Ashford Hospitality Trust Inc

Good day, ladies and gentlemen, and welcome to the Ashford Hospitality Trust Fourth Quarter 2018 Near End Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Jordan Jennings, Investor Relations for Ashford Hospitality Trust. Please go ahead, sir.

Good day, everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the fourth quarter and full year 2018 and to update you on recent developments. On the call today will be Douglas Kessler, President and Chief Executive Officer, Derek Eubanks, Chief Financial Officer, Jeremy Walter, Chief Operating Officer. The results, as well as a 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 are being made pursuant to the safe harbor provisions of these federal securities regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties, and known or unknown risk, 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 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 the company's tables or schedules, which have been filed on Form 8K with the SEC on February 28, 2019, and may also be accessed through the company's website at www.ahtreet.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 fourth quarter of 2018 with the fourth quarter of 2017. I will now turn the call over to Douglas Kessler. Please go ahead, sir.

Good morning, and thank you for joining us to discuss Ashford Hospitality Trust's fourth quarter progress. I want to begin by providing an update on the success we're having with our ERP initiative with Ashford, Inc. Then I'll review our financial results and other items. Given our approximately 17% insider ownership of Ashford Trust, we believe we have tremendous alignment with our shareholders, which encourages us to think and act like owners. Our strategies throughout our 16-year history have consistently focused on ways to create shareholder value. Many of our diligent efforts have been economically transformational and successful over the years. We believe that the ERP is one of these initiatives and will provide meaningful benefits to improve our competitive position as well as increase shareholder value. As we've discussed previously pursuant to the ERP initiative, Ashford Inc. is committed to provide $50 million to the company on a programmatic basis, equating to approximately 10% of each new investment's acquisition price to be used for the purchase of FF&E and properties owned by the company. We believe the ERP program has the opportunity to significantly improve returns on hotel acquisitions and benefit us by effectively expanding cash available for future investment or other purposes. The attractiveness of the ERP is to make good deals great deals. The existence of this program is also advantageous given the improvement in deal flow for properties that fit our focused investment criteria of upper upscale full service hotels. Very competitive bidding environment for acquisitions today. We see this program providing us with a significant advantage to win deals with accretive returns. We intend to be successful in our efforts as we balance expected returns, underwritten growth, and our cost of capital. Since establishing the ERP, we've already completed $406 million of high-quality acquisitions that have utilized the program, which equates to approximately 80% committed utilization of the pledged $50 million of ERP funding. To that end, in October, we completed the acquisition of the 157-room La Posada de Santa Fe in Santa Fe, New Mexico for $50 million. The purchase of La Posada was the company's second hotel acquisition to benefit from the ERP with Asher Inc., committing to fund $5 million. The acquisition increases our ownership presence in a very attractive Santa Fe market. With its strong Marriott brand affiliation and high-quality amenities, La Posada is positioned as one of the leading properties in the lodging market with excellent demand and supply characteristics. The hotel performed exceptionally well during the fourth quarter with red bar and index growth of 9.8% and 7.3% respectively since we acquired the property. Additionally, Remington Lodging, who also manages our Hilton Santa Fe, took over management of the property upon completing the acquisitions. and we expect to realize significant value-add operational synergies for Remington's management of both properties. Our momentum carried into 2019 when, in January, we acquired the 310-room Embassy Suites by Hilton New York Midtown Manhattan for $195 million. In connection with this acquisition, Astrid Inc. has committed to provide Astrid Trust with approximately $19.5 million under the terms of ERP. We expect this newly constructed 41-story hotel, ideally located near Bryant Park and Times Square, to benefit from being the only MC Suites in the dynamic Manhattan market. Additionally, as our first direct hotel investment in New York City, we believe the recent positive changes in Manhattan's hotel metrics point to favorable timing of this addition to our portfolio. Having recently opened in 2018, this property is still ramping up operations. We believe there is significant upside at the property and we expect the ERP contribution to this investment will significantly increase the returns for our shareholders. Additionally, this week we purchased the Hilton Santa Cruz Scotts Valley in Santa Cruz, California for $50 million. Our latest acquisition to take advantage of the ERP has an attractive location near the expanding tech market in San Jose and just minutes from Santa Cruz, one of Northern California's most desirable beach communities. This property also benefits from being the only full service Hilton branded asset in the Santa Cruz market. The acquisition was partially funded by the issuance of approximately 1.5 million OP units. The OP units were issued at a price of $7 per unit, which reflects an approximate 31% premium to yesterday's stock price. We also assume $25.3 million mortgage loan that bears interest at a fixed rate of 4.7% and matures in March of 2025. In conjunction with this transaction, Astrid, Inc. is committed to provide us with $5 million as part of the ERFP. We believe these acquisitions are highly favorable investments on their own. However, with the ERFP, the returns should be even greater. I can assure you that our underwriting efforts continue to be focused, diligent, and with the same high standards to improve our portfolio with the best assets for the best value. We strongly believe that the ERFP provides us not only with the competitive advantage but it is also structured to substantially enhance shareholder value. Let me now turn to our fourth quarter and full year performance. Our actual rev par for all hotels for the full year increased 1%, while comparable rev par for all hotels during the fourth quarter decreased 0.6%. For the fourth quarter, comparable rev par for hotels not under renovation increased 0.6%. For the fourth quarter, We reported AFFO per share of 18 cents and we reported adjusted EBITDA RE of $89.8 million. For the full year, AFFO per share was $1.26 and adjusted EBITDA RE was $411.5 million. As for our balance sheet, we believe in the benefits of an appropriate amount of non-recourse leverage to enhance equity returns. Over the past couple of years, we've been very active and refinancing majority of our existing loans, both to improve the spreads compared to the prior loan terms and to extend our maturities. We also seek to maintain a high cash and cash equivalence balance between 25% and 35% of our equity market capitalization for financial flexibility. We know that this excess cash balance can provide a hedge during uncertain economic times, as well as the requisite funds to capitalize on attractive investment opportunities as they arise. As of the fourth quarter of 2018, our net working capital totaled $398 million, equating to approximately $3.29 per share, representing a significant 61% of our current share price as of yesterday's close. We continue to make progress on our investor outreach efforts, and during 2019, we intend to get out on the road to meet with investors to communicate our strategy and the attractiveness of an investment in Asher Trust. We look forward to speaking with many of you during the upcoming events. Looking ahead to 2019, we have a high-quality, well-diversified portfolio, and we remain focused on accretive transactions as well as proactive asset management initiatives. We're committed to maximizing value for our shareholders as we focus on generating solid operating performance, continuing to seek investment opportunities, and efficiently managing our balance sheet. I'm now going to turn the call over to Derek to review our fourth quarter financial performance.

