Greetings and welcome to the Ashford Hospitality Trust Fourth Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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. Thank you, Jordan. You may begin.

Good day everyone and welcome to today's conference call to review the results for Ashford Hospitality Trust for the fourth quarter and full year 2022 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 Chris Nixon, Executive Vice President and Head of Asset Management. 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 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. 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 February 21st, 2023, 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 compare the fourth quarter and full year ended December 31st, 2022 with the fourth quarter and full year ended December 31st, 2021. I will now turn the call over to Rob Hays. Please go ahead, sir.

Good morning, and welcome to our call. After my introductory comments, Deric will review our fourth quarter and full year financial results and Chris will provide an operational update on our portfolio. The main themes for our call today are; first, we saw ongoing RevPAR improvement in the fourth quarter versus 2019 and expect continued strength through the first quarter of 2023. Second, our liquidity and cash position continue to be strong. We ended the quarter with approximately $519 million of net working capital, which equates to approximately $14 per diluted share. With yesterday's closing stock price of $5.69, we believe we are trading at a meaningful discount to both our net asset value per share and our net working capital per share. Additionally, to the extent there is a hiccup in the economy, we have the flexibility to access undrawn capital if needed via our strategic financing. The last main theme for our call is that we have commenced the offering of our non-traded preferred equity security. Importantly, we believe this offering will provide an attractive cost of capital and 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. To the extent we are successful with our non-traded preferred capital raise, our preference would be to use that capital for future growth, though we may also use some of the capital to pay down debt as needed. We continue to build the syndicate for this product and currently have 22 signed dealer agreements representing 4,349 representatives selling this product. We are still very early in the capital raising process and to-date, we have issued approximately $4 million of gross proceeds. We expect this fundraising momentum to accelerate as we get further into 2023. Let me now turn to the operating performance at our hotels. The lodging industry continues to show signs of strength. RevPAR for all hotels in our portfolio increased approximately 25% for the fourth quarter compared to the prior year quarter. This RevPAR result equates to a decrease of approximately 1% compared to the fourth quarter of 2019, which is the best performing quarter versus 2019 in several years. One of our main priorities for 2023 is maximizing our operating performance to minimize potential paydowns for any extension tests associated with our property level debt. We've already made great progress on this front with our recent refinancing of the loan secured by the Le Pavillon hotel, the extension and modification of the loan secured by the Hotel Indigo Atlanta, and the extension and modification of the JPMorgan Chase eight-hotel loan. Deric will talk about these in more detail. While we feel well-prepared for the remaining upcoming extensions tests, there may be situations where we have loan balances that exceed the current market value of the underlying hotels. If those situations arise, we may give assets back to lenders or allocate additional capital with a focus to maximize value for our shareholders. Looking ahead, we believe our geographically diverse portfolio, consisting of high-quality assets with best-in-class brands and management companies is well-positioned to capitalize on the strong demand we are seeing across leisure, business, and group segments. 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. Additionally, capital recycling remains an important component of our strategy and we continue to pursue some opportunities to sell certain non-core assets. We have identified several 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. 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 in Ashford Trust. We have attended numerous industry and Wall Street Conferences which have led to over 600 investor meetings over the last year. We have several conferences coming up this year and 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 our portfolio. We have a track record of success when it comes to property acquisitions, joint ventures, and asset sales. We expect they will continue to be part of our plans moving forward. We ended the fourth quarter with a substantial amount of cash on 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. I will now turn the call over to Deric to review our fourth quarter financial performance.

