Earnings Call Transcript - AHT Q4 2021

Operator, Operator

Greetings and welcome to Ashford Hospitality Trust Fourth 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, Manager of Investor Relations. Thank you. You may begin.

Jordan Jennings, Manager of Investor Relations

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 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 Chris Nixon Senior 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 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 February 23, 2022 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 fourth quarter of 2021 with the fourth quarter of 2020. I will now turn the call over to Rob Hays. Please go ahead, sir.

Rob Hays, President and CEO

Thank you, Jordan. Good morning and welcome to our call. I’ll 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 Chris will provide an operational update on our portfolio. I’d first like to highlight some of our recent accomplishments and the main themes for our call. First, we saw the lodging recovery continuing to take hold in the fourth quarter leading to strong hotel performance and solid earnings. Second, our liquidity continues to improve and our cash balance is meaningful. We ended the quarter with approximately $639 million of net working capital, which equates to approximately $18 per diluted share. With our current stock price of around $8, we are trading at a meaningful discount to both our net asset value per share and our net working capital per share. Third, we have lowered our leverage and improved our overall 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 to gross assets, by approximately 13 percentage points. Fourth, during the quarter, we announced an amendment to our strategic financing which provides us with more flexibility to access the undrawn capital if needed, even after we have paid off the current balance. During the quarter we paid off the strategic financing’s interest and are now paying interest current. While the loan doesn’t mature for several years, we are looking for opportunities to pay it off later this year if the industry recovery continues to make progress. 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 refinanced our mortgage loan for the Marriott Gateway Crystal City. And with the completion of debt financing, our next hard debt maturity is not until June of 2023. We are optimistic about the long-term outlook for the company and, by taking decisive actions to strengthen our balance sheet, we feel well-positioned to capitalize on the recovery we are seeing in the hospitality industry. While our optimism remains, we also must acknowledge some risks to the pace of the recovery due to 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 to 24 months or more. And as a result, we are focused on building our liquidity and improving our capital structure in the months to come. In regards to common dividends, the company and its Board of Directors previously announced a suspension of its common stock dividend, and therefore the company did not pay a dividend on its common stock and common units for the fourth quarter. However, the Board will continue to monitor the situation and assess future dividend declarations. Regarding our preferred dividends, during the fourth quarter, we reinstated and caught up on all of our accrued preferred dividends and currently plan to pay those quarterly going forward. As we’ve discussed, this is important to us for several reasons including it was one of the requirements for Ashford Trust to regain its S-3 eligibility. For 2022, we will increase our CapEx spending from the previous two years, but will still be well below our historical run-rate for CapEx. 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 now turn to the operating environment at our hotels. The lodging industry is clearly showing signs of improvement. RevPAR for all hotels in the portfolio increased approximately 164% in the fourth quarter with only eight of our hotels having negative hotel EBITDA in the first quarter. This RevPAR result equates to a decrease of approximately 21% versus the fourth quarter of 2019, and improvement from the third quarter of 2021 when RevPAR was down 26% from the same period in 2019. We remain encouraged by the continued strength in weekend leisure demand at our properties. And as we enter 2022, we did see some softness in demand with the Omicron variant that was similar to what we saw with the Delta variant in mid-August. That industry softness bottomed out in the last two weeks of January and has improved since then. We believe the United States is transitioning from a pandemic to an endemic mentality, and we hope to build on the momentum we saw in 2021. We believe our geographically diverse portfolio, consisting of high-quality, well-located assets across the U.S. is well-positioned to capitalize on the acceleration in demand we expect to see across leisure, business, and group. We continue to be focused on aggressive cost control initiatives, including working closely with our property managers to minimize cost structures and maximize liquidity at our hotels. This is where our relationship with our affiliated property manager, Remington, really sets us apart. Remington has been able to manage costs aggressively and adjust to the current operating environment. This important relationship has enabled us to outperform the industry from an operations standpoint for many years. Turning to investor relations, during the quarter we attended several small-cap and lodging investor conferences, and we also held a well-attended Investor Day in New York. If you were not able to join us, I encourage you to go to our website and watch the webcast. For 2022, we will expand our efforts to get out on the road, to meet with investors, communicate our strategy, and explain what we believe to be an attractive investment opportunity in Ashford Trust. We look forward to speaking with many of you during upcoming events. We believe we have the right plan in place to capitalize on the recovery as it unfolds. 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. We have a track record of success when it comes to property acquisitions, joint ventures and asset sales, and expect they will continue to be part of our plans moving forward. We enter 2022 with a substantial amount of cash on our balance sheet and are looking for ways to go on offense.

