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spk03: All participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordan Jennings, Manager, Investor Relations. Thank you. You may begin, ma'am.
spk02: Good day, everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the second quarter of 2023 and to update you on recent developments. On the call today will be Rob Hayes, President and Chief Executive Officer, Derek Eubanks, Chief Financial Officer, and Chris Nixon, Executive Vice President and Head of Asset Management. The results as well as notice of accessibility of this conference call on a listen-only basis over the internet were distributed yesterday afternoon in a press release. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the Federal Securities Regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties, and known or unknown risks which could cause actual results to differ materially from those anticipated. These factors are more fully discussed 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. Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus, which can be found at www.sec.gov. 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 in company tables or schedules, which have been filed on form 8K-A with the SEC on August 2, 2023, and may also be accessed through the company's website at www.htreap.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 ended June 30th, 2023 with the second quarter ended June 30th, 2022. I will now turn the call over to Rob Case. Please go ahead, sir.
spk09: Good morning. welcome to our call after my introductory comments derek will review our second quarter financial results and then chris will provide an operational update on our portfolio the main themes of our call today are first we are very pleased with the strong rev part growth we achieved in the second quarter our portfolio continues to ramp up nicely we are clearly seeing the benefit of a broadly diversified high quality portfolio that is balanced across leisure corporate and group demand sources second Our liquidity and cash position continue to be strong. We ended the quarter with approximately $442 million of net working capital. We feel well positioned for our upcoming extension tests. In addition, we have access to an on-drawn capital via VR strategic financing. Third, the capital raising for our non-traded preferred is ramping up nicely and increased over 148% from the first quarter. We continue to be excited about this source of capital for our platform. Now for some additional details on these three themes. REVPAR for all hotels in our portfolio increased 6.7% in the second quarter compared to the prior year quarter. This REVPAR growth was led by occupancy, which increased 2.8% over the prior year quarter. And we also saw strong growth in average rates, which increased 3.8% over the prior year quarter. In addition to our solid hotel performance, the vast majority of our hotels are now out of their respective cash traps. This is an important step for our company as it allows us full flexibility to use our cash to optimize our capital structure, pay down debt, or invest in growth opportunities. Looking ahead, we believe our geographically diverse portfolio consisting of high quality assets with best in class brands and management companies is well positioned. We also believe that our relationship with our affiliated property manager Remington really sets us apart. Remington has been able to consistently manage costs and optimize revenues aggressively. enabling us to outperform the industry from an operations standpoint for many years. During the quarter, we made significant progress on our loan extensions and made the strategic decision not to make required paydowns on our keys A, B, and F loan pools in order to meet those extension debt yield tests. This was a prudent economic decision that reflected a comprehensive capital management process by the company, which explored and assessed multiple options for these assets, including refinancing, extensions, and asset sales. Importantly, The recent amendment to our corporate financing provides us with added flexibility regarding these loan pools, and by proactively choosing not to extend three of those pools, we will improve our balance sheet by lowering leverage and it materially improves our future cash flows. Further, the combination of the paydowns and the ultimate removal of the debt associated with the pools that we did not extend will lower our debt by approximately $700 million, or more than 18%. We have been committed to leveraging the company over time, and this is a significant step towards our long-term goals of creating a more sustainable capital structure. Additionally, capital recycling remains an important component of our strategy, and we continue to pursue opportunities to sell certain non-core assets. We recently sold a small asset in Orlando for nearly $15 million, and have four other assets that are currently being marketed for sale. We have identified several additional assets that we may bring to market for sale if market conditions warrant. We expect any net proceeds from these sales will go towards paying down debt. We also continue to be excited about our non-trader preferred capital offering and believe this offering will not only provide an attractive cost of capital, but allow us to accretively grow our portfolio over time, subject to future market conditions. We believe access to this growth capital is a significant competitive advantage, particularly given the fact that lodging REITs are currently trading at material discounts to their net asset values. Our preference would be to use this capital for future growth, Though we may also use some of the capital to pay down debt or other corporate uses as needed. We continue to build a selling syndicate and currently have 35 signed dealer agreements representing over 5,027 reps selling the security. We are still very early in the capital raising process. To date, we've issued approximately $50.6 million of gross proceeds, including $9.5 million in July alone. Turning to investor relations, we continue to have a robust outreach effort to get in front of investors, communicate our strategy, and explain what we believe to be an attractive investment opportunity at Ashford Trust. We have already attended numerous industry and Wall Street conferences this year and have several upcoming conferences later this year. We look forward to speaking with many of you during those events. We believe we have the right plan in place to move forward and maximize value at Ashford Trust. This plan includes continuing to grow liquidity across the company, optimizing the operating performance of our assets, improving the balance sheet over time, and looking for opportunities to invest and grow in our portfolio. We have a track record of success when it comes to property acquisitions, joint ventures, and asset sales, and we expect they will continue to be part of our plans moving forward. We ended the second quarter with a substantial amount of cash in our balance sheet, and with the launch of our non-traded preferred stock offering, we are excited about the opportunities we see in front of us. And I'll turn the call over to Derek to review our second quarter financial performance.
