to occur and, assuming things continue to move in the right direction, if we get kind of into the back half and the percentage loans in cash traps is much lower than it is today, how does that change your perspective on liquidity and how much cash you would need to hold on hand to meet some potential obligations?

Yes, good question. So, I guess the first step is just to think about, we’ve got about $12 million trapped today in those cash traps. And actually the vast majority of that is in basically a single –two pool asset, the Nashville, Renaissance Nashville, and Westin Princeton, and given what we are seeing in Nashville, I do think that sometime this year, it’s likely that loan will be becoming out. So, I think from a functional standpoint is that the vast majority of cash that we have trapped in there. I think we have a path to getting it out here in the next several months. More broadly speaking. I think that if you look at how our cash traps typically work most of them are based on some, either mix of either debt yield or coverage ratio on them. For example, I think a lot of them have kind of a DSCR of around 1.2 times is kind of about the average of them. And I think to the extent that we see what we’re seeing now in April, and that continue through April, May, June and the second quarter, and then through the third quarter, I think there is the potential for a significant number of our assets to come out of cash traps, because they typically are six months or two consecutive quarter tests. So, I think given what we’re seeing, we, there is some hope that a good number of them. I don’t know if it’s a majority of them, but a significant amount of them could be out of cash traps by the end of the third quarter this year. Some of the more difficult pools it may be next year, but again, it’s really dependent upon the trajectory of the cover. And if things continue like they’re going, then I think we’re optimistic that that those will be coming out sooner rather than later.

Okay, great. That that’s all for me. I’ll leave it there. Thank you.

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

Good morning, maybe following a little bit along Tyler’s questioning, when we think about the potential for dispositions, and maybe some assets held in a loan portfolio, and maybe you want to sell two out of five just being hypothetical, and assuming there’s some cash trapped in there, would the plan be to use your significant cash position to maybe temporarily pay off that loan, free up the assets you want to sell, and then maybe refinance the ones you want to continue to hold? Are we thinking about that correctly?

I think so. I I’d say it’s a little bit, maybe a little bit more nuanced, which is, and we’re having these discussions now. I mean, we’ve identified, call it at least an initial, wave of call it maybe five or six assets that we’re contemplating that we’re contemplating disposing of over the next the rest of the year. And some of those are crossed with other assets that we definitely want to keep. The struggle that we have on those specific loans is that there are ways to extract them. And typically, I mean, I think almost universally on those loan pools is that it’s typically a price of 115% of the allocated loan balance, is the extraction price. However, that typically assumes that it typically assumes that you’re able to meet certain debt yield tests and other tests that the lenders require of which generally speaking, we’re not meeting just because of the current state of the industry. So what is, I’d say most likely to happen is that we would be willing to pay the lender the 115% and then to the extent there’s incremental proceeds above that, that they would likely want that themselves to pay down that loan. So, I think it’s unlikely that incremental cash proceeds that we get from any sales would go to corporate cash, because even with our strategic financing to the extent there is excess proceeds coming from an asset sale, those would need to go down to pay down the strategic financing. So the asset sales are being primarily used for a combo of de-leveraging and cleaning up the portfolio from a kind of a rev part quality standpoint. And not from a kind of a cash generation standpoint. So, I think overall there, they could be, even depending upon the assets that we pick, there could be a little bit of cash being used to pay down those loans to delever. But so hopefully that explains a little bit of, I think what’s the most likely scenario.

Yes. And the assets that you’re looking to potentially dispose of are those more of your select service hotels or full service hotels?

They’re mostly full service. I think we’ve got a handful of assets that have franchise agreements that might be expiring over the next several years that have maybe what we think are some of the weaker brands in our system, where we don’t think the pips required will make it worth it or some of our lower RevPAR, full service assets that when you look at, when we look at the life of the assets and the amount of CapEx that we have to put in over time, given their lower RevPAR profile, it just makes it hard for them to cash flow in a significant basis. So I think that’s probably our focus is initially lower quality lower quality full service though. There may be a select servicer asset or two that comes up from time to time. Because I do think overall we’d like to the extent that we either kind of dispose of or get rid of our select service assets. It’s more likely to be kind of many of them together in some sort of strategy where we’re either selling them as a pool or contributing them as a pool or spending them out as a pool or something more strategic rather than I mean, there’s a few of them that we – I think are maybe not long-term holds, but to the extent you see us do something substantial on limit service it’ll be probably a bigger strategy.

