Ashford Hospitality Trust Inc

Good day and welcome to the Ashford Hospitality Trust second quarter 2019 results conference call. Today's conference is being recorded. At this time I'd like to turn the conference over to Jordan Jennings. Please go ahead.

Good day everyone and welcome to today's conference call to review the results for Ashford Hospitality Trust for the second quarter of 2019 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, and Jeremy Walter, Chief Operating Officer. The results, as well as the notice of the accessibility of this conference call on a listen-only basis over the Internet, were distributed yesterday afternoon in a press release that has been covered by the financial media. At this time, let me remind you that certain statements and assumptions in this conference call contain or, based upon forward-looking information, 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 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 8K with the SEC on August 1, 2019, and may also be accessed through the company's website at www.ahtread.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 second quarter of 2019 with the second quarter of 2018. I will now turn the call over to Douglas Kessler. Please go ahead, sir.

Good morning, and thank you for joining us to discuss Astrid Hospitality Trust's second quarter results. I want to begin by providing some comments on the recent performance of our stock. We hope that the information on our second quarter earnings released along with other topics discussed on this call, will highlight a simple fact. It's business as usual at AstroTrust. While lodging REIT stocks in general experienced some softness during the quarter, we believe that our dividend announcement led to an overreaction in our stock. Management is entrusted with making the right decisions, ones that oftentimes are about longer-term vision and opportunity. This is exactly what you should expect from us given our significant insider ownership at 17%. the highest among our peer group. Our goal is to maximize shareholder returns over time, and our team is committed to achieving this via value-added transactions, disciplined capital markets activity, and aggressive asset management. Our approach at Ashford Trust is always focused on how best to capitalize on lodging and financial market opportunities, while at the same time being fluid in our strategic efforts. For example, Despite the attractive features of our enhanced return funding program, we currently do not plan to make any acquisitions unless we can do it accretively without increasing our leverage. We strongly believe that ERFP has improved the investment returns on our recent purchases. However, we are prepared to be patient before accessing more ERFP capital for new deals given the current stock price compared to where we traded when we acquired the past four hotels that led to ERFP commitments. Alternatively, we are engaged in some asset sales discussions. When we evaluate asset sales, we take into consideration many factors, such as the impact on EBITDA, leverage, CapEx, RevPar, et cetera. We've listed a few assets for sale, and if we complete the sales, we plan to use the proceeds mainly to reduce our leverage. We may also consider share buybacks under the right conditions. Also, our portfolio is currently realizing the benefits from our recent CapEx spending, which is evidenced by the outperformance in our operating results. As we stated earlier this year, we anticipate our CapEx spending will be more consistent with our long-term historical levels. As I now turn to our second quarter performance, I would like to remind everyone that we have a very geographically diverse portfolio consisting of high-quality, well-positioned assets across the U.S. We believe that this geographic profile provides some very distinct advantages with respect to operating performance. Our actual rev par for all hotels for the quarter increased 2.8%, while comparable rev par for all hotels increased 1.4%. Comparable total rev par increased 1.9% for all hotels, highlighting our focus on growing ancillary revenues. For the second quarter, comparable rev par for hotels not under renovation increased 1.6 percent. Additionally, we reported AFFO per share of 47 cents and adjusted EBITDA RE of $132.1 million. We are pleased with our second quarter performance. Since the ERFP is a unique competitive advantage for us, it is worth highlighting where we stand with the program. Ashford, Inc. is committed to provide $50 million to the company on a programmatic basis. equating to approximately 10 percent of each new investment's acquisition price to be used for the purchase of FF&E properties owned by the company. Since establishing the ERFP, we have already completed $406 million of high-quality acquisitions that have utilized the program, which equates to approximately 80 percent committed utilization of the pledged $50 million of ERFP funding. To date, we have received approximately $29.2 million of the $40.6 million that Ashford, Inc. has committed to provide us for the four acquisitions under the ERFP. Jeremy will provide additional information on the performance of these properties along with other portfolio highlights in a few minutes. Turning to our balance sheet, we believe in the benefits of an appropriate amount of non-recourse asset level financing to enhance equity returns. We have a targeted range of net debt to gross assets of 55% to 60%, and we anticipate returning to that range over time. We would like to remind everyone that our loans are mainly floating rate, which we believe provides a natural hedge to our cash flows. At the beginning of this year, LIBOR was 2.51%, and currently it is 2.24%. Every 50 basis point reduction in LIBOR would result in approximately $19 million of annual interest savings based upon our current capital structure. With all our recent refinancing activity, we believe we now have an attractive, well-laddered maturity schedule. 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 note 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 second quarter of 2019, our net working capital totaled $367 million, equating to approximately $2.95 per share, which represents a significant 115% of our current share price as of yesterday's close. I will repeat that. Our net working capital per share was 115 percent of yesterday's closing price. We believe our current valuation is significantly below the intrinsic value of the company. With a current market cap less than our net working capital, the market seems to be ascribing negative value to our hotel portfolio, which is financed solely with non-recourse debt. If you take just two of our 121 hotels, the Hilton Boston Back Bay, and the Renaissance Nashville, and apply a reasonable value for those hotels, we believe the implied equity value after debt pay down is approximately $200 million. If you add the excess cash in our balance sheet as of the second quarter to the implied equity value of those two hotels, we believe the combined value significantly exceeds our market cap. We still would have 119 hotels, a majority of which have been recently refinanced and with appraised value significantly higher above the loan amounts. We strongly believe the valuation disconnect between our market value and the perceived value of the company is significant, and our management team and board are focused on this disparity. We also continue to make progress on our investor outreach efforts, even more so now given the recent increase in our average daily trading volume. During the remainder of 2019, we will continue to get out on the road to meet with investors to communicate our strategy and the attractiveness of an investment in Asher Trust. Once again, we are planning to have our investor day in New York City on October 3rd and hope to see many of you there. Looking ahead, we have a well-diversified portfolio and remain confident that we are well-positioned to outperform. We remain focused on proactive management initiatives across our platform to maximize value for shareholders. I will now turn the call over to Derek to review our second quarter financial performance.