spk04: Thanks, Rob. For the second quarter, we reported a net loss attributable to common stockholders of $30.3 million, or 88 cents, per diluted share. For the quarter, we reported AFFO per diluted share of 78 cents. Adjusted EBITDA RE for the quarter was $104 million, which reflected a growth rate of 8% over the prior year quarter. At the end of the second quarter, we had $3.7 billion of loans with a blended average interest rate of 7.8%, taking into account the in-the-money interest rate caps. Considering the current levels of LIBOR and SOFR and the corresponding interest rate caps, 96% of our debt is now effectively fixed as almost all of our interest rate caps are now in the money. During the quarter, we extended our BAML Highland Loan Pool until April 2024. As part of this extension, we paid down the existing loan balance by $45 million. Also during the quarter, we refinanced our mortgage loans for the 157-room La Posada de Santa Fe in Santa Fe, New Mexico, which had a final maturity date in November 2023, and the 252-room Hilton Alexandria in Alexandria, Virginia, which had a final maturity date in June 2023. These two loans were our only final debt maturities in 2023. The new non-recourse loan totals $98.5 million and has a three-year initial term with two one-year extension options subject to the satisfaction of certain conditions. The loan is interest only and provides for a floating interest rate of SOFR plus 4%. Also during the quarter, we extended our Keys Pool C loan secured by five hotels with a pay down of approximately $62 million. Subsequent to quarter end, we extended our Keys Pool D loan secured by five hotels with a pay down of approximately $26 million, and our Keys Pool E loan secured by five hotels with a pay down of approximately $41 million. As Rob discussed, we also elected not to make the required pay downs to extend our Keys Pool A, B, and F loans, which in total are secured by 19 hotels. The required paydowns needed to extend these loans totaled approximately $255 million. By not extending these loan pools, we not only saved the $255 million in required paydowns, but also approximately $80 million in capital expenditures at these hotels through 2025. Many of the properties in the non-extended keys pools are in markets that have experienced significant headwinds throughout their post-pandemic recoveries. and a number of these markets are not forecasted to reach pre-pandemic top-line levels until 2025 or 2026. Further, the non-extended Keys hotels only generated approximately 10% of our hotel EBITDA, and our portfolio REVPAR will increase approximately 3% by removing these lower REVPAR hotels from the portfolio. With the Keys loan pool extension behind us, Our next significant extension test is our Morgan Stanley loan pool secured by 17 hotels, which has an initial maturity in November. And we currently believe that loan should be able to be extended until 2024 with no pay down required. We ended the quarter with cash and cash equivalents of $252 million and restricted cash of $150 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts. and $13.3 million related to trapped cash held by lenders. At the end of the quarter, we also had $19 million in due from third-party hotel managers. This primarily represents cash held by one of our property managers, which is also available to fund hotel operating costs. We also ended the quarter with networking capital of approximately $344 million. As of June 30, 2023, our consolidated portfolio consisted of 100 hotels with 22,316 rooms. Our share count currently stands at approximately 36.6 million fully diluted shares outstanding, which is comprised of 34.5 million shares of common stock and 2.1 million OP units. In the second quarter, our weighted average fully diluted share count used to calculate AFFO per share included approximately 1.7 million common shares associated with the exit fee on the strategic financing we completed in January 2021. Assuming yesterday's closing stock price, our equity market cap is approximately $144 million. While we are currently paying our preferred dividends quarterly or monthly, we do not anticipate reinstating a common dividend for some time. Our liquidity position is solid, and we are pleased with the progress that we've made on our loan extensions and the pace of our non-traded preferred capital raising. While it continues to be a challenging market for hotel debt financing, with the increase in both credit spreads and base rates, our portfolio is performing well. From a capital structure and balance sheet perspective, we will continue to focus on raising capital through our non-traded preferred stock, potential asset sales, and paying down our corporate financing. This concludes our financial review, and I would now like to turn it over to Chris to discuss our asset management activities for the quarter. Thank you, Derek.
