Greetings. Welcome to the Ashford Hospitality Trust Second Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Jordan Jennings, Investor Relations for Ashford Trust. Thank you. You may begin.

Good day, everyone, and welcome to today’s conference call to review the results for Ashford Hospitality Trust for the second quarter of 2021 and to update you on recent developments. On the call today will be Rob Hays, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Chief Operating Officer.

Good morning and welcome to our call. I will start by providing an overview of the current environment and how Ashford Trust has been navigating the recovery. After that, Deric will review our financial results, and Jeremy will provide an operational update on the portfolio. I would first like to highlight some of our recent accomplishments, and the main themes for the call. First, we had strong earnings in the second quarter that exceeded both street estimates and our internal forecasts. We reported positive hotel EBITDA for the second consecutive quarterly period and positive adjusted EBITDA RE. Second, our liquidity continues to improve; we ended the quarter with over $520 million of cash and cash equivalents. Third, we continue to lower our leverage and improve our financial position; since its peak in 2020, we have lowered our net debt plus preferred equity by over 800 million, equating to a decrease in our leverage ratio defined as net debt plus preferred equity to gross assets by over 10 percentage points.

Thanks, Rob. Before I discuss our financial results, I would like to note that all per share metrics that I will discuss reflect our recently completed one-for-ten reverse stock split. For the second quarter of 2021, we report a net loss attributable to common stockholders of $69.5 million or $4.35 per diluted share. For the quarter, we reported AFFO per diluted share of $0.04. We are pleased to report that our adjusted EBITDA ROE for the quarter was $31.4 million. At the end of the second quarter, we had $3.9 billion of loans with a blended average interest rate of 4.1%. Our loans were approximately 11% fixed rate and 89% floating rate. We utilized floating rate debt, which we believe is a better hedge of our operating cash flows. However, we do utilize caps on those floating rate loans to protect the company against significant interest rate increases.

Thank you, Deric. Comparable RevPAR for our portfolio increased 372% during the second quarter of 2021. Our hotel EBITDA flow-through was a strong 56%. We are extremely encouraged by the acceleration of occupancy at our hotels, with each consecutive month increasing over the prior month during the second quarter. June saw the highest occupancy at 63%. During the second quarter, Ashford Trust recorded an incredible 57% occupancy compared to 51% for the U.S. abrupt scale change. While we are still in the recovery process, we are starting to see green shoots in areas of our portfolio that are now exceeding 2019 levels. I would like to spend some time highlighting those during this call. A number of our assets have been able to capitalize on a pent-up leisure demand that we are experiencing. Crowne Plaza La Concha Key West increased their hotel EBITDA for the second quarter by 74% relative to 2019; that is phenomenal.

Thank you. At this time, we will be conducting the question-and-answer session. Our first question is coming from the line of Tyler Batory with Janney Montgomery Scott. Please proceed with your question.

Hi, good morning. This is [name] for Tyler. Thank you for taking our questions. My first question is whether you could share some insights on how trends have evolved into July and if there has been any noticeable change due to the recent increase in Delta variant breakthrough cases or any indications of slowdown in recent weeks?

Good question. The answer is no, we have not. We have seen some small pockets in a few states where there are a little bit higher case counts. We have seen it a little bit in Florida and Tennessee and Texas, but nothing significant, nothing material. So as we sit here today, the strong summer of transient continues, and we are not seeing that really weaken in any way.

We anticipate July RevPAR to exceed June RevPAR. And we have seen that, as mentioned, consecutively each month so far this year, in terms of month-over-month growth.

Okay, great. I appreciate that detail. And then moving to the labor front, how are you thinking about the piece of bringing back more employees as demand continues to ramp up? And what kind of staffing levels are departments currently running and how does that compare to their first quarter or pre-pandemic levels?

Yes, this is Jeremy. Staffing is clearly our biggest challenge we have operationally; it is going to continue to be the challenge. I think the team has done a great job of mitigating as much of that as possible. Most of that has been through the efficiencies we built in the hotels. The process of COVID has really allowed us to dissect these hotels and rebuild them on a completely different operational model, which is much more efficient. And so you are seeing some of those savings, and I think we will continue to see those savings for the foreseeable future. But there continues to be a shortage of labor and there continues to be a lot of wage pressures across most of our hotels. To give you a high-level understanding of what we are facing, we have got about 10% of our staff as open positions. And that is where we stand, and that has kind of been the trend as we have really come down meaningfully over the last four to six weeks. So it continues to be a focus, and we are just doing the best we can given the current environment. But I don’t think it is a long-term issue; it is something that we see as a short-term issue.

Okay, great. Thank you for that answer. And the question on the rate side of things if I could, and I know it may be hard to segment everything out. But is that all leisure in the quarter that is driving that ADR gains or is there some corporate, and how are they impacting, you know, positively or negatively? And obviously, leisure rates have been quite strong as Jeremy highlighted, but can you provide additional color on where you think corporate rates will come in as we move through the fall?