Thanks, Douglas. For the second quarter of 2019, we reported a net loss attributable to common stockholders of $26.9 million, or 27 cents per diluted share. For the quarter, we reported AFFO per diluted share of 47 cents. Adjusted EBITDA RE totaled $132.1 million for the quarter, which represents a 5.8% increase over the prior year quarter. At the end of the second quarter, we had $4.2 billion of mortgage loans with a blended average interest rate of 5.7%. Our loans were 9% fixed rate and 91% floating rate. We focus on floating rate financing as we believe it has several benefits. Also, as Douglas mentioned, we believe we have a well-laddered attractive maturity schedule with a weighted average maturity of 5.3 years assuming all loans are fully extended. All of our loans are non-recourse. We have no corporate level debt. In terms of upcoming maturities, we have zero final maturities in 2019. When you see loans in our debt table that have extension options, most of those extensions have no tests in order to extend except that we purchase an interest rate cap and that the loan not be in default. That's why we include another schedule in our earnings release, which shows our debt maturities assuming all extension options are exercised. I will also point out that we have interest rate caps in place on almost all of our debt to protect us against any sort of spike in rates. Additionally, the current forward LIBOR curve shows LIBOR coming down through the remainder of 2019, which would potentially lower our interest costs even further. Looking at our cash and networking capital, we ended the second quarter with $237 million of cash and cash equivalents, and including the market value of our equity investment at Ashford, Inc., we ended the quarter with net working capital of $367 million. As of June 30, 2019, our portfolio consisted of 121 hotels with 25,552 net rooms. Our share count at quarter end stood at 124.1 million fully diluted shares outstanding, which is comprised of 102.1 million shares of common stock and 21.9 million OP units. With regard to dividends, The Board of Directors declared a second quarter 2019 cash dividend of $0.06 per share, or $0.24 on an annualized basis. Based on yesterday's stock price, this represents a 9.4% dividend yield. On the capital markets front, during the quarter we closed on the refinancing of the Ashton Hotel. This new loan has an $8.9 million balance, bears interest at a floating rate of LIBOR plus 2%, and has a five-year term. The next hard debt maturity for the company is in June 2020, and we are currently in the market working on a refinancing of that loan. This concludes our financial review, and 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 grew 1.4% during the second quarter of 2019. Comparable red par for those hotels not under renovation grew 1.6%. This growth represents a 120 basis point gain and a 50 basis point gain relative to the upper upscale class nationally and the total United States, respectively. Year-to-date, comparable rev par for the entire portfolio has grown 1.6%. During the second quarter, comparable hotel EBITDA grew $1.7 million, or 1.2%, while year-to-date, comparable hotel EBITDA grew $4 million, or 1.6%. I also want to point out that Easter, occurring later in April 2019, hurt April performance this year relative to 2018. I also want to update you on the performance of a couple of our most recent acquisitions, which were acquired as part of the Enhanced Return Funding Program with our advisor, Ashford, Inc. The La Posada de Santa Fe, which is a hotel in Marriott's tribute portfolio, was acquired in October 2018. During the second quarter, comparable rent part grew 12.8%. driven by 5.8% rate growth and 6.6% occupancy growth. This red bar growth represents 1,380 basis point growth relative to the New Mexico North market. Year-to-date comparable red bar has grown 16.2%. Since the Starwood and Marriott reservation systems merger during the third quarter of 2018, La Posada has seen significant higher rate of transient growth, allowing the property to more strategically take group business. In addition, merit reward redemptions have provided an incremental $50,000 per month in reimbursement revenues. During the second quarter, we were not only able to realize strong revenue growth, but we also saw a 14% increase in hotel EBITDA. Year-to-date, hotel EBITDA has grown 37.3%. Another ERFP success story has been the acquisition of our embassy suites in New York City, which recently was renamed the Embassy Suites, New York, Manhattan Times Square, a change that we believe could drive additional demand. Comparable red part during the second quarter grew 31.5%, driven by 23.4% occupancy growth and 6.6% rate growth. This red part growth represents