spk07: For the quarter, comparable REVPAR for our portfolio increased approximately 7% over the prior year quarter. This REVPAR growth compared favorably to the national averages for both the upscale and upper upscale chain scales. Despite significant cost pressures, we were also able to generate approximately 5% growth in comparable hotel EBITDA. a testament to our talented team of asset managers that work relentlessly with our hotel managers to maximize the operating performance of our hotels. The portfolio saw a number of records set in the second quarter. In fact, 37% of our hotels set all-time second quarter records in comparable total revenue. These record-breaking performances were spread across various markets ranging from Florida to Alaska and among different hotel classes which included resort, urban, suburban, and and airport locations. We remain encouraged by the continuing recovery that we are seeing in our urban markets. A large portion of the year-over-year comparable hotel EBITDA success during the second quarter was from Washington, D.C., New York, New Jersey, and Atlanta. We have a large concentration of assets in these markets, and they collectively increased comparable hotel EBITDA for the quarter by 12 percent over the prior year quarter. Four of our hotels in these markets set all-time hotel EBITDA performance records during the second quarter. We positioned the airport properties in our portfolio to capitalize on increased airlift and accelerating demand trends seen by the airlines. In the second quarter, our airport hotels collectively achieved growth of 15% in comparable hotel EBITDA over the prior year quarter. Our courtyard Crystal City Airport capitalized on increased parking demand by revamping its parking rates and offerings for both hotel guests and other customers utilizing the airport and increased the number of available rooms earmarked for distressed airline passengers. Our Embassy Suites Orlando Airport leveraged a partnership with two major airlines to capture long-term stays associated with their respective training programs. As those training needs exceeded what was contracted, we were able to provide additional inventory at premium rates to further drive revenue. Another key differentiator and competitive advantage for us is our dedicated revenue optimization team. This team works at a granular level to optimize performance during high demand periods. During the second quarter, the portfolio realized 16% more room nights with 95% or higher occupancy than we did in the prior year quarter. This is particularly encouraging for our urban and suburban hotels, where the number of peak room nights during the second quarter increased 43% and 21% over the prior year quarter, respectively. These peak nights present us with the opportunity to improve profit margins as we are able to drive rate. Our revenue optimization team conducts monthly deep dive calls across our portfolio, focused on driving pricing strategy in each segment of top line business, creating tools to build a strong group base, pushing premiums on club and suite room types, and ensuring our properties follow our optimized marketing strategy. We remain encouraged by the continued strength we are seeing in the group segment. In the second quarter, group room revenue increased 14% over the prior year quarter. This marks the ninth consecutive quarter with positive year-over-year quarterly growth in group room revenue. We have had a heavy focus on driving group banquet and catering revenue, as these are often the most profitable revenue streams within the food and beverage department. In the second quarter, catering revenues increased 19% over the prior year quarter. The increase in group revenue and bookings occurred broadly across the portfolio and included gains in many of our large hotels, including Marriott Crystal City Gateway, Renaissance Nashville, and Marriott DFW. We remain excited about the continued momentum from the group segment. Moving on to capital expenditures, we have noted in previous calls how we have taken a strategic approach to renovating and strategically repositioning our hotels. So far in 2023, we've completed the renovation of the lobby and bar at the Ritz Carlton Atlanta, the guest rooms at Hampton and Evansville, and residence in Phoenix, the guest rooms and public space at Spring Hill Suites Beaufort, and the relocation of the concierge lounge at the Renaissance Nashville. Later this year, we plan to start a guest room and public space renovation at the Embassy Suites Dallas, a guest room renovation at Marriott Sugarland, and a fitness center renovation in Key Edition at the Renaissance Nashville. For 2023, we anticipate spending between $110 and $130 million in capital expenditures. Looking forward, we are considering several new initiatives across our portfolio, including brand conversions at several hotels, accretive key additions, and executing high margin ROI projects. I would like to finish by emphasizing how optimistic we are about the future of this portfolio. As mentioned earlier, group business has continued to show growth. We are seeing more markets rebound. and many of our assets continue to break comparable hotel EBITDA records. The portfolio is well diversified geographically, allowing us to continue to capitalize on the industry's continued recovery. We have a number of value-add and ancillary initiatives we are working on behind the scenes to further add value to the portfolio, which we are excited about. With these new initiatives underway, we are confident that the portfolio will continue to outperform. That concludes our prepared remarks, and we will now open up the call for Q&A.
