Greetings. Welcome to Ashford Hospitality Trust Third 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. Please note this conference is being recorded. I will now turn the conference over to Jordan Jennings, Manager of Investor Relations. 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 third 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. The results, as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday afternoon and 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. 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 8-K with the SEC on October 26, 2021 and may also be accessed through the company’s website at www.ahtreit.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 compared to third quarter of 2021 with the third quarter of 2020. I will now turn the call over to Rob Hays. Please go ahead, sir.

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 then, Jeremy will provide an operational update on our portfolio. I would first like to highlight some of our recent accomplishments and the main themes for our call. First, we had strong hotel performance and solid earnings in the third quarter that exceeded both street estimates and our internal forecast. Second, our liquidity continues to improve and our cash balances are building. We ended the quarter with over $672 million in cash and cash equivalents. Third, we have continued 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 $1.1 billion, equating to a decrease in our leverage ratio, defined as net debt plus preferred equity gross assets by over 13 percentage points. Finally, even with an already attractive loan maturity schedule, we remain proactive in our capital markets activities and balance sheet management. During the quarter, we successfully refinanced a mortgage loan for the Hilton Boston Back Bay, which had a final maturity date in November of 2022. This financing addresses the only significant final debt maturity in 2022. We have made significant progress on refinancing our upcoming debt maturity at the Marriott Gateway Crystal City and hope to have more information for you soon on it. We are optimistic about the long-term outlook for the company and by taking decisive actions to shrink our balance sheet, we feel well positioned to capitalize on the recovery we are already seeing in the hospitality industry. Subsequent to quarter end, we announced an amendment to our strategic financing, which provides us with some flexibility to access undrawn capital if needed even after we’ve paid off the current balance. While our optimism remains, we also must acknowledge some risks to the pace of the recovery due to the ongoing variants of COVID-19. In addition, we believe the majority of our loans could continue to be in cash traps over the next 12 months to 24 months or more, and as a result, we will continue to focus on building our liquidity and improving our capital structure in the months to come. In regards to dividends, the company and its Board of Directors previously announced a suspension of its common stock dividend and therefore the company does not pay a dividend on its common stock and common units for the third quarter. The company also does not pay a dividend on its preferred stock for the third quarter. However, the Board will continue to monitor the situation and assess future dividend declarations. We have significantly reduced our planned spend for capital expenditures this year. However, given the sizable strategic capital expenditures we made in our properties over the past several years, we believe our hotels are in fantastic condition and are well positioned for the industry rebound. Let me turn now to the operating performance of our hotels. The lodging industry is clearly showing signs of improvement. RevPAR for all hotels in the portfolio increased approximately 166% in the third quarter, with only seven of our hotels having negative hotel EBITDA in the quarter. This RevPAR result equates to a decrease of 25.6% versus the third quarter of 2019. We remain encouraged by the continued strength in weekend leisure demand at our properties. In the fourth quarter, we are building upon our strong momentum with October numbers likely to outperform September numbers. So we are confident that the industry recovery is continuing to take hold. We believe our geographically diverse portfolio consisting of high quality well-located assets across the U.S. that are approximately 80% reliant on transient demand will be in a position to capitalize on the pent-up leisure and the acceleration of trends in corporate demand. We continue to be focused on aggressive cost control initiatives including working closely with our property managers to minimize cost structures and maximize liquidity for our hotels. This is where our relationship with our affiliated property manager Remington really sets us apart. Remington was able to quickly cut costs and rapidly adjust to the new operating environment. In the same way, they were hyper responsive on the way down, we expect them to be hyper responsive on the way up, mitigating cost creep as much as possible throughout this recovery. We are proud of our efforts over the past year and believe this important relationship has enabled us to outperform the industry from an operational standpoint and Jeremy will discuss this in more detail. Turning to investor relations, we recently held a very well attended Investor Day in New York. If you weren’t able to join us, I encourage you to go to our website and watch the webcast. For the remainder of the year and into 2022, we will expand our efforts to get on the road and meet with investors, communicate our strategy, and explain what we believe to be an attractive investment opportunity at Ashford Trust. We look forward to speaking with any of you during the upcoming events. We believe we have the right plan in place to capitalize on recoveries that unfold. This plan includes continuing to maximize liquidity across the company, optimizing the operating performance of our assets as they recover, deleveraging the balance sheet over time, and looking for opportunities to invest and grow our portfolio. Going forward, we will be laser-focused on all of these. I will now turn the call over to Deric to review our third quarter financial performance.