a 3,370 basis point increase relative to the upper upscale New York market class. Total hotel revenue grew 31.1%, while Hotel EBITDA grew $803,000 or 41.9%. Here to date, Hotel EBITDA has grown 86.3%. We plan to continue to build on our success as group pace is strong for the second half of 2019 and 2012 is strong as well. During 2019, we will continue to invest in our portfolio to maintain competitiveness. In total, we estimate spending approximately 135 to 155 million in capital expenditures during the year. This estimate is down significantly from what we spent in 2018. We have completed guest room renovations at the Embassy Suites Crystal City, Higher Regency Coral Gables, and six select service hotels. We are currently in process with a guest room renovation at the Marriott DFW Airport. We've also completed lobby renovations at the Merritt Crystal Gateway in Weston, Princeton. Additionally, we continuously identify opportunities to create value throughout the portfolio. The first phase of the Renaissance Nashville redevelopment is complete, and the second phase is underway, which includes a build-out of additional meeting space and event space. Furthermore, we have identified accretive opportunities to add back additional keys within our portfolio. We'll be adding four keys at the Hilton Boston Back Bay, and have added two keys to the and one key to the Hyatt Regency Coral Gables. I want to again highlight that our capital expenditure forecast for 2019 is significantly below our spend in 2018, which ended up over $200 million. Not only has the dollar value of our capital expenditures decreased since last year, but the number of hotels and rooms impacted has also been reduced from 28 to 17 hotels and 7,462 to 5,047 rooms. I'm now excited to discuss the positive performance benefits we've experienced from some of these transformational renovations, and how they have positioned us for long-term success. There were a number of hotels under renovation in 2018 that are delivering strong performances in 2019. Specifically, seven hotels that completed renovations during 2018 experienced double-digit comparable Red Park growth during the second quarter of 2019. The residents in Jacksonville, residents in Orlando SeaWorld, Courtyard Denver Airport, Hilton St. Petersburg Bayfront, Hotel Indigo Atlanta Midtown, Shin Anchorage, and Hilton Tampa West Shore. I would like to quickly highlight four of those hotels. The Courtyard Denver Airport, which completed its guest room renovation during the first quarter of 2018, continues to see strong comparable Red Park growth, with growth for the second quarter of 2019 equaling 17.5%. Year-to-date comparable Red Park growth has been 25.9%, with hotel EBITDA growing $488,000, or 30.8%. Last year's meeting space and fitness center relocation at the Hilton St. Petersburg Bayfront led to comparable Red Park growth of 17.4% during the second quarter. The Sheridan Anchorages guest room and lobby renovation was completed in the first quarter of 2018, and comparable Red Park growth during the second quarter of 2019 was 16.2%. Year-to-date, comparable Red Park growth has been 26.2%, and Hotel EBITDA has grown $414,000, or 41.2%. Finally, the Hilton Tampa Westshore, following its guest room and meeting space renovation, experienced comparable Red Park growth of 15.2% during the second quarter. Year-to-date, Hotel EBITDA has increased $583,000, with Hotel EBITDA flow-through of 53%. In addition to our focus on continuously reinvesting in our assets, I want to highlight a number of other steps we are taking in order to drive Hotel EBITDA. First, we have analyzed our hotel's competitors to find opportunities in our restaurant and banquet pricing and are rolling out price increases over the summer. Second, we are also focused on directing e-commerce spending to various digital programs to increase visibility and advertising to the leisure and group segments. To that end, in the group segment, we are working closely with CVET to increase exposure to group leads. Third, in terms of cost management, we are utilizing efficiency programs to introduce better methodologies to reduce payroll hours. These programs have achieved 5% to 6% payroll savings at various hotels, even after taking into account wage rate increases. And lastly, this past month, we have completed deep dives at 19 of our properties to further reduce operational expenses. That concludes our prepared remarks, and we will now open the call up for Q&A.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, it is star 1 to ask a question. And we'll pause for just a moment to allow everyone an opportunity to signal for questions. And we will take our first question from Tyler Batoir with Jani Capital Markets. Please go ahead.