Deric Eubanks, Chief Financial Officer

Thanks, Rob. For the fourth quarter of 2021, we reported a net loss attributable to common stockholders of $59.3 million or $1.75 per diluted share. For the full year of 2021, we reported a net loss attributable to common stockholders of $267.9 million or $12.43 per diluted share. For the quarter, we reported AFFO per diluted share of negative $0.09. For the full year of 2021, we reported AFFO per diluted share of negative $1.23. Adjusted EBITDAre totaled $40.7 million for the quarter, while adjusted EBITDAre for the full year was $113.6 million. At the end of the fourth quarter, we had $3.9 billion of loans with a blended average interest rate of 4.1%. Our loans were approximately 8% fixed rate and 92% 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 currently 93% of our hotels are in cash traps. This is down from 97% last quarter. A cash trap means 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 $592.1 million and restricted cash of $99.5 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 $26.9 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 $639 million. As Rob mentioned, I think it’s also important to point out that this net working capital amount of $639 million equates to approximately $18 per share. This compares to our closing stock price from yesterday of $8.31, which is an approximate 55% discount to our net working capital per share. Our net working capital reflects value over and above the 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. From a cash utilization standpoint, our portfolio generated hotel EBITDA of $55.4 million in the quarter. Our current quarterly run-rate for debt service is approximately $41 million, our quarterly run-rate for corporate G&A and advisory expense is approximately $14 million, and our quarterly run-rate on preferred dividends is approximately $3 million. As of December 31, 2021, our portfolio consisted of 100 hotels with 22,313 net rooms. Our share count currently stands at approximately 34.9 million fully diluted shares outstanding, which is comprised of 34.5 million shares of common stock and 0.4 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 of $8.31, our equity market cap is approximately $290 million. During the quarter, we refinanced our mortgage loan for the 701-room Marriott Gateway Crystal City in Arlington, Virginia which had a final maturity date in November 2021. The new, non-recourse loan totals $86.0 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 LIBOR plus 4.65%. Our next final debt maturity is now in June 2023. As we previously discussed, we selectively exchanged our preferred stock for common stock in 2020 and 2021 as a way to de-lever our balance sheet, remove the accrued dividend liability, and improve our equity float. Through these exchanges, we have exchanged approximately 71% of our original preferred stock, which is approximately $401.8 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 from last January and our cash balance at the end of the quarter, we have lowered our net debt plus preferred equity by approximately $1.1 billion since its peak in 2020. We opportunistically raised equity capital in 2021 to shore up our balance sheet, improve our liquidity, and to be prepared for potential loan paydowns needed to achieve extension tests or meet refinancing requirements. For the full year 2021, we raised approximately $564 million of gross proceeds at an average price of $28.17. During the quarter, we paid off the interest associated with our Oaktree loan of $24 million and also utilized cash of $18.6 million to bring our preferred dividends current. Our current plan is to continue to pay our preferred dividends quarterly going forward, while we expect our common dividend to continue to be suspended for the foreseeable future. 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 lower our leverage, our cash balance is solid, 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 Chris to discuss our asset management activities for the quarter.

