Ashford Hospitality Trust Inc

Greetings and welcome to the Ashford Hospitality Trust third quarter 2019 conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Jordan Jennings. Please go ahead.

Good day, everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the third quarter of 2019 and to update you on recent developments. On the call today will be Douglas Tesler, President and Chief Executive Officer, Derek Eubanks, Chief Financial Officer, and Jeremy Welter, Chief Operating Officer. The results as well as the notice of accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday afternoon in a press release that has been covered by the financial media. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the Federal Securities Regulations. Such forward-looking statements are subject to numerous assumptions uncertainties, and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of the call, and the company is not obligated to publicly update or revise them. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on Form 8A with the SEC on October 29, 2019, and may also be accessed through the company's website at www.ahtreat.com. Each listener is encouraged to review those reconciliations provided in the earnings released together with all other information provided in the release. Also, unless otherwise stated, all reported results discussed in this call compare the third quarter of 2019 with the third quarter of 2018. I will now turn the call over to Douglas Teffler. Please go ahead, sir.

Douglas Teffler Good morning and welcome to our call. I'll begin by giving a brief overview of our third quarter of 2019 results, followed by the progress we've made executing on our strategy to pursue value-added transactions, disciplined capital markets activity, and aggressive asset management initiatives. After that, Derek will review our financial results, and Jeremy will provide an operational update. Our third quarter performance benefited from our geographically diverse portfolio, consisting of high-quality, well-positioned assets across the U.S. We believe that this geographic profile provides some very distinct advantages with respect to operating performance. Our actual rev par for all hotels for the quarter increased 3.5%, 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 third quarter, comparable rev par for hotels not under renovation increased 1.7%. Additionally, we reported AFFO per share of $0.28 and adjusted EBITDA RE of $103.1 million. We believe our portfolio is currently realizing the benefits from our recent CapEx spending, which is evidenced by the outperformance and our operating results. As we stated earlier this year, going forward, we anticipate our CapEx spending will be more consistent with our long-term historical levels. Our approach focuses on how to best capitalize on lodging and financial market opportunities while at the same time being fluid in our strategic efforts. For example, despite the attractive features of our enhanced return funding program, we currently do not plan to add to our portfolio unless we can transact accretively without increasing our leverage. While we strongly believe the ERP improves our projected investment returns, we're prepared to be patient before accessing more ERP capital for new deals given the current stock price. Additionally, disciplined capital recycling is an important component of our strategy. When we evaluate asset sales, we take into consideration many factors, such as the impact on EBITDA, leverage, CapEx, REVPAR, etc. Towards this end, during the third quarter, we sold the 251-room Marriott Plaza San Antonio in San Antonio, Texas, for $34 million. The sales price, inclusive of the buyer's estimated CapEx, represented a trailing 12-month cap rate of 4.9% on net operating income and a 17.1 times hotel EBITDA multiple as of June 30, 2019. After the loan payoff and transaction costs, the net proceeds from this sale were approximately $6 million. We also completed the sales of the 156-room Courtyard Savannah downtown in Savannah, Georgia, and the 128-room Hilton Garden Inn in Wisconsin Dells, Wisconsin for $37.8 million. The combined sales price, inclusive of the buyer's estimated CapEx, represented a trailing 12-month cap rate of 5.3% on net operating income and a 16.2 times hotel EBITDA multiple as of June 30, 2019. Proceeds from the sales were used to pay down debt. Note that these sales EBITDA multiples are significantly higher than where our overall portfolio is publicly valued, in spite of our portfolio having higher REVPAR than each of these sold hotels. We strongly believe this is indicative of a greater intrinsic value of our assets when compared to current market metrics. Regarding asset management, I'll provide some highlights that Jeremy will cover in more detail. We continue to engage in beneficial strategies that we believe will create long-term value. This month, we announced the sale of a 1.65-acre parking lot adjacent to the Hilton St. Petersburg Bayfront to a condo developer for a total consideration of $17.5 million to be paid over time. This price exceeded appraised value. Net proceeds from the first payment tranche resulted in $8 million of debt pay down. When finished, the project will provide us with upgraded covered parking for our hotel guests. Also in October, we entered into a new franchise agreement with Marriott International to convert our Crowne Plaza Key West La Concha to an autograph collection property by July 2022. The agreement includes a $13.7 million property improvement plan of which approximately $7.8 million we believe is incremental and should yield a 19% unlevered internal rate of return. We anticipate the conversion will create a distinctive theme and style for the hotel that is commensurate with the upper upscale autographed product. With its prime location in Old Town Key West, the up branding of this landmark hotel should elevate the property into a desirable niche in a very attractive high barrier to entry, high rev par Key West market. We also recently announced a new franchise agreement for the 252 room Hilton Alexandria Old Town, whereby the hotel transition from being Hilton managed to being managed by Remington Lodging. We believe