Let me first say one thing about the difference in rate has been interesting; the stat that popped out to me as we were going through our second-quarter numbers was right now, weekend rates, and this is both for group and mostly for transient, have had RevPAR that is 50% higher than what we get. So you can really see the amount of pricing power that is going into the weekend because of obviously predominantly leisure. I think we have been pleasantly surprised overall on the rate side; I mean, even as we look into group for next year, we are building the books; ADRs on our bookings in 2022 are actually 4% up over 2019. So you are seeing, I would say, very strong rates, and overall our corporate rates are not really at much reductions; I think I saw somewhere around 85% or 90% of our corporate rates are rolling at levels at or above 2019 levels. So, I think from the rate side overall, we feel very good about where things are in, given the rates of what people are paying this summer; I think it even psychologically allows companies and groups to get comfortable with 2019 or better type rates. So, rate is definitely not where we are concerned. I think it is just a real question of what happens with these various variants and some of these companies like Google and Apple and other large S&P 500-type companies as they are pushing out some of the return-to-office dates; does that delay things a little bit in terms of the return to travel, but I think we feel pretty good about where rates are.

Yes, I can give you a little bit more specifics in the quarter. So typically, we run about 20% group, as we have mentioned; for the quarter, for the second quarter, it was 15% group, 81% transients, and 4% contract business. During the recovery, we were pushing out a lot of our contract business, moving out a lot of airline crews, just because we were hitting high occupancy levels; we are starting to pick up a lot more of that contract business, but it is still a very small number, which I think is encouraging, because it tends to be lower rated. In terms of the ADR breakup, we had $137 ADR; group ADR was $128, transient was $141, and contract was $101, and that is a breakup. So, I think we are still getting decent group rate, but it is a discount to transients. And then why I don’t have a breakout of corporate training versus leisure, the portfolio does have a lot higher leisure demand right now. And we hope to see some pickup in corporate after Labor Day.

Okay, great. Thank you for the color, and that is all from me.

Alright, thank you.

Thank you. Our next question is coming from the line of Bryan Maher with B. Riley Securities. Please proceed with your question.

Alright good morning. Maybe a quick housekeeping item for Deric. On your release on Page 15, you had a share count of 22.7 million at quarter end, but in your comments, you said we are now at 27.4. So, I’m assuming the delta is issuances since the quarter ended?

That is correct.

And the delta in the share raising component of that would be 478 million minus the 356, correct?

That is correct.

Great. Thanks. When we think about your portfolio, and Jeremy did a great job walking through a handful of the properties, we don’t really think of it as kind of leisure beach, like we might with Braemar. Can you give us a little bit more color on where some of the strength was in the second quarter?

Sure. I think the strength really was across a handful of Southern warmer markets. So, when we look at the Chinese assets, you are looking at our National Renaissance, you are looking at Savannah or Hyatt in Savannah, most of Florida, our Texas assets. And then even we are starting to see some strength in Southern California; our Beverly Hills Marriott was extraordinarily strong as well. So, it is just kind of these various Southern warmer markets, because when you are looking at even the weaker spots, there is still a lot of weakness in DC. I think actually our worst performing assets in the second quarter were these two leisure, transient hotels in DC as Churchill and Melrose, just because the government has been shut down. And just anything that is in Indianapolis, Chicago, and the Bay Area has been a little of a struggle as well in suburban markets there. So, but it is not just as you got to point out, right. It is not just one spot; it is fairly broadly placed across the Southern warmer markets. Bryan, just so you know, Nashville is the top-performing market in terms of year-over-year growth for us. It is a big asset for us as a good wave, the Nashville renaissance. And then the other top five markets were in Miami, Atlanta, Orlando, and Tampa. And three of those were in Florida. So, it goes to what Rob just mentioned in terms of some of the southern states. And then Atlanta, we have got a good amount of exposure there, so I think that helps us as well, even though it is not really a leisure market, given that we have got a decent portfolio there. So, I think some of it has helped in terms of where our assets are located in non-leisure markets; they just happen to be in markets that have done fairly well. DC being the one that is more disappointing, because we actually have a lot of exposure in DC. But given our high concentration in Crystal City, we are extremely bullish on that market, given what is going on there, as you know.

Great, and so you finish the quarter with a lot of cash, roughly 500 million give or take. How much is enough? I know you guys have a lot of money that is probably going to be tied up in cash traps for the next couple of quarters. But is there a level where you say, we have enough, we don’t need to issue shares? Can you share with us the Board’s thought process there?