Thanks Rob. For the fourth quarter, we reported a net loss attributable to common stockholders of $60.2 million, or $1.75 per diluted share. For the full year, we reported a net loss attributable to common stockholders of $153.2 million or $4.46 per diluted share. For the quarter, we reported AFFO per diluted share of $0.16, compared to a loss of $0.09 per diluted share in the prior year quarter, and for the full year, we reported AFFO per diluted share of $1.85 compared to a loss of $1.23 per diluted share in the prior year. Adjusted EBITDAre for the quarter was $69.1 million, which reflected a growth rate of 70% over the prior year quarter. Adjusted EBITDAre for the full year was $287.3 million, which reflected a growth rate of 153% over the prior year. At the end of the fourth quarter, we had $3.8 billion of loans with a blended average interest rate of 7.2%, taking into account in-the-money interest rate caps. Considering the current levels of LIBOR and SOFR and the corresponding interest rate caps, 100% of our debt is now effectively fixed as all of our interest rate caps are now in-the-money. These caps are typically structured to expire simultaneously with the maturity dates of the underlying loans and many of these caps will expire during 2023 as we have several loans with initial maturity dates in 2023. Most of these loans have extension options that include the requirement to purchase additional interest rate caps at the time of the extension. In anticipation of these extensions, last year, we purchased forward starting interest rate caps as a hedge against these future purchases. If interest rates remain elevated, the value of these pre-purchased caps should help defray the costs of any new caps we need to purchase. On the capital markets front, during the quarter, we successfully refinanced a mortgage loan secured by the 226-room Le Pavillon Hotel in New Orleans, Louisiana, which had an extension test in January 2023. The new, non-recourse loan totals $37.0 million, the same loan amount as the previous loan, and has a two-year initial term with three 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 4.00%. Additionally, during the quarter, we modified and extended the mortgage loan secured by the 141-room Hotel Indigo Atlanta in Atlanta, Georgia which had an extension test in December 2022. As part of this extension, we made a small paydown of the loan and the interest rate was changed from LIBOR plus 2.25% to SOFR plus 2.85%. Additionally, subsequent to the end of the quarter, we successfully modified and extended our $395 million JPMorgan Chase eight-hotel loan. As part of this extension, we made a $50 million principal paydown and reduced the 2024 debt yield extension test from 9.25% to 8.50%, giving us significantly more flexibility for the next extension. We only have two loans with a combined balance of approximately $98 million with final maturities in 2023. We are currently working with lenders on these refinancings. We have additional loans that are subject to extension tests this year. And with our significant cash balance and continued improvement in hotel operations, we believe we are well-prepared to meet any potential loan paydowns required to meet those tests. Our property-level hotel loans are all non-recourse to the company and currently 79% of our hotels are in cash traps, which is down from 85% last quarter. A cash trap means that we are currently unable to utilize property-level cash for corporate-related purposes. Importantly, during the quarter, the Marriott Gateway and KEYS Pool D Portfolio loans came out of their respective cash traps and approximately $9 million of cash that had been trapped was released to corporate after quarter end. As the remaining properties recover and meet the various debt yield or coverage thresholds, any trapped cash will be released to us and we will be able to utilize that cash freely at corporate. At the end of the fourth quarter, we had approximately $34 million in these cash traps, which is reflected in restricted cash on our balance sheet. We ended the quarter with cash and cash equivalents of $417 million and restricted cash of $142 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 $22 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 approximately $519 million. As Rob mentioned, I think it's important to point out that this net working capital amount of $519 million equates to approximately $14 per share. This compares to our closing stock price from yesterday of $5.69, which is an approximate 60% discount to our net working capital per share. Our net working capital reflects value over and above the net value of our hotels. As such, we believe that our current stock price does not reflect the intrinsic value of our high-quality hotel portfolio. Rob mentioned that we have commenced the offering for our non-traded preferred stock. We are offering this product through the Ashford Securities platform and have been pleased with the progress that's been made in building the syndicate of selling broker-dealers. We currently have 22 signed dealer agreements representing 4,349 reps that are currently selling this product to their clients. We expect the momentum of this capital raise to ramp up as we progress through 2023. This is attractive capital for us that can be used for acquisitions, debt paydowns, or other corporate purposes, and we look forward to reporting back on our progress. As of December 31, 2022, our consolidated portfolio consisted of 100 hotels with 22,316 rooms. Our share count currently stands at approximately 36.2 million fully diluted shares outstanding, which is comprised of 34.5 million shares of common stock and 1.7 million OP units. In the fourth 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 $206 million. While we are currently paying our preferred dividends quarterly, we do not anticipate reinstating a common dividend for some time. 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. Our cash balance is solid, we have an attractive maturity schedule, our non-traded preferred security offering is effective, 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 Chris to discuss our asset management activities for the quarter.