Right, I mean, I recall a few years back probably five or six years back there was some discussion about selling a large chunk of your select service hotels. Are you receiving, and there seems to be a lot of capital out there right now chasing hotel assets and we’re seeing some transactions. Are you receiving inbound calls on doing something like that? Or do you plan on picking out hotels and then actively marketing those?

Well we are getting inbound calls, but as you can imagine it’s typically for our highest quality and best assets in cash flowing and significant cash point assets, which obviously we have less interest in selling those right now. And so we haven’t gotten really any inbound interest in large portfolio. We just kind of – just kind of a one-off here or there and as – all these things, it’s complicated just because a lot of those are crossed with other assets. And so it’s not necessarily easy to transact on those. So I think we’re going to be just focused on trying to start shipping away and cleaning up the portfolio. And we do, I said have this that the reality that we’re dealing with that until we pay off our strategic financing we really aren’t able to generate incremental cash proceeds and this goes to pay down the strategic financing. But I think we hope that as the recovery continues and values continue then maybe, and we’re paying off the strategic financing that that is a way to deleverage and generate some cash, maybe going into next year.

Okay. And just last for me. Everybody knows that you guys have been heavy users of floating rate debt over the past, nearly 20 years it’s worked out really well for the past 12 or 13 years, but with the new interest rate environment we have; I think people might be a little bit more on edge about that. Deric you’ve talked about caps being in place on those pieces of debt. How much higher are the caps relative to where interest rates sit today?

Yes. The caps are really meant to protect us from a significant spike in rates, not a traditional sort of slow increasing of rates. So those caps typically kick in, in sort of the 3% to 4% range on LIBOR, and they tend to cover whatever the remaining maturity is of the loans that we have in place. So I don’t really anticipate those caps kicking in movement of those we have to see. But you’re right; our strategy has been predominantly floating rate financing. And even sitting here today, I would continue to defend that that strategy and believe it’s the right. We do have some fixed rate debt in the portfolio. So it’s not exclusive but we do feel like there’s a lot of benefits to having the floating rate financing. Obviously we’ve benefited from that over the last few years. And as we said here today, if rates do go up, then that would be a headwind that that we would face as we look at our AFFO in our earnings, but again we believe that’s a bit of a natural hedge. And I think if you look historically, you’d also see that when rates are going up spreads on hotel that is coming down. And so in some cases you’re all in rate that you’re paying may not change that much. And we’re also in a fortunate position of really having no maturities for the balance of this year. And being able to be opportunistic on any refinancing, if we want to go pursue refinancing, so we’re still comfortable with the mix of fixed and floating debt in our portfolio.

Okay. Thank you.

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

Yes. Hey good morning, guys. Wanted to follow up a little bit on kind of the operating model and you guys don’t have a ton of brand managed hotels. Where do you think you are in terms of getting it to where you want to be given that rates are – occupancy is coming back, corporate travel is coming back sometimes there’s expectations going up on the customer’s part. Just on some of the – the food and beverage and also the housekeeping, where do you think you are in terms of getting to a final place where you can live with the extra labor that is starting to come back?

Yes, I’ll take that. This is Chris Nixon. So we’re at about 70% of our pre-COVID staffing levels. And so where we’ve needed to add labor we have, but our brand managed management company partners have done a great job through the pandemic of re-engineering our labor models. And so I don’t – I don’t see us getting back to kind of pre-COVID levels. So there’s going to be some efficiencies that are built in and pulled through. And what we’re really seeing it is on the management side, in terms of management FTE’s and management wages we’ve done all lot of consolidating and complexing. And our management companies have found efficiencies there, and it’s really pulling through. When we look at our undistributed expenses for the quarter they’re down about 10% per available around to 2019, and so that’s a really encouraging sign. You mentioned us having less brand managed hotels and we talked to our third party – our largest third party manager Remington, they cited nearly 20% productivity improvements in Q1. And so there’s a lot of efficiencies that we’re pulling through in our labor model that we’re really encouraged by. We have had to add staffing back and we’ve done so successfully where there’s been any gaps we’ve been able to use temp labor, but we have been in a situation where we’ve had to turn away business because of staffing. And in terms of what the customer experience is we’re encouraged, our guest satisfaction scores are as high as they’ve been since 2019. They continue to show us strong uptick, and so that that tells us that we’re focusing on the right things. We’re bringing back labor prudently, and we’re focusing on the things that are important to the customer and it’s coming through and kind of their feedback surveys to us.