Sure. As you know, Bryan, we have built up a significant amount of cash, and given where we have been over the past 12 months, we felt like it has been important to make some substantive changes to the balance sheet, our liquidity profile. The issue we have is that it is, frankly, a little bit of an unknown still; I mean, even looking at these variants that have been coming and the delaying of certain people getting back to the office, it does add a little bit of choppiness to this recovery. And to your point, the vast majority of our loans, as Deric mentioned, as I mentioned, are in cash traps. And for most of them, generally speaking, the way to get out of them is they need typically six or two consecutive quarters above, and it varies by loan, but generally speaking around, call it 1.2 times coverage. And we just don’t know what that date is. I don’t know if it is in six months from now if things really recover or if it is 12 to 24 months, which I think is frankly a more likely number as we sit here today. And so as we look at the fact that we may not be able to extract cash out of our portfolio for another 12 to 24 months, we have got to be very thoughtful around how then do we run our CapEx program as it begins to ramp up in the next 24 months. We have over the next couple of years, we have $2.5 billion of debt that doesn’t necessarily have hard maturities but has extension tests that include debt yield tests. And it is hard to know whether or not the exposure to those extension tests and the pay down needed to meet them is $0 or $750 million. And we just don’t know given the variability of what is going on. Now, as we have mentioned in other previous calls, we are very focused on trying to get these loan modifications to reduce those scheduled extension tests, and we have been successful on a handful of our bigger ones, but we still have some significant ones left that we are focused on trying to modify. And then when you kind of add on, well, we have obviously this rescue financing that we did that we needed to pay back over the next few years. We have got to be able to get our preferred back current at some point in order to get our S-3 eligibility back. When you start adding up those dollars, and just the uncertainty of exactly what the recovery looks like, we feel like it is important to err on the side of being conservative so that we are avoiding being back in a position like we were a year ago.

Hey, Bryan, this is Deric; I just want to clarify one of the questions you asked about the capital raising to-date, post the end of the second quarter, and walk through that math. The $478 million is how much we have raised year-to-date. The $356 million is what was raised in the second quarter. There was also about $45 million that was raised in the first quarter. So, you would need to back that out as well if you are trying to get to sort of balance the rate post quarter end.

Great, that is really helpful. And just last for me, when you look at what is going on in the transaction market, some assets are turning some interestingly depending upon where they are located at a decent cap rate. Is there a thought process that in the second half of this year, early next year, you might try to sell assets where you can achieve an attractive cap rate or just let go of assets that you just don’t think are going to recover and are not worth holding? And that is all for me.

Thanks, Bryan. I think to your latter point, I don’t think we probably have any assets left that we are just going to let go. We went through that process last year. So as we sit here today, unless there is a material change in the world, I wouldn’t anticipate selling any more assets. To your earlier question, you are right, we are definitely seeing and actually getting a lot of inbound traffic on assets that fit the Southern warmer transient-focused assets. And we do have a good number of those. The reality of the circumstances that we are in is that while that type of sales are a little less attractive right now because of the nature of this other rescue financing that we have done, the extent we sell any asset and get excess proceeds, or if we refinance and get excess proceeds, those are allocated to paying down the loan. And given that there is a two-year make hole which goes basically until January of 2023, it doesn’t really make sense for us to pull the trigger on an asset sale today; in 12 months from now, we could sell the exact same asset for additional proceeds, and that would still have to go to pay down the loan. So I think it is something that as we get into later next year and come closer to the make whole burn-off, I think it is something we will consider. But by and large, we would like the assets in the portfolio we have. So I think it is something maybe around the edges that we would do as opposed to anything substantive.

Okay, thank you.

Thank you. Our next question is coming from the line of Michael Bellisario with Baird. Please proceed with your question.

Could you just go back to for Jeremy, just your group comments? You focus on where we are at in terms of demand, what is on the books today for 2022 versus the same time in 2019. And also just on the BT side, what are you seeing and where are you seeing inflection occurring in your portfolio in terms of the waves that BT travel to pick up based on what you are seeing with the booking pattern today?

Yes, so we recognized that the ADR is at 4%. For group, it is still pacing down for 2021, about 18%, this is all compared to 2019. In terms of a quarter-over-quarter basis, when you look at total group pace, it was down 70% in Q2; we are looking at 49% in Q3, 36% in Q4, and down 24% in Q1. So, you can just see that each quarter is down. And then the cancellations have been a lot less than what we have experienced over the course of the last year in three months, I guess, here in a quarter. The one thing that is interesting is the way the leads are working; we are just seeing such a high percentage of our lead volume in three to six months; the highest percentage right now is our lead volume for booking three to six months out, which is not typical. And so we look at the mixed breeds; it is much more weighted towards less than a year out, which is definitely different than what we have seen in previous years. And so I think that is a good sign because even though we are seeing a projected group pace, it doesn’t really take into account that shift into your-term lead volume, because we are just kind of comparing a static outlook. And so I do think there is an opportunity to continue to see more pickup in lead volume and converting that to actual group business, so that just kind of gives you a flavor of what we are looking at right now. And then 2023 looks very strong, but it is obviously a ways out. Does that help?