Thank you, Deric. I am proud of the work that our asset management team accomplished during the fourth quarter to drive operating results and close out a remarkable year for performance at our hotels. Comparable RevPAR for our portfolio increased by 25% in the fourth quarter compared to the prior year quarter. For the quarter, our portfolio recovered 99% of its RevPAR relative to the fourth quarter of 2019. Our team has strategically positioned and enhanced our assets to effectively capitalize on the market's recovery. We continue to be encouraged by the acceleration we are seeing in our urban assets. During the fourth quarter, 38% of our urban assets exceeded their 2019 RevPAR. For comparison, only 10% of our urban assets exceeded 2019 RevPAR levels during the first quarter of 2022. The improvement in our urban hotels continued through the quarter with December seeing 48% of our urban hotels achieve a RevPAR above 2019. Our team has been laser focused on identifying additional opportunities to maximize value. Our other department revenue, which includes valet, spa services, corner pantries, and more, increased by 19% on a per occupied room basis to 2019. Within our urban hotels, other departmental revenues per occupied room in the fourth quarter increased by 24% relative to 2019. An example of this success was demonstrated at The W Atlanta, where we utilized services such as parking, spa, and in-room entertainment to propel fourth quarter other revenues 34% above comparable 2019 levels. During the fourth quarter, our portfolio exceeded group room revenue relative to the same time period in 2019 by 2%, and we continue to see acceleration from this segment. Group revenue booked in the fourth quarter for the quarter exceeded comparable 2019 by 24%. Our long-term group momentum shows encouraging signs, with group forward bookings during the fourth quarter exceeding the previous three quarters. In fact, December was the best month of 2022 in terms of forward bookings for group. Our lead volume has also improved every quarter this year relative to 2019. We are excited about this momentum heading into 2023 and what the favorable group volume will mean for our portfolio. Lastly, I would like to comment on the record performances within our portfolio. The portfolio had 31 hotels set all-time high fourth quarter records in RevPAR and 20 hotels set all-time fourth quarter records in comparable hotel EBITDA. Collectively, these 20 record-breaking hotels exceeded their previous comparable hotel EBITDA records by 17%. We are starting to see this expand beyond the leisure-dominated markets into large urban areas. During the fourth quarter, we had assets in Atlanta, Philadelphia, Baltimore, Las Vegas, Washington D.C., Denver, and New York exceed historical highs in addition to various leisure markets. Moving on to capital expenditures, we've noted in previous calls how we have taken a proactive approach to renovating and repositioning our hotels. That commitment has now resulted in a competitive and strategic advantage as demand continues to accelerate. We spent approximately $104 million in capital expenditures in 2022 and currently anticipate spending between $100 million and $120 million in 2023. We recently completed a guestroom renovation at the Marriott Fremont, as well as public space renovations at the Residence Inn Fairfax Merrifield, the Residence Inn Salt Lake City, and the Courtyard Newark Silicon Valley as well as the meeting space at the Hyatt Regency Coral Gables. Before moving on to Q&A, I would like to reiterate how encouraged we are about the recovery of our portfolio and the industry as a whole. Each quarter this year has shown improvement, with many of our hotels already outpacing their 2019 performance. During the fourth quarter, 41% of our hotels exceeded their comparable hotel EBITDA for 2019, which is an increase over the 11% achieved during the first quarter. After meeting with our various partners throughout the budgeting process, we are optimistic about our portfolio's position to capitalize on the industry revitalization. This concludes our prepared remarks. We will now open up the call for Q&A.

Thank you. We will now begin the question-and-answer session. Our first question comes from Tyler Batory with Oppenheimer. Please go ahead with your question.

Good morning. Thank you. There's been a lot of discussion so far this earnings season about your margins, cost structure. So, just kind of a general question on that topic. What are you seeing in terms of wages, incremental costs, and I know as we look 2023 versus 2022 is certainly pretty favorable calm earlier in the year, but on the margin performance you put up kind of Q3, Q4 compared with 2019, I mean do you think that's sustainable next year?

Yes, thanks for the question. So, we're experiencing the similar challenges to what others are feeling. Hourly wages are continuing to increase. The labor market while improving is still not quite where we need it to be. There's inflationary pressures that are driving cost increases. We're seeing increases in utilities. I think when we look at that, the thing we're encouraged most about this portfolio is it still has quite a bit of runway ahead of it in terms of its recovery. And we're seeing strong sequential improvement each quarter in revenue gains and ADR gains and occupancy gains. And so, when we look at our margin performance for Q4, we had EBITDA margin that was over 400 bps higher than Q4 of 2021. And I think we expect margin growth to continue as we get further along in the recovery and realize some real RevPAR and real ADR growth relative to 2018. The biggest thing that we can control really is our staffing models. And we've done a great job partnering with our hotels to kind of revamp and zero base our staffing models. From a labor standpoint, right now, we're at about 45% of pre-COVID staffing levels. And that does include some contract labor that we're optimistic we'll transition back to in-house labor throughout this year. And so there should be some savings associated with that. But from a wage standpoint, we're seeing increases still. We saw mid to high single-digit increases in Q4. We're seeing signs that are cooling and we expect that to continue to cool as we kind of get through the year.