Okay. Yes, thanks. Thanks Chris very helpful. And then just as a follow-up, it’s been a while since we’ve talked about supply but just kind of looking at your portfolio, right? You got a little bit of exposure in places like Nashville and areas in Texas, Dallas, Austin, I mean, those are areas that are, we think continuing to grow economically. There were a lot of projects on the board pre-COVID. What’s your general sense as to whether at some point we actually see supply as an issue in some markets again?

Yes, that’s a good question. I mean, obviously we have our eye on, and you said, I mean, there’s always kind of handful of markets that have some supply issues, Nashville, Austin, Dallas maybe even Atlanta, Denver that we don’t have much exposure there. So there are some markets where it seems like at least on the drawing board, there’s a lot of supply potentially coming out. Obviously what we’ve experienced in Nashville is that that market had a ton of supply, but given the asset that we have the location where it is, the quality of the renovation that was done, the other things going on around that hotel the demand is kind of through the roof. And so we’ve seen just no impact whatever I think to that hotel from a impact to supply, just because how well located it is. I do think it could be a potential headwind in some of these other markets. It’s hard to know exactly what percent happen in Austin. I mean, Austin is blowing and going, I mean, demand is growing, a city is growing, there’s definitely something we said about it becoming the New Silicon Valley. That being said, it just Texas does have lower barriers to entry and it’s something that we have seen across Texas markets in our history particularly being from Dallas, that if we’ve had a hard time raising rates historically, and so it is something that it could be a – a little bit of a headwind in those markets. But I think as we look across our overall portfolio of what we think supply growth is, and even by kind of our tracks within those markets I think we see over the next 24 months or so that supply growth probably is going to be more than maybe one, low 1% or 1% 1.5%. And so obviously we see demand significantly – growing significantly above that on kind of a normalized basis. So I think for least to the last next several years, we think that things are looking good. And honestly, as you see, continued geopolitical concerns, these inflationary concerns and the cost concerns, I mean, we’re seeing on the construction side and even our own CapEx budgeting, projects being skinny down a little bit, in certain situations to keep down costs that with what it’s now taking to build in, particularly in larger, more urban markets I think what you see coming into the pipeline, a lot of that is not going to be made in that even with this inflationary environment and cost situations. I think a lot of banks have a lot of concerns on the construction side’s cost. So anyway, Chris may have something?

Yes, I’ll add some color to Nashville. You’ve called out Nashville as a market. That’s obviously one that’s very important to us and on our radar. We’ve been really impressed with the resiliency of that market. Our Renaissance Nashville Hotel, there’s a large hotel within the portfolio. They had nearly $4 million in Omicron cancellations in Q1 and still managed to achieve 90% occupancy in March with total revenue that was up over 11% to 2019. When we look ahead for that hotel group pace for 2022 is up 5% in 2019. So very strong performance in the quarter, even more encouraging signs as we look ahead. So that market has been really resilient and its ability to absorb that new supply.

Okay. Very helpful. Appreciate all the color. Thanks guys.

Our next question comes from Michael Bellisario with Baird & Company. Please proceed with your question.

Thank you. Good morning, everyone.

Good morning Mike.

Deric, I just wanted to go back morning. Just wanted to go back Deric to one of the prior questions and the floating rate that any quantification that you can provide on say 25 or 50 basis point change in LIBOR what that does to your $44 million of quarterly interest expense?