spk03: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Chris Woronka with Doce Bank. Please proceed.
spk06: Hey, good morning, guys. I guess to start off with, can you maybe give us a little bit of detail on what the mechanics are on the The keys loans pools that you did extend, I think the CDEs, is that something that's going to be reevaluated again after the extension? And what are the possibilities there? What would cause you to maybe not make payments at a later date on those? Or do you think they've reached a level that you don't have to worry about that anymore?
spk09: Hey, Chris. It's Rob. Matt, we also went through a pretty rigorous process of going through all these loan pools this past year in terms of determining where we thought equity was, where do we think value was, what do we think about the markets, the CapEx, and that was a big factor in a lot of these decisions is kind of future CapEx where we thought we maybe would get or wouldn't get returns on that capital. In terms of the pools we did extend, we obviously paid those down to debt yields um they were typically around 10 or so were the keys pools um where we feel pretty good about where those are from a value standpoint and where from a refinancing standpoint even in a pretty difficult market these days on refinancing side So unless we have, um, I mean, all, you know, all things could change if we had a significant recession or something where we have numbers pull back significantly in our, um, you know, across the portfolio, but, uh, at least what we're seeing right now in numbers continuing to approve, we feel pretty good about the portfolios we chose to keep. Uh, and, um, don't as of right now, foresee any, any issues with them or on their future extension tests or refinancing in the future.
spk06: Okay, very helpful. And then kind of on the operational side, I guess the theme has been that we're continuing to see labor availability improve gradually. And maybe if you guys could just give us an update on where you're at in terms of staffing and what you're seeing on any of the union versus non-union markets on wages and if you're still using any contract labor or things like that. Thanks.
spk07: Yeah, thanks for the question, Chris. I think you phrased it well. We're seeing, you know, slow and steady improvements. When we look at our total FT equivalent labor count to last year, we're actually flat to last year, which is pretty remarkable given for the portfolio occupancy has increased two percentage points. And when you equate that to increased number of sold rooms, it's just over 40,000 rooms. We've been laser focused on managing labor. We've been able to keep it flat year over year with servicing additional rooms, which has been great. We're starting to see a pullback in contract labor. To your point, our contract utilization rate decreased about 14% to last year for the quarter. And that's kind of the expecting that coming into this year. We didn't see as much of a pullback in Q1. And then in Q2, we're becoming less reliant on contract labor, which is great because contract labor is obviously much more expensive than in-house labor. And so I think you kind of phrased it well. We're seeing slow and steady improvements in terms of the labor market.
spk06: Okay. Super helpful. Thanks, Chris. Maybe just a quick housekeeping one for Derek. Derek, I think you mentioned that you after the keys, those three pulls, you're effectively 95% fixed with the swaps or caps or whatever. Does that mean that when we get to our Q3 interest expense, that that is effectively a run rate going forward?
spk04: Assuming live orders stay where they are and that the caps stay in place, yes. You know, unfortunately, we have an array of caps that all expire at different times, and typically the caps are structured to expire coterminous with the initial maturity dates or maturity dates of the underlying loans. And so they'll kind of match up with the maturities of the underlying loans, but I think for all intents and purposes for the next quarter, it's probably a pretty good run rate.
spk06: Okay. Very helpful. Thanks, guys.
spk03: Thank you. Our next question is from Tyler Batry with Oppenheimer and Company. Please proceed.
spk05: Thank you. Good morning. First question for me is on trends in the portfolio. There's a view out there that leisure travel is slowing industry-wide. There's less pricing power. that corporate travel has peaked. I mean, your red bar on the quarter is really quite strong. So are you seeing any sort of evidence of those trends playing out in your portfolio? And kind of how are you thinking about the rest of the year in terms of how leisure and corporate travel play out?