Thanks, Douglas. For the fourth quarter of 2018, we reported a net loss attributable to common stockholders of $65.4 million, or 66 cents per diluted share. For the full year of 2018, we reported a net loss attributable to common stockholders of $169.5 million, or $1.75 per diluted share. For the quarter, we reported AFFO per diluted share of 18 cents, and for the full year of 2018, we reported a FOA-prediluted share of $1.26. Adjusted EBITDA RE totaled $89.8 million for the quarter, while adjusted EBITDA RE for the full year was $411.5 million. At the end of the fourth quarter, we had $4 billion of mortgage loans with a blended average interest rate of 5.8%. Our loans were 9% fixed rate and 91% floating rate, All of our loans are non-recourse, and we have a well-laddered maturity schedule. Interest rate caps are in place for virtually all of our floating rate loans. Including the market value of our equity investment in Ashford, Inc., we ended the quarter with networking capital of $398 million. As of December 31, 2018, our portfolio consisted of 119 hotels with 25,060 net rooms. Our share count at year-end stood at 121 million fully diluted shares outstanding, which is comprised of 101 million shares of common stock and 19.9 million LP units. With regard to dividends, the Board of Directors declared a fourth quarter 2018 cash dividend of $0.12 per share, or $0.48 on an annualized basis. Based on yesterday's stock price, this represents a 9% dividend yield among the highest in the hotel REIT space. On the capital markets front, during the quarter, we completed a $25 million property-level mortgage financing for the La Posada de Santa Fe. The loan is a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions. The loan is interest-only with a rate of LIBOR plus 2.55%. Subsequent to quarter end in January, in connection with the acquisition of the Embassy Suites Manhattan, we entered into a $145 million non-recourse mortgage loan. The loan has a three-year initial term with two one-year extension options, subject to the satisfaction of certain conditions. The loan is interest-only with a rate of LIBOR plus 3.9%. In connection with the closing of the Hilton Santa Cruz Scotts Valley acquisition, we assumed an existing non-recourse mortgage with a balance of approximately $23.5 million. The loan bears interest at a fixed rate of 4.7% and matures in March of 2025. We also issued approximately 1.5 million OP units to the sellers at a price of $7 per unit. 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, Derek. Comparable red par for our portfolio decreased 0.6% during the fourth quarter of 2018. However, this performance represented a 20 basis point gain relative to our hotel's competitors. Comparable red par for hotels not under renovation grew 0.6% during the quarter. For the year, comparable red par for the entire portfolio grew 0.1%. Holiday shifts did not significantly impact results during the fourth quarter, and the government shutdown led to minimal impact in December. However, our portfolio did experience a large downward year-over-year impact from the markets that experienced a boost last year from hurricane-related business, which were Houston, Miami, Orlando, Tampa, and Atlanta. Before highlighting some of our results for the fourth quarter, I want to address the impact felt from the government shutdown. While we did not see much impact during the fourth quarter, the government shutdown is certainly playing a more prominent role during the first quarter of 2019. We own nine hotels in the Washington, D.C., Maryland, Virginia area, and Washington, D.C. area ranks first in terms of the number of rooms and hotel EBITDA in our portfolio. Currently, the estimated impact of the government shutdown is north of $1 million, as comparable red par for Washington, D.C. area hotels during January decreased by 12.3%. Though negligibly affected by the government shutdown, our fourth quarter red par was affected by the mid-term elections and renovations at our two largest DC hotels, Marriott Gateway and Embassy Suites Crystal City. Excluding DC, our entire portfolio's comparable red part would have been positive for the quarter. Throughout 2018, I've discussed the impact of renovations on our portfolio. I'm now excited to discuss a few of these transformational renovations and how they are positioning us for long-term success. As I was just discussing Washington, D.C., I would like to turn to our largest D.C. area hotel, the Marriott Gateway in Arlington, Virginia. We're in the final stages of a major renovation, completing the last remaining ballroom, the Arlington Ballroom, the pre-function space, and the public restrooms. The remaining portions of the lobby have also been renovated. The ongoing final items are painting the exterior of the building and