that there is a valuation premium for franchised hotels, and this management conversion did not trigger a property improvement plan. Hilton Alexandria, La Concha, and Hilton St. Pete are excellent examples of how we go about unlocking embedded value in our portfolio. Turning to our balance sheet, we believe in the benefits of an appropriate amount of non-recourse property level financing to enhance equity returns. We have a targeted range of net debt to gross assets of 55% to 60%, and we anticipate returning to that range over time. In fact, you can see that we are working to make progress given that most of our recent sales proceeds were applied to reduce outstanding loan balances. Our loans are mainly floating rate, which we believe provides a natural hedge to our cash flows and positions us to benefit from recent interest rate movements. At the beginning of this year, LIBOR was 2.51%, and currently it is 1.79%. Every 50 basis point reduction in LIBOR would result in approximately $19 million of annual interest savings based upon our current capital structure. In addition, with all of our refinancing activity, we believe we have an attractive, well-laddered maturity schedule. We also seek to maintain a high cash and cash 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 third quarter of 2019, our net working capital totaled $346 million. equating to approximately $2.79 per share, which represents a significant 107% of our current share price as of yesterday's close. This is really remarkable when you consider that on top of this networking capital, we have a portfolio of 118 high-quality, predominantly upper-upscale hotels. Apparently, these assets, many of which have been recently refinanced at reasonable loan-to-value levels, are not getting much equity value credit in the public market. To help address what we see as an intrinsic value gap, we continue to be active with our investor outreach efforts. We recently held a well-attended Investor Day in New York. If you were not able to join us, I encourage you to go to our website and watch the webcast. For the remainder of the year and into 2020, we will expand our efforts to get out on the road, to meet with investors, and to communicate our strategy and the attractiveness of an investment in Ashford Trust. We look forward to speaking with many of you during upcoming events. In summary, we remain committed to generating solid operating performance, completing opportunistic transactions, and proactively managing our balance sheet. We believe we have multiple core competitive advantages that should lead to outperformance, and that make Asher Trust an extremely attractive long-term investment. For example, our investment focus is predominantly on upper upscale full-service hotels, but we also have balance in our portfolio given that we own select service hotels as well. With respect to our asset management initiatives, we remain diligent in exploring ways to increase profitability and create more value in our existing assets. Our affiliate companies are high-quality service providers that seek to maximize the value of our assets and improve guest satisfaction. Adding to the list of competitive advantages is our capital markets execution, given that we believe we have proven our financial expertise over multiple cycles. With approximately 17% insider ownership, we believe we have tremendous alignment with our shareholders, which encourages us to think and act like owners to maximize long-term total shareholder returns. Looking ahead, we remain confident that we are well positioned to outperform. I will now turn the call over to Derek to review our third quarter financial performance. Thanks, Douglas. For the third quarter of 2019, we reported a net loss attributable to common stockholders of $41.8 million, or 42 cents per diluted share. For the quarter, we reported AFFO per diluted share of 28 cents. Adjusted EBITDA RE totaled $103.1 million for the quarter, which represents a 1.3% increase over the prior year quarter. At the end of the third quarter, we had $4.1 billion of mortgage loans with a blended average interest rate of 5.3%. Our loans were 9% fixed rate and 91% floating rate. We focus on floating rate financing as we believe it has several benefits. Also, as Douglas mentioned, we believe we have a well-laddered attractive maturity schedule with a weighted average maturity of five years, assuming all loans are fully extended. Our loans are non-recourse, and we have no corporate debt. In terms of upcoming maturities, we have zero final maturities remaining in 2019. When you see loans in our debt table that have extension options, most of those extensions have no 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 third quarter with $256 million of cash and cash equivalents, and including the market value of our equity investment in Ashford, Inc., we ended the quarter with networking capital of $346 million. As of September 30, 2019, our portfolio consisted of 118 hotels with 25,017 net rooms. Our share count at quarter end stood at 124.1 million fully diluted shares outstanding, which is comprised of 102.1 million shares of common stock and 21.9 million OP units. With regard to dividends, the Board of Directors declared a third quarter 2019 cash dividend of $0.06 per share, or $0.24 on an annualized basis. Based on yesterday's stock price, this represents a 9.2% dividend yield. In October, we entered into a stock purchase agreement with Ashford, Inc. Under the agreement, Ashford, Inc. purchased 393,077 shares of its common stock for $30 per share, resulting in total proceeds of approximately $11.8 million to the company. The purchase price reflected a premium of approximately 20% based on the closing price of Ashford, Inc. common stock on October 1, 2019. We also announced a plan to distribute the remaining 205,086 shares of Ashburn Inc. common stock on a pro rata basis to Ashburn Trust common shareholders and unit holders. The pro rata distribution is expected to be completed on November 5th, 2019 to shareholders of record as of October 29th, 2019. This concludes our financial review. I would now like to turn it over to Jeremy to discuss our asset management activities for the quarter.