spk07: Yeah, thanks for that question, Tyler. So I can start with corporate travel. We're continuing to see signs of recovery and strength out of the corporate segments. Asher Trust was up 13% year-over-year and corporate revenue now that's broadly a lot of that is driven by ADR ADR was up 8% and room nights were up just over 5% and so broadly we're seeing continued strength out of corporate now within that there are there are kind of market specific nuances a lot of our markets that have significant exposure to tech companies and we're down in year-over-year But on the whole, we're seeing continued recovery and signs of strength out of corporate. On the leisure side, I wouldn't say that things are softening broadly in leisure. We're seeing more of a stabilization within this portfolio. When we look at our weekend occupancies, we were flat the last year. And within that, within urban markets, we're continuing to see growth. It's really where, I wouldn't say it's necessarily resorts, it's really more markets where you're seeing leisure customers go. So we're starting to see a little bit of softness in Nashville. We're starting to see some short-term demand that's not as strong as we've seen in recent months. But it's more of a stabilizing in leisure. But I think in terms of when we look ahead for this portfolio, we expect to see continued growth. Group pace remains strong. We're up significantly in group pays, high single digits for Q3 and Q4. The corporate segment continues to increase quarter over quarter. And then from a leisure side, we're seeing, you know, kind of stabilization with weakened occupancy rates flat to last year.
spk05: Okay. That's very helpful. Question on the asset sales. You know, any kind of update there in terms of how that process is going? I think you mentioned perhaps bringing some more assets to market. Just kind of what's the interest been on what you have out there right now and kind of how are you thinking and deciding when and what you might bring to market in the future?
spk09: Yeah, good question. Thanks Tyler. We've got, like I said, four assets in the market right now. We've got a three pack of limited service assets and a kind of a full service asset. Um, that are kind of in the process of, um, I'd say they're kind of in the second round or getting towards the end of those processes. So we should have some more color on those in the next month or so. Um, at least here internally. And then obviously to the extent that we have successfully find deals, it'll be a couple of months before those probably close. Um, you know, I think for us, it's really looking at what do we think is the best path to, uh, pay off our strategic financing. We've had great partners with them, but we do want to pay off that loan. We do have the proceeds that are coming in from the non-trader preferred, which is going towards some of that as well. But I think you will likely see us get a little bit more aggressive here in the next few quarters on some asset sales, both in order to clean up the portfolio, so you'll see potentially some additional assets come into market that are non-core. But you may have some assets that are assets that we like and that are solid assets, but that have some equity value in them in order to generate some proceeds. Those are still decisions we're looking at internally in terms of the right way to move forward on those. But we do see asset sales as a kind of a crucial part of what we're doing over the next couple of years in order to get the portfolio and the capital structure where we want it.
spk05: Okay. That's all for me. Thank you.
spk10: Thanks.
spk03: Thank you. Our next question is from Michael Belsario with Baird. Please proceed.
spk01: Thank you. Good morning, everyone. I'm Rob, I just want to go back to that last question and your answer there and maybe just talk about the sequencing that you think needs to occur to be able to pay Oak Tree and also maybe sort of the timeline that you're thinking about today. Do you need to sell more hotels beyond these four? Do you need to raise more preferred or is it maybe just simply being patient and waiting for EBITDA to continue to recover? But any color around sort of the sequencing and timing would be helpful.