adding pavers and lighting to the driveway and portico chairs. This major renovation at our largest property in terms of room count will position us well going forward. With the announcement by Amazon that Crystal City will be their second headquarter location, we are even more enthusiastic about this hotel's future operations given its proximity to Amazon's HQ2. Additionally, with two other sizable hotels in Crystal City, we have over 1,200 rooms in this dynamic and growing market. Next, I would like to discuss the Renaissance Nashville, our largest hotel, in terms of total hotel revenue. The first phase of the comprehensive first-floor restaurant and lobby renovation was completed in September, including the successful opening of the new restaurant, Little Fit. During the fourth quarter, food and beverage revenue increased by $1.3 million, with food and beverage departmental profit increasing by $810,000, or 245%. The second phase of the lobby renovation was completed in January of this year, including the opening of the market, coffee bar, and quick service food outlet. The final phase of the meeting space renovation in the former Nashville Convention Center space is scheduled for completion in the third quarter of 2019 and includes an additional 10,000 square feet within the new Fifth and Broadway development adjacent to the hotel. Additionally, the presidential suite renovation has been completed. Performance during the fourth quarter and throughout 2018 has been impressive given the ongoing renovation. During the fourth quarter, comparable red part grew 1.1%, representing growth of 120 and 10 basis points relative to the hotel's competitors and the Nashville CBD upscale and above chains sub-market, respectively. Hotel EBITDA grew $890,000, or 17.5%, with hotel EBITDA flow-through of 54%. For the full year 2018, hotel EBITDA flow-through was 67%. We believe that with the Marriott Gateway and Nashville Renaissance are two largest hotels in terms of rooms and total hotel revenue coming out of comprehensive renovations, they are well-positioned for success within two of the country's top markets. The last major renovation I'd like to discuss is the Ritz-Carlton Atlanta Downtown. The $18 million guest room renovation commenced in February 2018 with a significant portion of the work completed by the end of the fourth quarter. Despite the ongoing renovation during the year, Comparable Red Park grew 1.5%. The new room's product has allowed us a drive rate which increased 4.1% in the fourth quarter. This REVPAR growth represented a 570 basis point increase relative to the Atlanta luxury class market. The solid performance highlights our affiliate Premier Project Management's strategic approach to renovations and their project management program, which incentivizes the project managers to minimize REVPAR index impact during a renovation. All work in the property was finalized in January 2019, 10 days prior to the Super Bowl. Completion prior to the Super Bowl allowed guests to enjoy a brand-new guest room experience while maximizing revenue for the property during this high-demand event. During the roughly year-long project, only about two floors, or 45 rooms, were out of order at any given time. Guest room upgrades include new soft goods, case goods, and shower conversions for the king rooms. We also expanded the club last by 320 square feet, increasing its seating capacity by 25. The initial response from our guests has been overwhelmingly positive. On another note, by the end of 2018, J&S Audiovisual was in 13 of our hotels, including three I just mentioned, Merritt Gateway, Renaissance Nashville, and Ritz-Carlton, Atlanta. Results from integrating J&S into our hotels have been positive, with average revenue per group room night up 21%, and average customer satisfaction scores up 15%, since the transition occurred from the prior AV provider, highlighting JNS's incredible levels of service. We will continue to work to get JNS into more of our hotels. During 2019, we will continue to invest in our portfolios to maintain our competitive position. In total, we estimate spending approximately $130 to $145 million in capital expenditures during the year, which compares very favorably to last year. This will primarily be comprised of guest room renovations at the Marriott DFW Airport, Fairfield Inn & Suites Kennesaw, Embassy Suites Crystal City, Hilton Garden Inn BWI Airport, Hyde Regency Coral Gables, and Hampton Inn Buford. Additionally, we are continuously identifying opportunities to create value throughout our portfolio, such as adding four keys at Hilton Boston Back Bay, two keys at the Marriott Bridgewater, as well as capitalizing on projects to reduce energy consumption. That concludes our prepared remarks, and we will now open up the call for Q&A.

Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing the star key followed by the digit 1 on your telephone keypad. If you're using a speakerphone, please make sure the mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question, and we'll pause a moment to assemble our cue. We'll take our first question from Tyler Batori with Jani Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my question. First, to start off, you know, Jeremy, I think you touched on this in the opening remarks, but I'm just curious if you can provide a little bit more detail on this. You know, when we look at your hotels, X renovations for the quarter of the year, you know, it looks like you lag some of your peers and the broader U.S. hotel market. So I'm just trying to understand what exactly is driving that. So, Can you talk a little bit more and expand on your REVPAR index for both the year and the quarter? And I'm also just curious how REVPAR for the fourth quarter came in versus your internal expectations.

Sure, I can take that. For the year, we lost markets here. About, call it maybe 0.7%. And then for the quarter, we were up 20 basis points. So the fourth quarter, we actually outperformed our competitive sets. But for the year, we did lose share. And I can talk through that a little bit. But as you know, the previous four years for this portfolio, we gained market share. And so this is the first share loss that we had in the last five years. And one of those reasons is that we had a change in our team recently. The head of our RO, Revenue Optimization, actually was promoted to oversee Remington, and so we had to backfill some of those positions. But we've got that team in place, and I can tell you that we've got a lot of momentum heading into this year from a market share perspective. So I'm pretty optimistic that we should see some share gains on a go-forward basis. As it relates specifically to the fourth quarter, there are a lot of moving parts that I kind of want to walk through. one of which is D.C. We've got a large D.C. presence in D.C. Election years are always tough for D.C., as you know. So that did weigh in on the quarter. It wasn't the government shutdown, but it was just the impact of the midterm elections. Plus we had, you know, some heavy renovation activity at Crystal City Gateway that displaced a lot of revenue because we had our ballroom out. Aside from that, you can look at the markets that were down. Miami was down quite a bit. It was down, call it north of 15%. And when you look at the quarter of 2017, fourth quarter of 2017, it was up 16%. And so the comparable there is related to all the good business that we got associated with Hurricane Irma, which, as you know, hit in the fourth quarter of 2017 – but created a lot of long-term good business associated with recovery efforts. And so we had a decent amount of pickup in markets like Miami, Houston, Atlanta, as well as some other Florida markets. And specifically on Houston, we were down double digits in the fourth quarter of 2018. But when you wind back the clock to the fourth quarter of 2017, that market was up 20%. And so it was just some really difficult come-ups associated with some of those markets that benefited from the hurricanes. And obviously, Houston was a different hurricane than Irma, but there was a lot of good business that we had in pickup that we had in the fourth quarter associated with that business. Does that help?