One other data point I'd like to mention, Tyler, is that historically we have aimed for about 50% EBITDA flows within our asset management team and with the property managers we collaborate with. For the fourth quarter, our EBITDA flows came in at just over 40%—around 41% to 42%. I consider this a strong outcome considering the challenges we are facing. Moving forward, we will continue to strive to maintain that 40% or higher range, but it will be challenging.

Okay, great. Regarding the extension test this year, how are you feeling about it? Can you share anything about your early conversations? I'm also interested in any general thoughts you have on the refinancing environment.

Yes, absolutely. We have two significant ones remaining this year. The Highland portfolio is scheduled for April and the KEYS Pools are set for June. We've been in discussions with both groups and feel confident, although we still have some work to do, particularly with the KEYS Pools. This one is larger and more complex due to its different tranches and the multiple players involved in each tranche, making the situation more complicated. However, we are optimistic about the progress we are making. Fortunately, both loans will be addressed after the first quarter, which allows us to move past the weak performance of the first quarter of 2022, as most extension tests are based on trailing twelve months. Eliminating last year's first quarter is very beneficial in assessing potential paydowns on those tests. As we see improvements, it seems likely that the paydowns for Highland will be relatively small, and we hope they will be less significant than what we experienced with our JPMorgan 8-Pool. The KEYS Pool is more complicated, and we're just beginning meaningful discussions with the servicers on that front.

And Tyler, this is Deric. In terms of the refinancing market, it continues to be a difficult time to get hotel financing. Thankfully, we don't have a lot of final maturities this year, so we don't need to be in the market seeking much debt financing. The financing that we have in place is pretty attractive from a spread perspective. So, we'd like to keep the debt that we have in place as long as we can by exercising these extension options. Hopefully, as we progress through the year and the market gets some visibility on what the Fed is going to do with interest rates, we'll start to see spreads come down to where it can be a little bit more attractive to get debt financing. And because obviously, we've got a lot of maturities that we will have to address in the outer years and we want to get in front of those. And so as soon as we can access attractive debt capital to push out maturities, we will be doing that.

Okay, great. That’s all from me. Thank you.

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

Good morning. I wanted to revisit the 2023 maturities you mentioned. Rob, you noted that returning the keys is always an option. When considering that, is it solely a financial decision, or does it also involve strategic considerations regarding the hotel's potential EBITDA and your evaluation of the current market value or NAV?

There is a subjective aspect when trying to break things down into a quantitative decision. We aim to identify pockets of value where something could potentially transform. Ultimately, however, it comes down to financial decisions. We have faced situations in the past, like during the financial crisis or the early days of COVID, where we collaborated with lenders to find solutions to keep assets viable. Sometimes, agreements can't be reached, leading us to give back assets, which are purely financial decisions. During the early pandemic, we returned 15 assets, and from an economic perspective today, we don't regret any of those decisions. We look at various factors, often getting third-party valuations from national firms or brokers to gauge market conditions and assess our strategic plans. Some assets might have potential upside after investing in capital improvements, while others may require significant expenditures that don't justify retaining them. We conduct rebuy analyses to evaluate whether the capital we're putting in reflects the cost of acquiring the asset today. We strive to understand where value lies and engage with lenders in good faith, presenting them with our situation. We hope to find mutual solutions, but sometimes the numbers dictate outcomes, and we might have to relinquish assets. We remain hopeful this won't be necessary, but it's a possibility. We aim to make the best decisions for our shareholders.

Okay, that's helpful. Thanks Rob. And then on the KEYS portfolio on the different pools, given that the dates are all the same, is there any thought or any possibility to essentially restructuring the composition of those pools at all?