spk09: Sure. I mean, as in all these things, Michael, you know, it's a little bit of everything and it depends on how one versus the other goes. You know, we've been very happy with the way that the non-trader preferred raise has gone thus far. But what we just, what you never know is, is it going to continue to accelerate like we want? Is it going to stay at comparable levels for a while? It's just, it's hard to know exactly what that trajectory looks like. And so for us, for internal planning purposes, have to assume somewhat conservative numbers on those fronts in order to make sure that we've got the capital we need and the cash we need in order to grow as we want and to pay off the strategic financing as we want. So I think what we're focused on is really, like I said, twofold on the asset sales. One is generating proceeds in order to make sure we've got the available cash to pay off the strategic financing. I mean, we still have, you know, two and a half years left on it, and we've got time. But I think from our perspective, it's an important, I don't know, symbol to the street, the market, that we're moving out of our kind of post, you know, our COVID phase of this company and moving on towards growth and, like I said, a more sustainable capital structure. And so that's why it's important to us right now to really focus on taking that out And so I think we're going to be a little bit more aggressive in how we're using proceeds of the non-trader preferred and some of these asset sales to pay that down. So you're going to see likely some asset sales like this one where we just sold WorldQuest that we closed yesterday. Those proceeds are going down. The three pack of limited service assets that are in the market right now are likely to generate some proceeds that can pay down. And then, like I said, some of the other assets we may bring to market may be able to generate some proceeds to help pay that down. At the same time, we've got, I'd say, some lower quality non-core assets that either have CapEx requirements for the next few years, maybe are brands that we don't feel as strong about. Um, that are just, I'd say more housekeeping, you know, just assets that, um, that we think are, you know, not long-term holds. And so I think you'll see a mix of, of those over the next, uh, six to 12 months come to market, you know, from our perspective. So it's, it's, I don't know if it's sequencing is the right, uh, is the right word to say a little bit of, we need to, we just need to be conservative in how we're, uh, in, in the assumptions of how. the properties are going to do, what happens in the industry, how the capital comes in from non-trade preferred, and just make sure that we are prepared regardless of the situation.
spk01: Got it. Fair enough. And then just switching gears a little bit on CapEx, it sounds like it's the same dollars you expect to spend this year, but you've significantly reduced the number of hotels that are at least under significant renovation in your press release schedule. Are Some of those obviously are part of the keys portfolio that you're not going to renovate because you're handing them back. But are some of those falling to 24? Are you deciding not to renovate a handful of properties? And then presumably if the costs are the same or you're $110, $130 million, are projects costing more, any color around that? CapEx also would be helpful. Thank you.
spk09: Yeah, absolutely. It's a similar number in that we also, once we began that process some time ago of thinking about where, you know, as we were analyzing these pools, that also led us to put a lot of the projects on hold in terms of that were in those portfolios anyway. So some of it we have been thinking about ahead of time. But we also are going through a process of pushing projects, of putting things into 2024. I don't know if Chris, you had other colors.
spk07: So as Rob said, a lot of the ABNF projects, Michael, we had already deferred once we kind of, you know, had determined the path that we were going to go with those hotels. I think where we expect to see the significant savings from those loan pools in terms of cap expense is going to be more 20, And so if we had provided kind of a projection of what we'd spend for 24, that would come down, you know, without those hotels in the portfolio. But the 23 number was already fairly baked and had included the deferral of a number of those projects.
spk10: Thank you.
spk03: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star and one. Our next question is from Brian Meher with B. Reilly Securities. Please proceed.
spk08: Great. Thank you. You know, as I listen to all the questions, you know, it kind of brings forward more questions related to kind of the strategic plan. And, you know, maybe, Rob, You can get a little more color on, you know, is there a big macro plan as it relates to the portfolio? As in, you can see several quarters out which hotels you'll probably sell and or hand back. Or is it more like you're going quarter to quarter and depending upon fundamentals and interest rates and cost of hedges?
spk09: um the ability to sell assets are you i don't want to say winging it but being a lot more fluid in how you approach the next couple of quarters and years no i mean we've got kind of a a plan that we've laid out i mean as a matter of fact as we are talking right now i mean we've got a um you know we've got kind of what i would say there's a portion of our portfolio that that we've identified that we don't think are long-term hold assets, as we've talked about historically, but hopefully at some point in time it'll also come to fruition You know, we obviously don't want to be necessarily a long term holder of limited service assets in this portfolio. And those are still, while we handed back or handing back some of those here, we still have a decent number that are still in our portfolio in Highland and in our MS-17 pools, which are great assets, but I don't think our long term holds within this portfolio. We're actually in the process right now as well of going through a pretty significant rebuy analysis of every asset in our pool, in our company, and really looking at what are the anticipated CapEx needs. We've got a wave of PIPs, franchise agreements, extensions, and whatnot that are coming up over the next five to seven years, and really looking to see what do we think the CapEx spend is on those? Do we think that there's ROI on that CapEx spend? Very deliberate, honestly, isn't, say, call it winging it. However, at the same time, you always have to be flexible, right? And for us, it's a combination of what's going on in the economy, because that could cause you to either accelerate or decelerate certain initiatives that you have, depending upon what's going on. Same thing with our non-traded preferred, right? If we really see that accelerate and we see opportunities in front of us, we may be going on the offense a little bit sooner than we would if it's a little bit slower. So in some ways we've got, I'd say, a plan that we're working through in order to get the portfolio where it is, where we want it to be over the long term and where we want the capital structure to be. At the same time, you've got to be flexible enough to, you know, that the economy changes or capital raising changes. So I guess it's a little bit of, in some ways, a little bit of both.