Yes, no, it's very helpful. I appreciate all that, caller. And then the second question I have is just on the MSU Suites Manhattan issue. If you talk a little bit more about the upside potential at that property, and certainly we see the better New York City REVPAR trends, but it still seems like a tough market from an operations perspective. So can you speak to what your expectations are for labor and managing expenses in that market?

Sure, Douglas. I'll start off and Jeremy will follow up. Look, we made this investment in New York. This was our first purchase of a direct hotel in New York City since we've been a public company. We've looked at a lot of deals over the years. We've evaluated the timing to get into New York, and we really felt like this was an exceptionally good time to enter into the market. Just from a macro level, REFAR for New York, obviously, as you're well aware, increased 6.4% for upscale chains in 2018, and overall the market was up 3.4%. When you look at New York, this is a long-term growth market. Its CAGR since 1991 has been about 4% in terms of REVPAR, and that compares to about 3.5%, I believe, to the other top 25 markets. So long-term, it's a good market to be in. Picking your times to enter, I think, is what's key, and I think we nailed it in terms of the timing to enter into this market. After multiple years of increasing supply growth, according to Smith Travel, the number of new hotel rooms that opened decelerated by 32% compared to 2017. And then moreover, demand growth continues to outpace supply growth, and that was the case in 2017 and in 2018. And that's really been the first time that's occurred since 2013. So, you know, year to date, occupancy was really at all-time highs in that market. And so we look at that and we realize the profitability is turning the corner for hotels in New York. We're very excited about all the room demand. It was its eighth consecutive record-breaking year for room demand in terms of visitors in New York. And obviously there's many infrastructure enhancements that are taking place in the city. what is already a dynamic market, but obviously the changes that are taking place in LaGuardia, the Hudson Yards development, which is the largest private real estate development in the U.S. in its history, that will increase demand. And so what we look at this opportunity was as follows. We basically acquired a brand-new, well-located, near Times Square and Bryant Park hotel that is the only Embassy Suites hotel in Manhattan. It's a very efficient box. It has some very attractive amenities, including some patio suite rooms. It's got a sky lawn. It's got a great fitness area, restaurant. It really is a great hotel asset for us and met our criteria on many levels. We thought that the financing that we got with this hotel was attractive combined with the ERP capital. We have a view that while the asset opened up in 2018, it is ramping up exceptionally well. The property had a rev par for the past three months through December of 2018 of $254 with a 92% occupancy and an ADR of $276 and continues to still ramp up. So we looked at this on a per-key basis with the inclusion of the ERP at just over, you know, a half a million dollars, and we found that to be not only attractive purchase price, an attractive time in the cycle, attractive financing, with operational upside, with Remington taking over management, and so all in, we're very upbeat and positive about this investment. Jeremy, you want to add anything?

I don't have a lot to add. I think that, you know, we spent a ton of time on this from an underwriting perspective. And for New York to write it, it has been a challenging market. The last 10 years, the report has been down. We've stayed on the sidelines. A lot of folks asked us to get into the market, and we've been very disciplined. We think this is the right time. And with this hotel being brand new, the only embassy suite in the market, and then its location within the market, I think it makes it a very attractive investment. If you look at where the supply is coming around in New York, there's virtually none coming into Times Square, as well as the adjacent tract that we're in as well. The supply is coming in within that tract on the west side, which is at Hudson Development. So we think we're uniquely positioned, and we think our timing is right.

Okay, great. That's all from me. Thank you for the detail.

We'll take our next question from Michael Delisario with Baird.

Good morning, everyone. Good morning, Mike. Just on the acquisition front, can you maybe update us on kind of how you're balancing leverage today relative to your target, but also still trying to get the remaining ERFP capital out the door?