Chris Nixon, Senior Vice President and Head of Asset Management

Thank you, Deric. Comparable RevPAR for our portfolio increased by 164% during the fourth quarter relative to the same time period in 2020. We are extremely proud of the work that our Asset Management team has done to drive operating results. The team has accomplished so much this year, including driving 21 of our properties to exceed their comparable fourth quarter 2019 RevPAR. I would like to spend some time highlighting a few of those success stories. Sheraton Anchorage had a strong fourth quarter with RevPAR exceeding comparable 2019 by 43%. The team secured two new valuable pieces of business during the quarter that were very profitable: the first was a group of extended stay nurses that provided approximately 5,000 group room nights and the second was a new airline crew that generated 5,400 room nights. Together, these two pieces of business brought in an incremental $1.7 million in room revenue for the hotel. Next, I’ll turn to The Marriott Beverly Hills. This hotel experienced a 16% increase in hotel EBITDA during the fourth quarter, relative to the same period in 2019. While the hotel’s RevPAR had nearly fully recovered to 2019 levels, the hotel found a number of successful ways to deliver margin expansion in every single department, increasing overall hotel EBITDA margin by over 740 basis points. The team accomplished this through a number of initiatives, including closing the guest club lounge, optimizing F&B operations through menu changes and operating hours, and executing on long-term labor efficiencies. With this increased productivity in place, and the Super Bowl having been held in Los Angeles, this hotel is primed for a great first quarter. The Embassy Suites Flagstaff also produced fantastic results during the fourth quarter, with hotel gross operating income increasing more than $200,000, or over 30%, relative to the comparable period in 2019. Again, our proactive sales efforts identified and secured two large pieces of business: the first being a new long-term airline contract, and the second being a team of high altitude training athletes that were preparing for the Olympics. The increase in base business allowed the hotel to drive rate while yielding effectively, which resulted in a RevPAR increase of nearly 16% over the fourth quarter of 2019. The last hotel I’ll highlight is Historic Inns of Annapolis. This hotel had strong results with RevPAR increasing 18% during the fourth quarter, relative to the comparable period in 2019. These results were driven by our team’s tenacity and adapting to the new challenging work environment to attract group business. The team reached out to large groups that had previously stayed at the hotel over the last six years and offered them a unique and special package to return. In addition, the team utilized a new selling tool to attract new groups that allows future clients to have a 3D tour of different spaces within the hotel. The tool proved to be a great resource in closing new business. These initiatives drove Hotel EBITDA above 2019 levels during the fourth quarter by nearly 5%. Moving on to capital expenditures: 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 continues to rebound. Not only are our properties more attractive to potential travelers but we can also deploy capital more prudently throughout the recovery. In 2021, we restarted a number of capital projects, including: the guest rooms at Marriott Fremont, the guest rooms at Hilton Santa Cruz, and the corner pantry at Embassy Suites Portland. For 2022 we currently anticipate spending between $110 million and $120 million in capital expenditures of which we estimate approximately half will be owner funded. Before moving on to Q&A, I would like to reiterate how optimistic we are about the recovery of our portfolio. As I mentioned earlier, more than 20% of our assets exceeded 2019 RevPAR levels during the fourth quarter. When you look at just the month of December, the number of properties with RevPAR outperformance over 2019 jumps to nearly 30%. With group lead volume increasing steadily, we fully anticipate that this RevPAR momentum will continue. That concludes our prepared remarks. We will now open up the call for Q&A.

Operator, Operator

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. Our first question comes from the line of Tyler Batory with Janney. Please proceed with your question.

Tyler Batory, Analyst

Thank you. Good morning. Starting with a general question here. Just in terms of the cap structure, clearly making a lot of progress there. How are you feeling about your position today? How comfortable are you with your liquidity in light of some of the expected upcoming cash flows? And just help us think through some of the next steps as we move through this year in terms of making even more progress on your capital stack?