Thank you. Good morning, everyone. So the first question I had, Douglas, you know, I think it would be helpful, you know, we got a lot of questions from investors just on the dividend and on the reduction and whatnot. Can you maybe just address that a little bit more, your decision, you know, why you made that decision, you know, and then your thoughts on redeploying some of that capital?

Sure, Tyler. So each quarter we evaluate the dividend and we determined that we weren't getting credit for what was an outsized dividend. We also realized that we were paying and had been paying well in excess of our required distribution to meet REIT rules. We've always been opportunistic with cash and felt that with that extra cash we could use it for more opportunistic purposes. So, really everything the same that we highlighted in our statement related to the dividend.

Okay, got it. That's helpful. And then my second question probably for Jeremy, you know, operationally look like a strong quarter here and we see the outperformance. You know, how did the second quarter from a REVPAR perspective come in versus your expectations, versus your budgets? Any significant surprises one way or the other?

No, I wouldn't say there's any significant surprises. We've been projecting all year long that we would gain market share. And so during the second quarter, we gained about 100 basis points, a little bit over 100 basis points, actually. And year-to-date, we're tracking that same level as well. So I think it's pretty consistent. It is challenging. It is, you know, it's been tough. And we've been really focused on cost as well. But we've been doing a good job doing what we can to increase market share.

Okay, great. That's all I have. Thank you.

We'll take our next question from Brian Meir with the Riley FBR.

Good morning. A couple of quick questions, last clarifications. So I guess it's safe to say, based upon, Douglas, your comments, that you're not really out there meaningfully looking for acquisitions, and that's going to take a back seat now, and maybe expanding the eRFP to $100 million is also of lesser importance. Is that correct?

Well, first of all, we're always underwriting transactions because we always want to stay in the flow of transaction activity. The transaction pipeline right now is relatively thin, but more importantly, from our own standpoint, given where our stock is trading and given the desire not to increase leverage, we believe that it's best to stand on the sidelines until we can find transactions that are both accretive and do not negatively impact our leverage. So for those reasons, it all makes sense to not be aggressive on the acquisition pace of things, and we're not actively looking to acquire hotels. That can certainly change given changes in those features, right? With respect to the RFP, We still have some capacity on the ERFP. We still have the ability for about $90 million of transactions that could benefit from this current tranche of the ERFP. And I think if we get closer to the point where it makes sense to engage in discussions about a second tranche of the ERFP, then we feel like it's been of real benefit to the Asher Trust shareholders based upon the returns that We think that the ERP has contributed to the deals that we've acquired, and we hope the same is true on the Ashford Inc. side. So when that time comes, we hope to have a mutually beneficial discussion on how to expand that program. But we're just not there yet.