Yes, it does. All those comments are specific to group, I assume any comments, at least in the near term on the BT volumes?

The BT still - it is, I think what we would say is that we are still seeing pickup based on a daily basis. So, there is good acceleration, but it is still on such a small base that we have got a ways to go. In Q2, the mix of business grew from 14% to 16%. So, it is still a ways to go. And hopefully after Labor Day, we will see more pickup in corporate demand. As you can imagine, in Q2 and Q3, at least, certainly Q2, typically, the mix of corporate demand generally goes down our portfolio anyway just because it becomes more leisure-focused as summer travel picks up. And so even though those mixed in grows significantly between Q2 and Q1, it is still positive because that mix easily declines between those quarters. So, we are hopeful that we see a pickup in corporate transit demand as the booking window for our business when it comes to transients is generally three weeks out, and today - and that is in a normal environment, and today is much shorter than that.

But Mike, one thing I would say, I touched on earlier was that we are seeing rates from the corporate side even though there is small. As we are looking at kind of constantly rolling over corporate rates, we are starting to see strength there, so when we are looking at the various - sometimes fires we are trying to put out and ways to grow the business where we are not seeing pressure is pushed back from a rate standpoint with corporate, which is great.

And is it fair to assume when we hit the fall here with RFPCs, and we are just going to roll the 2020 rates pre-pandemic into 2022, then too, is that what the brands are thinking?

Yes. At least for us, we think it is going to be mostly probably 90%, maybe just under a little roll or do a dynamic pricing, which is just kind of a discount off of retail rates. So that is a strategy that we are going to do. We are not going to kind of hold firm on that. And I think that you are seeing that, not just us, but all our competitors are doing that and the brands, just because it is the right thing to do.

Understood. Okay, thank you.

Thank you. Just a quick follow-up on the cash trap situation. Rob, I think you mentioned two consecutive quarters of 1.6 times coverage. Is there any way to triangulate using round numbers what that might equate to on a portfolio-wide RevPAR hotel EBITDA basis, just to get a sense as to how close you are?

That is a good question. One point is it is closer to 1.2 overall, not 1.6. I don’t know the best way to triangulate that to a RevPAR number. I mean I guess from a simplistic standpoint, as we sit here now, we all see you are generating positive hotel EBITDA. Overall, our interest expense is roughly what, $120 million bucks, somewhere around there on an annualized basis. So I think the way to do it is, if it is $120 million, plus or minus of interest expense to add 20% of that, and I guess you just back it into when you think hotel EBITDA gets to that level. You can use whatever occupancy rate discounts you want to get to it. But I think it is probably the easiest count. And it won’t be exactly right, because obviously each pool is different. But if you are going to do a back of the envelope calculation, it is probably the easiest way to go about it.

Okay that is helpful. And just a housekeeping question on the quarter-to-date, which I think we calculated as 77 million of capital raise in Q3. Is that all on the share issuance program, or does that maybe include some additional preferred buybacks or swaps?

Yes. So we don’t include preferred exchanges in the dollars that are quoted, Chris. So that would just be based on issuances of common shares pursuant to the F-11 that have been filed.

Okay, thanks, Deric, and maybe one for Jeremy. I think we have heard about a lot of hotels where, because of the labor situation, you are actually kind of shrinking the hotel, right, not making all your rooms available for sale, which can also help you on the rate side. Is that happening across a lot of your portfolio or not?

It definitely has happened where we aren’t able to put rooms into service just because we can’t get them cleaned. I don’t think it is a large-scale pervasive issue that is causing us to lose significant revenue at this time, just given where occupancy levels are in most cases. And that has helped us in some cases push rates. I mean, we have taken more risk than, I think, a lot of our peers have been trying to hold firm on pushing rates as much as possible. And I have been pleased with some of the pickup we have seen in our ADR in our portfolio.

Okay, helpful. And just one last follow-up. The CapEx number you gave out, I think 40 million to 55 million for the year. Does that include anything additional for Key West for the autograph?

We are still in kind of programming phase for that right now. So no, that is not this year. Yes, Chris, we were able to push out our dates for that, so we got plenty of time on Key West. And right now, the market is doing so well, but I don’t really want to take any rooms as service as you can understand.

Sure. Okay, great. Very helpful. Thanks, guys.

Thanks, Chris.

We have reached the end of our question-and-answer session. So I would like to the floor back over to management for closing comments.

Thank you for joining today’s call. We look forward to speaking to you all again next quarter. In addition, know that we are looking to potentially do an Investor Day in New York in October, likely October 12th. So stay tuned, and we will provide more details later. Thank you.

Ladies and gentlemen, this concludes today’s teleconference. We thank you for your participation, and you may disconnect your lines at this time.