Rob Hays, President and CEO

Sure, this is Rob. I think we're pleased with our current cash and liquidity situation. We have access to our balance sheet and can tap into additional funds through strategic financing if necessary. However, there are known cash needs, such as our capital expenditures, which have been low for the past couple of years, averaging $30 million to $40 million annually, but are now expected to rise into the triple digits, with about half of that likely owner-funded. We're aware of these cash needs. The uncertain needs complicate our ability to outline a specific plan. Much of this pertains to the extension tests on our loans maturing in '24, '25, and '26, with some tests beginning mid-next year. Depending on the recovery, we may not need capital to address these issues, or we could face significant paydowns to meet those extension tests. As we approach these tests, we expect lenders to engage more in discussions since they also prefer not to encounter difficulties with these loans. We're exploring options to potentially modify some of those tests, which might involve asset sales paired with loans, given our current examination of market values for various assets as an alternative to assist with loan extension tests. While there are certain restrictions due to our broader strategic financing, we believe there are ways to leverage our situation. It remains somewhat fluid, but we currently have sufficient capital to manage these challenges. Additionally, we want to pursue opportunities proactively. We need to balance our capital requirements for the loan issues with potential opportunities ahead. Down the line, we may consider joint ventures or partnerships to pursue proactive strategies, though those plans are still to be determined.

Tyler Batory, Analyst

Okay. Great. I appreciate that. And as a follow-up, I thought it was interesting and helpful the commentary about 2023 and 2024 in the earnings release. Can you talk about what sort of macro or perhaps industry assumptions are supporting that outlook? And then it's interesting you're expecting to hit 2019 RevPAR before you hit 2019 hotel EBITDA. So just explain that a little bit more. You're expecting some extra cost creep perhaps that's causing the lag there in achieving 2019 hotel EBITDA?

Rob Hays, President and CEO

Yes. That's a good question. I'll begin addressing it and then Deric may add some comments as well. We believe it's important to provide investors with insights on our thoughts for modeling, even though we haven't offered formal long-term guidance before. Based on what we're observing, and as you know, Tyler, the forecasts from Smith Travel indicate that the U.S. is projected to return to 2019 levels, potentially this year in 2022. However, our portfolio, primarily consisting of upper upscale assets, is lagging somewhat. We do have upscale and limited-service assets that are rebounding stronger. Considering all of this, we believe 2023 is the year when RevPAR will recover. The reason we anticipate EBITDA recovery to occur in 2024 rather than 2023 likely relates to a modest margin impact. Over the long-term, we still see potential for margin improvement due to new operating models, but it may be relatively small. The slower recovery of our ancillary and SMB-related revenues, especially in catering and group events, is contributing to the lag. Thus, while we expect margins to be reasonable, it may take longer to fully reach our target EBITDA levels. Okay. Great. That’s all from me. Appreciate the detail. Thank you.

Operator, Operator

Our next question comes from the line of Kyle Menges from B. Riley Securities. Please proceed with your question.

Kyle Menges, Analyst

Good morning. This is Kyle on for Bryan.

Rob Hays, President and CEO

Good morning, Kyle.

Kyle Menges, Analyst

I was hoping that you could talk a little bit more about the Oaktree loan? I know you mentioned that you'd like to address that by the end of this year, if possible. And I was curious if you could just dive in a little bit more into kind of how you're thinking about addressing that as well as the kind of industry trends you think you'd need to see this year in order to pay that off?

Rob Hays, President and CEO

Yes, that's a good question. Currently, the loan stands at approximately $200 million. We mentioned during the call that we accrued interest on it last year. To facilitate the payment of our preferreds and to regain our S3 eligibility, we started paying the strategic financing as well, eliminating any accruals on that. When considering what it would take to pay off the loan, it's important to note that it includes a 2-year make-whole provision. Therefore, economically, there's no significant advantage to paying it off now compared to in 12 months or by January next year. We must account for that additional $32 million, leading to a total of at least $232 million owed. We have previously stated our capability to pay off the loan while keeping additional draws outstanding, which provides some flexibility for potential future capital needs. However, given that we've just come off the Omicron situation and are starting to see a recovery in numbers, we are cautious. If the recovery trajectory continues, as we discussed regarding RevPAR, we expect to understand trends in group business, business travel, and leisure over the next few months. If those trends prove strong enough, we might feel more confident about committing to the $200-plus million payment. For now, we prefer to wait for more concrete indicators on the ground post-Omicron.