Okay. And then on the flip side of that, you mentioned having a few assets out there in the marketplace for sale. How would you characterize those assets? Are they, I would assume, more of your select service product?

We'll provide color on the sales of those assets to the extent we complete sales and I would just make a general statement that these sales are financially calibrated. They are not necessarily a strategy to sell a particular type of asset. They're based upon either benefits that we see in selling the property from a price that we're going to get for the asset, a debt pay down, an impact on our portfolio REVPAR because maybe they're lower REVPAR assets or perhaps they're assets that would require an amount of CapEx that we would not have seen the types of returns that we would like to see. I mean, look at the numbers that Jeremy's mentioned with respect to the CapEx that we did spend and the types of performance that we got from many of those assets. It's not a specific type of asset necessarily. It takes all those factors and others into consideration to make good economic decisions to try to enhance the value of our portfolio for shareholders.

And then when we think of use of proceeds, I mean, you talked about both, you know, delevering and the potential for stock buybacks. It doesn't have to be one or the other, right? You could split the proceeds across both areas. areas. Is that correct?

That's correct. Obviously, the assets that we have debt on, any sort of sale is going to require an associated pay down and perhaps additional pay down related to extracting that specific asset out of a loan pool. Excess proceeds can be used for general corporate purposes. It could be used for CapEx. It could be used for share buybacks, any and all of those and others. So to the extent there are excess proceeds, we'll obviously be looking at the appropriate use of those proceeds.

And then just lastly for me, and maybe this is a question for Jeremy on labor costs, can you give us an update on how that's trending? Is it still increasing? Has it flattened out? Is it declining? What's going on there?

Sure. Yeah, it's still increasing, and we're seeing as much as, you know, 4% to 5% increases in wages. It's really market-driven. And the other headwind is, you know, some of these local ordinances that are being passed that basically implement not only higher wages but different work rules that apply to hotels that are not subject to a collective bargaining agreement. We're seeing that. more and more in different jurisdictions. So that has been challenging as well, but we just continue to do everything we can to find more opportunities to drive more productivity in our hotels.

Okay, thank you.

We'll take our next question from Michael Bellisario with Baird. Please go ahead.

Good morning, everyone. Good morning. Could you please explain the the high watermark and how that works for the ERFP program if you do sell assets, and then how the calculation works there for that amount to get, so to speak, backfilled for the asset sales.

Hey, Mike, this is Derek. I'll address that. So if AHT sells assets, a dollar amount of any sold assets goes into what's called a net asset fee adjustment as part of the total advisory fee. So there would still be 70 bps off of the total market capitalization of the company. And then there would also be either 70 bps on the net asset fee adjustment, the amount that's in that, or if it's an ERFP asset, there's a slight premium to that. Obviously the ERFP assets would have been recently acquired hotels. And then as long as there's a balance in that net asset fee adjustment, If the company then goes and acquires another hotel, if AHT wants ERFP associated with that asset, then that amount would stay in that net asset fee adjustment. If the company acquires a hotel and it does not take ERFP, then that net asset fee adjustment amount would be reduced by the amount of that acquisition. So any dollars... that are associated with asset sales go into the net asset fee adjustment so that that advisory fee wouldn't really change very much during that period where there's an amount in there.

And obviously, Mike, there's logic to that because it wasn't going to be the case where the advisor provided capital to help fund accretive growth and then turning right back around, the company was shrinking the portfolio. So we felt that that was a fair give and get for both sides to incorporate into the advisory agreement with respect to the ERP situation.

Right. So I guess just high level, if you sell an asset and it's an eight cap for corporate purposes, it's more like an eight and a half, 8.7% cap rate, right? Because the advisory fee will stay unchanged. Is that plus minus the correct math?

um you know i haven't thought through the the cap rate impact of the sale um and so i can't i can't address it on the call but it's really on the value yeah it's on the value and um i'm not sure how you would back into the impact on the cap rate because the advisory fee would basically stay about the same as it was prior to the sale okay that's helpful and then just

Maybe can you provide your latest thoughts on more disclosure around the termination fee, kind of similar to what Braymar does, and have you and the board had any discussions on this topic?