Sure. I'll talk about the... ERP and kind of the transaction pipeline, and Derek might want to chime in a little bit on just the balance sheet. I think, you know, since the announcement of the ERP back in the summer of last year, certainly underwent a lot of deals, but I think given the four deals that we've acquired, the Hilton Alexandria, La Posada Santa Fe, MC Suites New York, and the Hilton Santa Cruz, it clearly demonstrates discipline in what we've acquired. All the assets have a materially higher rep part of our portfolio. All of them, for our projections, are forecast five-year IRs, inclusive of the ERP, to be well into the 20-plus percent range. So very excited about that. We don't have an appetite to grow just for growth's sake. And I think that, as we've always said, our high insider ownership really aligns us with shareholders to make sure that we're just not growing to grow. We want to grow creatively. And when we think about growing from a transaction standpoint. We obviously have purchased quite a bit over the past nine months or so, $406 million of assets. And that utilized approximately 81% of the ERP capital. So when you take into account ERP is 10% of purchase price, that's $40.6 million of committed ERP capital, leaving us with just... just over $9 million. So if you wanted to perfectly fit the puzzle pieces together, that would give us the opportunity to buy just over a $90 million asset to round out the ERFP initial tranche of the committed capital from Ashford Inc. Obviously, the agreement contemplates more potentially by mutual agreement if both parties want to extend or expand the ERFP. But when we look at the transaction pipeline today, we've been very excited by what we've acquired. In terms of what's out there right now, I'd say that there are a decent number of deals, but in terms of relative to what we're looking for, we are stretched kind of thin in terms of seeing some deals that really appeal to us. I think we hit the sweet spot from a timing standpoint in the rollout of the ERP. And when we look at What we consider, we always have to take into account our share price. We have to look at the cash on the balance sheet. We have to look at our leverage levels when we're considering additional acquisitions. And, you know, I think for right now we are exercising even a little bit more patience given – Capital market situations, obviously, stock price taking into that account, particularly right now. And so maybe a little bit more prudence on the pace of the acquisition activity. Derek, do you want to make any comments on balance sheet?

Yeah, sure. So, Mike, it's Derek. And, you know, as we sit here today, we're slightly above our targeted leverage level. And I think, as Douglas mentioned, we were comfortable going above that because we saw some very attractive acquisition opportunities that we think will generate great returns for our shareholders. But also because of the attractive maturity schedule that we have, we've got very few near-term maturities. We've got a lot of cash in our balance sheet. So we were comfortable going a little bit above our target or the high end of our target for these acquisitions. But I'd say in terms of where we go from here, I'd say we're not really inclined to increase our leverage much from where we sit here today.

Got it. And then just on those three of the four recent deals, excluding New York, any big or big CapEx plans in terms of PIPs or any renovations planned for this year or next year for those three assets?

Nothing really to speak of that are significant. Obviously, New York newly built and – Santa Cruz asset had recently got some CapEx and so anything would be fairly minor with respect to the three properties.

Yeah, I think you could assume actually for all, including Alexandria as well and Santa Cruz, La Posada and New York that we should be able to spend within escrow for any of the CapEx we need on a combined basis. So I think we're in pretty good shape for the foreseeable future.

That's helpful. And then just lastly, maybe on the disposition front, any updated thoughts on your select service assets that you own or any changes that you're seeing in the transaction market for bigger portfolio transactions versus one-off sales?

I'll give you the macro view. Obviously, last year was a significant year from an overall transaction volume standpoint. I think it was up about 50% over prior year. A lot of that had to do clearly with some significant portfolio trades that occurred. But even single asset transactions were up, both full service and select service. So a fairly healthy year last year from a macro standpoint. And in addition to deal volume being up, prices were up just about 2% according to some third-party metrics. So when we take that all into consideration, I think we're looking sort of holistically at our portfolio, not really focused on – a select strategy here or a full-service strategy there other than our investment strategy, which is to focus predominantly on up- or upscale full-service hotels. Having said that, we have conducted some broker opinions of value on our hotels. That's something that is fairly common for us to undertake. We've stated, I think, previously that we're going to be opportunistic with respect to asset sales. In the past year, you know, we've sold $43 million of select service assets that I think accomplish some themes generally, namely asset selling lower REVPAR assets at what we believe to be attractive all-in cap rates once you take into consideration what the buyer would have to spend on CapEx following the acquisition. And we're also, as part of that analysis, evaluating the future CapEx spend on those assets relative to the EBITDA, looking at that ratio in conjunction with any sales proceeds and the relative debt payoff. So when I say a more holistic view, I think it is – not undertaking a strategy just for strategic sake. As I said previously, it is about undertaking an economic strategy to maximize the value of our portfolio to the extent any reshaping is done by selling lower REFAR assets to improve cash flow and balance sheet as well. So, you know, to the extent we have any sales of whether it's select service or full service hotels in the future, we'll be doing so to achieve portfolio performance enhancement.

That's helpful. Thank you.

We'll take our next question from Chris Waronka with Deutsche Bank.