Thanks, Rob. For the third quarter of 2021, we report a net loss attributable to common stockholders of $47.5 million or $1.70 per diluted share. For the quarter, we reported AFFO per diluted share of $0.11. We are pleased to report that our adjusted EBITDA ROE for the quarter was $46.8 million, which is the strongest number since the first quarter of 2020 and a 49% increase over the second quarter of 2021. At the end of the third quarter, we had $3.9 billion of loans with a blended average interest rate of 4.2%. Our loans were approximately 11% fixed rate and 89% floating rate. We utilize floating rate debt, as we believe it 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. Our hotel loans are all non-recourse, and as Rob mentioned, nearly all of them are currently in cash traps, meaning that we are currently unable to utilize property level cash for corporate-related purposes. As the properties recover and meet the various debt yield or coverage thresholds, we will be able to utilize that cash freely at corporate. We ended the quarter with cash and cash equivalents of $673 million and restricted cash of $85 million. The vast majority of that restricted cash is comprised of lender and manager-held reserve accounts. At the end of the quarter, we also had $24.1 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 net working capital of $707 million, compared to net working capital of $9.8 million at the end of 2020, which highlights the continued improvement in our financial position. I think it is also important to point out that this net working capital amount of $707 million equates to approximately $21 per share. This compares to our closing stock price from yesterday of $12.97, which is almost a 14% discount to our net working capital per share. Our net working capital reflects value over and above the value of our hotels, and as such, we believe that our current stock price does not reflect the intrinsic value of our high-quality hotel portfolio. From a cash utilization standpoint, our portfolio generated hotel EBITDA of $62 million in the quarter. Our current monthly run rate for interest expense is approximately $11 million and our current monthly run rate for corporate G&A and advisory expense is approximately $4 million. As of September 30, 2021, our portfolio consisted of 100 hotels, with 23,286 net rooms. Our share count currently stands at approximately 33.9 million fully diluted shares outstanding, which comprises 33.5 million shares of common stock and 0.4 million OP units. In the third 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 that we completed in January. Assuming yesterday’s closing stock price at $12.97, our equity market cap is approximately $440 million. During the quarter, we successfully refinanced our mortgage loan for the 390-room Hilton Boston Back Bay in Boston, Massachusetts, which had a final maturity date in November 2022. This financing addresses our only significant final maturity in 2022. Furthermore, the company was able to complete this financing with a best-in-class institutional balance sheet lender. The new non-recourse loan totals $98 million at a four-year initial term with one-year extension option, subject to the satisfaction of certain conditions. The loan is structured for the initial term with quarterly amortization payments during the extension term and provides for a floating interest rate of LIBOR + 3.8%. Additionally, we have made significant progress on the upcoming debt maturity at the Marriott Gateway Crystal City and hope to provide you an update on that refinancing soon. Our next hard debt maturity after the Marriott Gateway is in June of 2023. As we previously discussed, we have been selectively exchanging our preferred stock for common stock as a way to deliver our balance sheet, remove the accrued dividend liability and improve our equity flow. Through these exchanges, we have exchanged approximately 70.2% of our original preferred stock, which is approximately $396.5 million of face value into common stock. These exchanges also eliminated a significant amount of accrued preferred dividends. After taking into account the $200 million of new corporate debt that we closed in January and our cash balance at the end of the quarter, we’ve lowered our net debt plus preferred equity by over $1.1 billion since its peak in 2020. We have also been opportunistically raising equity capital to shore up our balance sheet, improve our liquidity, and be prepared for potential bond pay downs needed to achieve extension tests or meet refinancing requirements. During the third quarter, we issued approximately 8.6 million shares of common stock for approximately $148.8 million in gross proceeds. Over the past several months, we have taken numerous steps to strengthen our financial position and improve our liquidity, and we are pleased with the progress that we’ve made. While we still have work to do to improve our capital structure, our cash balance is building, we have an attractive maturity schedule, and we believe the company is well positioned to benefit from the improving trends we are seeing in the lodging industry. 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, Deric. Comparable RevPAR for our portfolio increased 166% during the third quarter of 2021, while house profit flowed through with a solid 48%. We’re extremely encouraged with the continued acceleration of occupancy at our hotels, with the third quarter outperforming the second quarter 63% to 57%, respectively. Additionally, we’re outperforming in the U.S. upper upscale chain scale in the third quarter by 700 basis points. While the recovery continues, we’re seeing a number of hotels stabilize at performance metrics that exceed 2019. I’d like to spend some time highlighting some success stories. The Hyatt Coral Gables produced phenomenal results during the third quarter, with hotel EBITDA exceeding comparable 2019 by more than $725,000. That is a 163% increase. The performance premium is being propelled by additional occupancy that is driven by an airline contract that our team was able to secure early during the pandemic. This increase in base business has allowed the hotel to shift our revenue strategies and be more proactive in pushing rate, resulting in a RevPAR increase of 25% over the third quarter of 2019. Our La Concha Key West property has also done an excellent job exceeding the 2019 results, with the hotel EBITDA increasing 143% during the third quarter relative to 2019. A lot of that success is attributable to the hotel’s topline growth, with the third quarter RevPAR increasing 70% relative to the comparable period in 2019. The revenue team identified an opportunity to capture additional business, resulting in booking a government training program, which added an additional 5% of occupancy to the hotel during the third quarter. Our Renaissance Nashville produced $6.8 million in hotel EBITDA during the third quarter, which exceeded the comparable period in 2019. These results are on the back of the hotel selling nearly 22,000 group room nights. This is one of the largest group houses and it has seen significant levels of demand. One of the competitive advantages of our asset management team is how our structure is broken down by industry-specific experts. Our property tax team has been extraordinarily successful this year. Year-to-date through the third quarter in 2021, we’ve saved $4.5 million from property tax appeals. Notably, we have had a 92% success rate on our appeals this year. To achieve these results and maximize our potential savings, we have proactively reached out to the local assessors in some states before they issue values to start a dialogue and discuss the items that we believe should be considered. We found that using this proactive approach both unlocks additional savings and builds strong relationships with the local assessors. Moving on to capital management, in prior years, we were proactive in renovating our hotels to renew our portfolio. That commitment has now resulted in a competitive and strategic advantage as the market rebounds. Not only are our properties more attractive to potential travelers, but we can also deploy capital more prudently throughout the recovery. Thus far in 2021, the only major project that we have completed is the ballroom renovation at the Ritz-Carlton Atlanta. Looking ahead, major capital projects on the horizon include a renovation of the public spaces and guest rooms at the Hilton Santa Cruz, renovations of guest rooms at the Marriott Fremont, and renovations of the public spaces at six of our select service hotels. We estimate spending $40 million to $55 million in capital expenditures in 2021, which is significantly less than we have spent in previous years. Before moving to Q&A, I’d like to reiterate how optimistic we are about the recovery of our portfolio and the industry as a whole. During this last quarter, nearly all of our hotels were GOP positive, and a number were outperforming the comparable period in 2019. We fully anticipate that this momentum will continue. Data from Sprint Travel Research suggests that the top 25 U.S. markets are expected to have 32% RevPAR growth in 2022, compared to all other markets at 13%. This is fantastic news for our portfolio given that 56% of our hotel keys fall within these markets. That concludes our prepared remarks. We will now open the call for Q&A.