So, obviously, the calculation of the termination fee is disclosed in our advisory agreement, and it's based on numerous inputs, as you know, Mike.

Right. I guess I was asking more along the lines of, the actual net revenues and net earnings to be able to calculate the termination fee using the 12 times multiple, the tax gross up, and the 10% step up to actually do the mechanics of it.

Yeah. So, Mike, you referenced what Braymar does. The Braymar disclosure was something that was negotiated between Ashford Inc. and Braymar as part of the amendment to the advisory agreement. So that does not exist in the current structure with AHT and Ashford, Inc.

Do you think that would be helpful from a transparency and an investor perception perspective, though?

Look, we believe that investors should view this as a long-term agreement, Mike.

Okay. Fair enough. Thank you.

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

Hey, good morning, guys. Douglas, I just want to follow up a little bit on your earlier comments. You know, understanding you have a lot of options. If you sell assets, there's debt reduction you might have to do. But you also have cash. You have network and capital. What's the trigger, you know, internally, like what's the trigger point for for share repurchase, because if you decided to do it at a certain point, there would have to be some kind of trigger that made you do it. I think we're just trying to get a better understanding of what goes into that calculation.

Sure, so just a couple of points regarding this. The company has a share buyback authorization in place, and a $200 million buyback authorization. Historically, This management team and members of the board have engaged in buybacks for the company. We think we did it exceptionally well the last time that we did it and created a lot of value for shareholders. It's something that could be a possible use of our cash, but we don't give any particular guidance if or whether we will do that or at what prices.

Yeah, I would add, Chris, as you said, there's a lot of moving pieces here and a lot of variables. Obviously, we look at our leverage. We look at our trading volume, our floats, available cash on hand, where we are in the cycle, et cetera. So there's a lot of factors that are consistently changing that all go into that analysis. But as Douglas mentioned, and I would highlight, in our history, we've been very active buyers of our stock at certain periods of time. And so that is something that is constantly on the radar screen for us.

Okay, that's helpful. And then probably another question for Derek on the negative advisory, the incentive fee, which I think was a reversal, right, of the first quarter number. Can you just remind us the mechanics of how that gets every quarter? Is that something that will reset again, or is it something where it's a zero or it's a positive number, but it's not a negative number for the full year, right?

Right, so you're referring to the advisory incentive fee calculation, and that's actually done at the end of the year based on a total shareholder return performance versus the peer group. For GAAP purposes, we have to accrue for that fee at the end of each quarter, assuming the year ended at the end of that quarter. And so we had a fee that was accrued for at the end of the first quarter that when we looked at it, the second quarter performance, the year-to-date performance would have resulted in a lower incentive fee, so we had to reverse some of that out. For our reported metrics of adjusted EBITDA, RE, and AFFO, we add that adjustment back in quarters one through three because of that volatility. And then in Q4, if there's an actual incentive fee for the year, then that would be reported and recognized in our adjusted metrics in the fourth quarter.

Okay, gotcha. Thanks, Derek. I guess I do have a question probably for Jeremy, which is kind of what impact are you guys seeing from some of these – we'll just use an example of a courtyard or a Hampton Inn or something where a hotel gets renovated. And you guys have been doing a lot of this, so in some ways it's a good story, but in other markets maybe – You get a renovated hotel dropped right next to you. It doesn't increase the supply numbers everybody looks at, but it essentially is more competitive supply. What do you think the puts and takes are overall for your portfolio, top to bottom?

I think the actual supply is a lot more meaningful, new supply versus renovated supply within your comp set, if I understand your question correctly. There are situations where Mainly if you have a big hotel in your comp set that may have been out for an extended period of time with a massive renovation, that certainly can have an impact. But a Hampton Inn or a courtyard in your comp set that was under renovation last year, now it's renovated. It's not a huge factor to us. The bigger issue is supply in general as it comes in in certain markets and tracks within our comp sets. Does that answer your question?

Yeah, yeah, that's great. Appreciate it. Thanks, guys.