Yes, so a 25, this increase in rates would increase our interest expense about $9 million. And you can sort of extrapolate from there, that’s more of an annualized basis, not a quarterly basis.

Got it. That was, I was going to clarify that $9 million annual impact

Correct.

Got it. Okay. Thanks. Rob, want to go back to the info you guys gave last quarter on your kind of recovery expectations broadly for revenues in EBITDA coming back to pre-pandemic levels in 2023 and 2024. Any change in your view with what you guys have seen more recently in terms of the timing of the top line and bottom line recovery broadly?

Yes, I think broadly we’re getting definitely more bullish on it and Chris has got, some thoughts on that given, what he’s seen on the property level. So I’ll let Chris, take that one.

Hey, Michael, we’re very optimistic that we return to kind of normalize levels in 2023. I think that there could be, we could come back sooner than that. What we’re seeing from the properties as forecasts continue to increase each month, there’s renewed optimism and, desire to pull forward those trends. We’re seeing it and pays, nearly every step we look at is very encouraging. And so we think that there is a good chance that we probably pass that point before 2023, but just conservatively given all the unknowns, we’re kind of sticking with that expectation that 2023 is when we expect to return.

Yes. I just, as and all these things, Mike, it’s just that the trends that were seen are very encouraging, but we also saw those trends at times last year, little hiccups along the way. But I think if things continue given what we’re seeing on the books right now, we would anticipate that going forward.

Got it. That’s helpful. And then just last one from me on capital allocation, just the non-traded preferred call it eight low, 8% coupon there with investments you’ve looked at to date. Not that you’re going to do anything it sounds like imminently, but as you think about required rates of return and underwritten projects that you looked at so far, where do you see that kind of cost of capital spread on potential investments? I get that it might be six or 12 months out when you deploy some of that capital, but what have you seen so far on initial deals that you’ve looked at and underwritten?

Yes, that’s a good question. And I think, we’re really excited about this, we’ve always struggled at times with, or with frustration that at the fact that, there’s times when lodging rates are trading it premiums are at NAV, but it seems like the vast majority of time, lodging rates are trading below NAV. And it just makes it, difficult to accretively issue equity to go do deals at times. And so it’s something that we decided, years ago that if we had the opportunity, that we would try to take capital raising into our own hands to be able to continue to grow the, the platform because you see opportunities all the time of great deals to do. And you don’t always have the capital to do it. At the same time you’re trying to avoid obviously leveraging up over time. We’ve been down that, that path before and we want to have a lower leverage profile. And so that’s why we’re really excited about this non-trade preferred because, it achieves the ability to raise significant capital. I mean the, to see what our kind of sister REIT Braemar is doing where, they’re coming up on nearly $100 million raised on their platform to be able to go out and you’ve seen some of the deals that they’ve been able to do. But what’s interesting about this, this preferred structure is that it does allow, it has much more equity-like features that to the extent that, down the road, our stock price is that a more attractive level. It does allow us to convert it over. And so it’s different than the traditional professional preferred that we’ve had. And so I think it’s a way that we can, give some comfort to our common shareholders, that there’s ways for…

Got it. That’s very helpful. Just one follow up there and I get cash is fungible, but it sounds like the preferred is really year marked for external growth or will some of that capital maybe be used to repay Oaktree when you can start repaying them early next year.

That’s a good question. I think it’s ideally and mostly for growth, but to the extent that we have very expensive pieces of debt, for example we do have the strategic financing, which is obviously quite expensive. And then even on some pools of assets, in our Highland portfolio or Keys portfolio, as we’re doing refinancings and maybe as we’re trying to de-lever, some of that measures on top of that is pretty expensive, last pieces of paper. And so there may be a little bit of an arbitrage at times where to be able to pay down the loan and bring in this preferred as opposed to, refinancing at comparable levels at really expensive, junior pieces of paper. So there may be, I’d say some used, limited amounts used to pay down debt that’s pricey. But we like to have most of it towards growth capital as possible.

Helpful. That’s all for me. Thanks.

Thanks Mike.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would now like to turn the call back over to management for closing remarks.

All right. Thank you everybody for joining us on this quarter’s call and we look forward to speaking with you all next quarter.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.