Thank you. Our first question is Bryan Maher with B. Riley Securities. Please proceed.

Good morning, guys. Thanks for taking my question. Starting out with the large cash hoard you have basically accumulated over the past, I don’t know, six months to nine months, how do you think about deploying that as opposed to holding cash? And I know that there are reasons to hold cash. But as it relates to maybe, A, making a hole on the preferred accrued dividends, which I think is $20 million, which is maybe 5% of what you have in cash, taking care of Oaktree? And then bigger picture, maybe peeling away at some of the portfolio financings such that you come to an agreement with the lenders and I know there’s Oaktree obstacles in here, but making it such that you can peel away the assets in the portfolio financings that you really want to keep, being able to sell the ones that you really don’t want or you can take advantage of buyers in the marketplace and then maybe pitting new fresh debt on those assets you really want to keep. How are you thinking about that with all of your cash?

That’s a good question, Bryan. You seem to be touching on the exact issue we're currently considering, which is that we face certain structural challenges from this strategic financing and various make holes. These create an incentive to sell closer to the end of the make-hole period, which is about 15 months away. However, we have begun initial discussions with several lenders regarding options to see if there are certain assets we could sell now, even if the current pools don't meet the necessary debt yield or coverage ratio tests. Those conversations are ongoing. As you mentioned, we are looking for ways to take a proactive approach with our capital rather than just adopting a defensive stance. However, we need to be mindful of our cash needs, which include paying off the strategic financing, bringing our preferred stock up to date, and ensuring that the strategic financing is made current as well. To make a $20 million preferred payment to catch people up, we also need to account for deferred payments, which amount to another $30 million or so. Additionally, we have some capital expenditures that are expected to increase over the next one to two years. Therefore, we have significant cash needs to consider, while also being cautious given our uncertainty about the recovery and the pace of return to office after the new year. We are carefully evaluating all these factors. One positive aspect is the gradual recovery in the debt markets. We completed our Back Bay financing with attractive terms and are working on our Gateway deal, which we hope to discuss soon. We’re noticing quotes, particularly in the CMBS market for hospitality, and while there have been a few larger deals at higher ends, that will likely begin to expand. As we move into the new year, we will be looking for opportunities to address some of these refinancings, possibly in conjunction with asset sales of those we don't see as long-term strategic. We have several levers to consider, and we are very focused on exploring those alternatives.