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

Great, thanks. I know you've commented a little bit already on the ERFP and the idea of not increasing that from $50 million to $100 million. Is it just a signaling thing that you don't want it to signal that you might be looking to do acquisitions, or is there – I guess both sides have to agree to that, and has there been maybe a change in the approach to whether another $50 million would make sense? Because just authorizing it or agreeing to have additional funds available, it doesn't seem obvious why – you wouldn't have that available strip dry powder. Is it just a signaling issue, or is there more in terms of being of two minds?

Sure, so as I mentioned earlier, we still have capacity under the existing agreement for $90 million of transactions. And there's about $9 million left, and so you apply that 10% to it, and that's how we get to the $90 million. And given our earlier comment said, based upon the current stock price and looking to find a creative opportunities, while we're underwriting, we're really on the sidelines from new acquisition standpoint. So it would seem premature for management to spend their time working on a mutual agreement with our advisor when we're not really at the cusp of having to make that call because we still have some excess capacity. From Asher Trust standpoint, And we believe also from Azure Dink's standpoint, the ERFP has been successful. And so we'll have to cross that bridge when the time comes if there's a mutual desire to reload by both parties. We hope there will be.

Okay. All right, thanks. And then just one other clarification. When you were talking about market share in your opening comments, is that kind of looking at your portfolio versus, you know, upper upscale segment in the U.S.? Or are you actually, was that weighted by the different geographies? Because obviously some of the markets where you are, like Atlanta, where there's been stronger results there. So just wondering if the market share is weighted for your geographic exposure as well.

Yeah, that's a great question. So anytime I quote a market share number on a portfolio-wide basis – It's revenue-weighted for our portfolio, and I'm usually specific on whether or not I'm talking about a chain scale or if we're talking about our different tracks within our hotels or if we're talking about our direct competitive set for each individual hotel. So what I mentioned earlier in terms of my comments earlier, when I mentioned that we were gaining over 100 basis points in market share, That is relative to the competitive set of each individual hotel in aggregate weighted on a revenue basis, revenue weighted basis.

Okay, great. Thank you.

We will take our next question from Brian Dobson with Nomura Incident.

Hi. Just a couple of quick questions. So, given the disparity between the market value and your perception of asset values, would you consider accelerating asset sales to free up some capital to either pay down debt or repurchase shares?

It's a good question and certainly a possible strategy. We have some assets for sale in the market currently. Let's see what the reaction is to that. we'll be fluid in our strategic analysis of next steps.

Sure, and then you briefly mentioned increasing your group exposure. That's been a key driver of outperformance for some of your peers. How do you see that ramping over the next, call it two years or so, and what kind of early indications have you seen?

This is Jeremy. Actually, in the second quarter, our group, REVPAR growth was essentially flat, and the growth that we had in REVPAR was over 100% from transient. We had a decline in contract, an increase in transient, and basically flat in group. But if you look forward through the balance of the year, We're looking at probably between 2% to 3% growth in group business, what's on the books right now in terms of forward-looking pace. And then heading out to 2020, our group business is up 2% when you look at it as compared to the same time last year.

Great. And do you think that will ultimately lead to higher transient rates?

It can help. Yeah, it definitely can help because we're selective of where we're filling our group patterns. And so we look at where we need business, and then we can press hotel, and then our room inventory is essentially smaller, and then that allows us to push a rate more aggressively for transient business.

And then just finally, I guess, looking through your portfolio, do you see opportunities to press your managers to drive property-level efficiencies to help to increase margins, I guess, over the next two years or so? And if you do, do you think you could elaborate on some of those opportunities? I know it's generally a bunch of little things.

Yeah, you're exactly right. What I tell my team is small drops of water build mighty oceans. And so we are constantly mining our portfolio for opportunities to drive more margin in our hotels, to drive more rate, to drive more revenue, whatever the case may be. There is an extensive amount of initiatives that we have going on right now. A lot of them, I would say, are proprietary to our asset management approach, and a few of those I did highlight in our prepared remarks on the script earlier.

Great. Thanks very much.

That concludes today's question and answer session. At this time, I would like to turn the conference back over to management for any additional or closing remarks.

Well, thank you for joining today's call. We hope to see you at our Investor Day in New York on October 3rd and look forward to speaking with you again next quarter.