spk08: I can appreciate that. But, you know, when we think about the preferreds, if you're issuing non-treated preferreds at 8% and you've got this 16% oak tree debt outstanding, to your point on wanting to get that, you know, taken out or cleaned up or whatever, why wouldn't you all day long issue 8% preferreds and pay off 16% of trade debt? I mean, it's basically found money.
spk09: No, and if I could get the 8% money to show up in a $200 million chunk tomorrow, I would take it and pay it off tomorrow, right? So if it were, the answer is you're right. And even within the capital structure, I mean, we have pieces of of meds that are on some of our pools that are, you know, more expensive than that. Um, and, and heck even, you know, mortgages, new mortgages that people are putting out now when you've got, you know, through 400 or 500 over on, you know, a 50 or 60%, you know, mortgage, uh, this, that paper is cheaper than that. So, you know, we're, we're in an age right now, a very expensive debt financing. And so the, the 8% money is coming from the Ashford Securities platform is very attracted to us on a variety of fronts. So we've got plenty of, I'd say, accretive uses. It's just a question of building up the demand on that side.
spk08: And just last for me, you know, why wouldn't we expect to see, you know, for lack of a better word, some kind of shell game here where, you know, you've got a couple of hotels worth $100 million or with a loan of $100 million that are really worth $60, $70, $80 million. And, you know, you turn around and hand those back to the lender, you know, but your peer also has the same situation. And, you know, he's handing them back at 67 or 80. And you take this $100 million worth of debt you now don't have to pay and, you know, redeploy that capacity into taking that bank's assets that they just took those hotels at 67 or 80 and generate, you know, growth in that way. Is that something we could see unfold over the next year or two?
spk09: I don't know. I mean, it tends to be more complicated, right? I mean, because there's certain processes and there's fiduciary statuses of some of these servicers and the lenders. I don't know if it's that complicated. simple, but I think you could have the situation where loan pools are going back and you have other peers buying the debt on other assets, whether it's MES or the loans and trying to step into them. I think those sorts of things are going to happen, but it's a slow process. Even here on the process of hanging back these 19 assets, that's not something that happens overnight. There's inter-creditor agreements. That have to be, you know, gone through in different places in the debt stack of different rights and, you know, all of these things take time. So we don't know even on our handing back our 19 assets whether or not that's something that will be, you know, formally taking place in, you know, several weeks due, you know, if we, you know, deed them over or is it something that goes through a longer foreclosure process that could be many months. So... It's just as my experience now of having gone through obviously a lot of debt restructuring and a lot of issues of the past three years through COVID is I've still found these things are way more complicated than people typically think.
spk08: Right. Which brings up another question that I have that I was holding back on, which is when do we yank these 19 hotels out of our model? I mean, it's kind of important, right? It's not one or two or three. Who cares? It's 19 hotels. and $700 million worth of debt. I mean, do you, you know, or Derek, recommend that we all pull these out effective, you know, when? Beginning of the fourth quarter for a conservative state?
spk04: I mean, it's a good question, Brian. Look, from my perspective, I'd go ahead and take them out of the portfolio now. I mean, that could happen imminently, and it could drag on. So, you know, from our perspective, we're ready to hand the keys over. And so from a modeling perspective, I'd go ahead and take them out.
spk10: Okay, thank you. Bye-bye.
spk03: This concludes today's Q&A question and answer session. I would like to turn the floor back over to the management for closing comments.
spk09: All right. Thank you, everybody, for joining us on our second quarter call. We look forward to speaking with you next quarter.
spk03: This concludes today's teleconference. Thank you for your
spk10: Thank you for your participation. You may now disconnect your lines.
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