Great. And just as a follow-up, I think Jeremy mentioned, $40 million to $55 million in CapEx for 2021 and that you had already done the ballroom renovation in Atlanta. How much is left of the $40 million to $55 million to do in the fourth quarter of this year? And what do you think that there might be in 2022, and is there deferred CapEx from the past 12 months to 24 months that might make that higher than maybe you previously might have thought?

We’re probably looking at close to $20 million for the fourth quarter. Timing can be tricky because we usually have many renovations in this period, and it depends on when we pay our vendors. I'm unsure if we'll reach the $55 million upper limit; that's likely not going to happen. It will probably be around $40 million, and to date, we've spent nearly $50 million. We haven't finalized our capital plans for next year, but there isn't much deferred CapEx. We've reviewed our portfolio thoroughly, and we don't anticipate many renovations for next year.

Thanks, Bryan.

Our next question is from Tyler Batory with Janney Montgomery Scott. Please proceed.

Hi. Good morning. This is Jonathan on for Tyler. Thanks for taking our questions. First one for me, rates continued to be strong in the quarter and I am curious if that’s all from leisure travel or if there’s been some pickup in corporate that’s impacting that positively? And then maybe bigger picture, can you provide any additional color on how you’re thinking about rates long-term, particularly with business transit becoming a more meaningful contributor presumably in the future?

There are some interesting statistics in the quarter regarding corporate versus leisure travel, particularly the difference between weekend and weekday patterns. Historically, corporate travel has seen higher occupancy and rates, but currently, we are experiencing the opposite trend. Weekends are showing significantly higher occupancy, along with a rate premium of $20 to $30 for leisure travelers. This is an unusual situation for our industry. Currently, corporate transient travel makes up only about 5% to 6% of our overall occupancy. The majority of our rate increases are actually driven by leisure travel rather than corporate. To give you more specifics, our Average Daily Rate (ADR) for weekend travel increased by 12% in the third quarter, and Revenue Per Available Room (RevPAR) rose by 5%. As mentioned, weekday travel is where we see declines; traditionally, Tuesday through Thursday has been strong for us, but the business transient customer is returning more slowly, although we are seeing progress each month. Right now, we are down about 60% from 2019 in our business transient segment. When considering group travel, we are 3% ahead in ADR compared to 2019, which is an improvement from 2021, where our ADR was down 19% compared to 2019. This indicates a significant opportunity to raise rates in sectors where we previously struggled post-pandemic, which is certainly a positive development.

I believe one of the overlooked opportunities in the industry for investors looking at the recovery is that typically, with the kind of occupancy losses we've experienced, our rates would have significantly dropped. Usually, this would mean having to work hard for several years just to reach rates that are competitive again. However, currently, our rates are already close to or even higher than they were in 2019, despite still experiencing considerable occupancy losses. This situation provides us with pricing power, which makes us optimistic, and being able to increase rates is very profitable. Investors should recognize the potential in being able to raise rates.

Great. I appreciate all that detail. And then, any update that you guys can provide on the labor headwinds that seem to be impacting the industry, has there been any noticeable difference or easing, I should say, post the Labor Day? And then, how are you thinking about balancing labor going forward and into the future and the other cost pressures back as the business trends continue to ramp?

We are still experiencing cost pressures, primarily related to wage increases that peaked in the second quarter. While we do anticipate some wage pressures in the third and fourth quarters, the rate of increase is decreasing significantly. Currently, the number of open positions has not affected our revenue. Specifically, we haven’t had to take any rooms out of service due to cleaning issues, largely because occupancy rates are still below our desired levels. We currently have about 13.5% of open positions across our properties, which is a slight improvement from previous months, though not dramatically lower. We hope to see a quicker pace in filling these positions than we experienced after Labor Day.

Very helpful. Thank you. And then, a last one, if I could, turning to the group side, Jeremy, you’ve provided some helpful stats on the ADR in 2022. But I am curious if you have any additional color on the demand or future bookings in 2022 and how that’s been progressing, any color that you can provide there?

Yeah. So as we sit right now, the group room revenue compared to 2019 for 2022 is down 24%, but that’s in spite of an increase in the ADR, a slight increase in the ADR, which is, yes, very healthy by design. I don’t think we will actualize there. We’re seeing pickup and we’re getting a lot. We’re seeing that the lead times for bookings continue to be very compressed versus what it was before the pandemic. And so I would anticipate that that 24% will continue to come down each quarter, and so we will actualize somewhere hopefully much less than that.