Hey, good morning, guys. Maybe to follow up a little bit on the last question from Michael, you guys have been a little bit different on strategy. You've acquired some four-star kind of these upper upscale hotels. You haven't sold a lot of those hotels. A lot of your peers are walking away from that segment selectively to the extent maybe they have commodity hotels. What's your kind of outlook for the, you know, I guess it's a broader question, but, you know, what's your outlook for that kind of four-star upper upscale segment that maybe attracts you to it more than others?

Well, I think it's more of an effort for Aspire peers to buy REVPAR and buy the multiple story on that. I think that for us what we see is a balance. And we've said this, that the tradeoff of REVPAR and initial yield that you're buying as well as value add all sort of comes together for us, I think, in the segment combined with the fact that there is a greater number of transaction opportunities from which we can cherry-pick and select. And I think that when we look at achieving a high enough rev par, and I think these four acquisitions clearly indicate a movement and a higher rev par, but not necessarily chasing the highest rev par because we feel that the yields on those assets are not conducive to – to paying a dividend at the level that we have. And on top of it, we believe that many of the assets that we're looking at have more of an opportunity for us to put in place third-party management, namely our affiliate Remington, to add value to the properties. So combine that with more of those transactions available to select from, we think that that's smart from a transaction standpoint. Now, from an overall utilization, are four-star hotels less desirable? No, absolutely not. We're buying upper-upscale, full-service hotels. So, I think that I'm not sure if that's what you're suggesting, but these are high-quality, high-demand hotels, and the locations that we're at, I think, are top locations, given the demand generators that are near these properties. So we're very excited. As to why some of the other groups are selling, I can't really comment on their strategy much more than that.

Yeah, that's great. Thanks, Douglas. And maybe just a quick supply question. I guess as you kind of look back on 2018 or maybe even go back to 2017 as well, is the competitive supply around some of your maybe select service hotels Has that impact been more severe than maybe you initially thought or less severe? And what's your general outlook for supply in 19 and 20?

Yeah, I can take that. I mean, we've had – I think that's a general – your general thesis in some of the select service hotels, they're just – they're more susceptible to new supply growth, and I think that holds true for us. If you look at over the last 12 months – we've absorbed within our markets close to about 2.8%, close to 3% new supply coming in to all of our hotels on a revenue-weighted basis, okay? Going forward, that number is coming down closer to 2% over the next two years. So a lot of the – I think we've kind of hit the – hopefully, you know, the high point of some of the supply coming in. And then it varies by market. You can look at a market like Nashville that has had a ton of supply over the last several years, but the demand has always been pretty strong as well. So it's not always just select service. It is definitely location-driven. But we've absorbed a decent amount of supply over the last couple years, and we're starting to see that taper off just a little bit.

Okay, very good. Thanks, guys.

We'll take our next question from Robin Farley, UBS. Please go ahead.

Hi, thanks. This is our opinion for Robin. Mary, I just mentioned that Reading Group, their lower commission earlier on might have impacted business. Did you see any impact from that at all? And then just your general views on half of the group business for 2019 and what is the pace of growth for this year? Thanks.

Yeah, this is Jeremy. I can take that question. I'll just give you our group page for 2019. We're up about 300 basis points for our portfolio. So we don't really see a big impact from the change in the commission structure, especially since most of the other major state brands have done the same initiative as well that you're familiar with. We did see when they did announce that they were going to cut commissions, we saw an acceleration of some of the bookings when it was still under the 10%. But that is kind of normalized now. And so when you look at for 2019, we're up 300 basis points, 3% in group base. And that's representing close to 70% of what we have on the books for the year. Fast forward into 2020, group base is actually quite a bit stronger, but it's a much lower number in terms of what's on the books. So it becomes a lot less relevant at this point where we are right now.

That's really helpful, thanks. And then one quick follow-up. You mentioned some cautiousness regarding transactions. Does that also mean that for now you will hold off upsizing with Ashford, Inc., the returns program?

Well, we continue to look at transactions. It's just that what we see out there right now doesn't come across as appealing as what we've recently acquired. I think in terms of any additional tranches of the ERFP, Let's just see if we round out the remaining ERP, which is approximately another $90 million worth of deals, before we engage in those discussions.

Thank you very much. And, ladies and gentlemen, this will conclude today's question and answer session. At this time, I'd like to turn the conference back to management for any additional or closing remarks.

Thank you, everyone, for joining us today. We look forward to speaking with you next time on our next earnings call. Thank you. Have a good day.

Ladies and gentlemen, this concludes today's discussion. We appreciate your participation.