I suppose there is always a possibility. We'll be in discussions with the servicers regarding the loan. Because of the way it was securitized, the senior pieces are all grouped together, meaning the holder of one piece is also the holder of the others. This creates a more complex structure, even though each pool is considered separate. Therefore, there is some complexity involved that makes it technically possible to alter maturity dates, though it seems less likely to occur. Instead, we will assess each of the six pools to identify value and examine potential capital expenditures over the next few years. We have the ability, as outlined in the documents, to pay down the loans to meet these extension tests. We have perspectives on what those are based on various forecast scenarios, and we will discuss these with the lenders to try and reach an agreement that benefits everyone.

Thanks, Rob. I have a quick follow-up for Deric. I believe you mentioned that the cash trap was released on Pool D, and it appears that the net income yield on that is the highest, while the EBITDA yield is actually higher in the e-pools. Is the net income yield the key factor over EBITDA?

Correct. For the cash trap, it's typically an NOI, which the EBITDA that we present in our earnings release is calculated before accounting for an FF&E reserve. Therefore, the NOI debt yield is determined after accounting for an FF&E reserve, and that is what influences the calculation of the cash traps.

Good morning. I have a couple of questions. First, Deric, could you provide an update on the Oaktree Financing? What are the plans regarding its repayment? If you were to pay back the current outstanding amount, could you summarize that or would you only be able to recap what is available now?

Yes. We currently have about $196 million outstanding, which has been reduced somewhat due to proceeds from an asset sale. That portion became freely pre-payable in January of this year. There was a prepayment penalty before that, so now it can be prepaid. If we decide to pay that down, we would still have access to an additional $250 million that is available. While this is expensive capital, we would prefer not to use it unless necessary, but it's available if needed. As for our plans to pay it down, we'll need to assess how the year unfolds. We have a significant amount of cash, which is one of the reasons we raised capital in 2021 to anticipate paying off this debt. Additionally, we were aware of the extension tests we would face and the uncertainty regarding the cash required to meet those tests. I believe that once we get through this round of extension tests, we will have more clarity. We are also interested in how our capital raise from our non-traded preferred progresses, as we are still in the early stages. I’m not sure if Rob has anything to add to that.

I believe the situation depends on three factors. First, we need to consider the progress of the recovery. Will we experience a significant recession? Currently, that doesn't seem likely, but it's always a risk. Second, the recovery of the debt markets is crucial. If the debt markets improve, we could potentially refinance at a lower spread or explore other more cost-effective structures. Third, as Deric mentioned, the pace of the non-traded preferred is important. If the capital from this source accelerates as we hope, it might provide us with additional funds to pay off the debt. There are several factors at play that will influence how quickly we can pay it off in the coming months. We want to pay it off and have the cash available to do so, but we believe it's wise to hold onto that cash until we gain more clarity on these issues.

Okay. And then as we think about your positioning with assets and potentially assets for sale and assets that you might hand back to lenders. Why wouldn't you be in the marketplace now with assets that you're kind of on the fence, you might end up handing back and just see if you can achieve a price above the loan value? I'm just curious as to why you wouldn't be in the market with more assets right now in that regard?

We have identified a few assets internally that we consider for sale or potentially for sale, which may not be long-term core assets. We are collaborating with various brokers to determine the best timing for these sales. Some of these assets are currently on the market, while others might be at a size where achieving a reasonable sales price is challenging. We are actively exploring options for assets we are uncertain about in terms of their value, so those are also listed for sale. We have multiple opportunities in progress, and our perspectives align with yours.

Okay. And then just last for me and maybe for Deric. Is there any way to quantify what caps or hedges might cost as for this year? I know that you guys did some stuff last year that kind of spills over benefit you this year. But is it $10 million? Is it $20 million? Is it $100 million? Can you quantify what we should be thinking about there?

Yes, it's really challenging to put a number on it because there are many factors affecting the pricing. It depends on the strike price of the cap, the market's expectations for future rates, and how long the cap needs to be in effect. Therefore, it's hard to provide an estimate. As I mentioned, we attempted to anticipate this by pre-purchasing a significant amount last year. Ideally, those caps would expire worthless, indicating we didn't need them and that rates have decreased. However, if rates remain high, we hope that the caps we pre-purchased will counterbalance any costs for new caps we might need to buy. From our viewpoint, we shouldn't have to spend much out of pocket. That's about all I can share regarding guidance on future costs.

Yes, thank you.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for any closing comments.

Thank you for joining us for the fourth quarter call and we look forward to speaking to you on our next call.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.