Yeah. But again if that same goes down 25% right now should compress. Again, the ADR on that is still up 3% over 2019. So, again, it plays into that broader rate story, which is a positive for us.

Our next question is from Chris Woronka with Deutsche Bank. Please proceed.

Yeah. Hey, guys. Good morning. Thanks for taking the questions. I guess this one’s maybe for Jeremy. Jeremy, can you talk a little bit about where leisure rates are versus corporate either now or in the third quarter versus historically? And I guess the question is, when you remix a little bit next year, it’s obviously going to be very net additive, because you’re going to have more occupancy. But rate, I mean, is there a widening gap between what you guys see in leisure and corporate negotiated rates?

Okay. Hey, Chris. Sorry for the brief technical issue. Looking at leisure, particularly our weekend rate increase, we've seen a 12% rise in ADR for our weekend rates compared to 2019. Weekday travel is down 12%, so the difference in ADR continues to grow. However, business travel is actually experiencing more gains than leisure, though it has declined more significantly than leisure overall. While we're seeing larger increases in business travelers, it's still considerably lower than 2019 levels.

Okay. That’s helpful. Thanks, Jeremy. You mentioned a lot of progress on property tax appeals. Will that help more in 2021, or is it more of a 2022 event in terms of how you’ll record the expenses or any refunds?

Yeah. I think it’s going to help in both years. I think that we’re going to see savings in both 2021 and 2022.

Okay. Very helpful. And then also, you may mention it earlier, but trying to get a sense for select service versus full service operationally, because some of your full service hotels, you don’t have a ton of resorts and some of them are in the more suburban markets, not a ton of city center. So is there any sense you can give us for how your full service is performing versus select service in kind of those outer markets?

I’d say it's less about the distinction between full service and select service and more about the performance in each market. Some select service properties in specific areas are underperforming compared to limited service assets in other locations. The key is to assess how each market is doing. Currently, the weaker markets include the Bay Area, Chicago, Philadelphia, Minneapolis, and areas around New York. These markets are struggling, partly due to a debate in the industry regarding various travel mandates and COVID prevention measures, which can either help or hinder performance. It seems that markets with fewer COVID restrictions are performing better. For instance, the national asset became an attractive leisure market once the COVID restrictions were lifted, leading to improved hotel performance. Therefore, it’s not as much about the service type as it is about the specific market conditions.

Yeah. Very helpful.

I had one little comment on that is that I was pleased and surprised with how well our Boston assets did in the quarter. So it’s good to see some markets, urban markets that I would have otherwise anticipated to be a little bit slower to recover pretty significantly. And so I think you will see that in some of these other markets that have underperformed, it’s just a matter of time that you’re going to see a massive bounce in the Bay Area and in some of the other urban locations that have underperformed pretty significantly.

Got it. Very helpful. And if I could sneak one last one in and it’s a question about the labor, you guys talked about, but are you seeing any differences in the open positions geographically? Is this more of a problem in urban or the northern half or southern half? Any kind of color that you could give us on where the shortages are?

It’s interesting and somewhat challenging to determine the situation. In urban markets, we tend to experience lower occupancies. For instance, in areas like New York, Washington D.C., and the Bay Area, we are still operating at lower occupancies than we would prefer. Conversely, in other markets where the economies have reopened more fully, attracting people has been somewhat easier. What remains to be seen is how occupancy will change in places like D.C., New York, Minneapolis, and the Bay Area as they begin to push for higher occupancy rates. My expectation is that the situation will improve compared to now; it might be challenging, but not overwhelmingly so. However, it’s difficult to predict at this moment. Sometimes, the true picture becomes clear only after actively seeking out new associates and employees.

What I would add is that labor shortages are a widespread issue across the country, but there is a notable difference between states that ended the enhanced benefits early compared to those that did not. For instance, in June of this year in Nashville, we were quite concerned about our ability to hire enough staff due to a significant increase in occupancy when that market reopened. Fortunately, we were pleased with the demand, but we were worried about being able to service the property effectively. After those benefits expired, it took about three weeks, but we managed to fill a good number of positions. However, we are still experiencing a somewhat higher number of open positions across the board, even in hotels that have recovered. It’s a widespread challenge, but a delay is evident in the markets that maintained the enhanced benefits, if that clarifies things.

Yeah. Yeah. Very helpful. Thanks, guys. Appreciate it.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Thank you for joining us and we look forward to talking with you all on our next earnings call.

Thank you. This does conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.