Kyle Menges, Analyst

Great. Thanks for that color. And then you've also mentioned in the past that you'd like to rationalize the portfolio, maybe sell 10 to 15 hotels. I was curious if you're still thinking in that way and also you mentioned you'd like to go on offense. Could we actually see you maybe going offense in some creative ways like doing a JV maybe before you actually sell any assets?

Rob Hays, President and CEO

The answer is that all of those things are possible and available to us at this moment. We are currently assessing our assets, but it is a bit more complex due to certain provisions in our Oaktree loans and the strategic financing loan that dictate how we can utilize proceeds. Additionally, we have other loans with extension tests approaching within the next one to two years. Depending on the assets in different pools, it may make sense to combine them. There are many moving parts we are evaluating, and hopefully in the coming months, we will outline a game plan for that, which is my intention as I speak now. Regarding your second question about being creative and going on the offense, the answer is yes. There is a significant amount of private capital available. If Ashford Trust can participate in a deal and retain some rights for potential benefits later, it is definitely something we will consider. However, we must be careful about deploying our cash and would prefer to see a bit more recovery before making significant investments. We are currently exploring a few alternatives.

Kyle Menges, Analyst

Great, thanks. That’s all from me.

Operator, Operator

Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Chris Woronka, Analyst

Good morning, everyone. I wanted to ask about your plans regarding the potential use of an ATM this year. I'm aware that these decisions can be opportunistic, but considering the amount you raised last year and the current volatility in stock price, do you have any insights on whether this is more or less likely to happen this year?

Rob Hays, President and CEO

We haven't raised much capital since last fall due to a significant pullback in our stock price. Moving forward, once we achieve our S3 eligibility, we will probably establish an ATM for potential use. However, at our current stock price, I don't foresee utilizing it until there is a substantial increase. Last year, we raised over $500 million at much higher prices, close to $30 per share, so we won't feel comfortable raising equity until our price is closer to that level. Therefore, we will likely remain on the sidelines, although we plan to set up the ATM just to have it ready.

Chris Woronka, Analyst

Okay, very helpful. I have one operational question for you. When you look at your diverse portfolio, which includes some urban exposure, do you have a perspective on the industry? We're not back to previous peak occupancy levels yet, but we're hopefully moving in that direction. We still need to hire more staff in some of the hotels. Is there any way to assess whether those individuals are available? Is there a potential increase in wages coming, or do you think this situation will resolve itself over time?

Rob Hays, President and CEO

That's a good question. I believe things will stabilize over time. On the hourly side, wages have increased by 15% to 20% from pre-COVID levels. Looking ahead, we anticipate that wage growth over the next one to two years may be in the range of 5% annually, which is not nearly as steep as it has been. As the economy reopens, we expect to see less dramatic increases. Ultimately, I think we can maintain some margin increase since we are operating more efficiently. We're currently running at about 70% of our pre-COVID workforce and I don't expect to return to 100%, likely closer to 90%. It's a matter of waiting and seeing, but I do believe things will even out a bit.

Chris Woronka, Analyst

Okay, that's helpful. I have a quick question for Deric. How do you internally assess interest rates, considering the trend towards higher rates over time? Additionally, regarding the run rate interest guidance you provided, how would that change if treasury rates rise to 2.5% or 3%?

Deric Eubanks, Chief Financial Officer

Yes, Chris, it's Deric. There are a few points I'd like to mention. Firstly, we view this situation as a natural hedge for our operating cash flow, which makes us somewhat indifferent to rate changes. We've gained from lower rates in the past, and now that our earnings are increasing, we expect some rise in costs as interest rates go up. This creates a bit of a hedge for us. We spend considerable time analyzing this, and we have sufficient cash to safeguard against any sudden spikes. Our connection is more to short-term rates rather than the treasury. After thorough analysis, we concluded that it's usually better to be at the short end of the curve with floating rates. This flexibility enables us to be opportunistic in selling assets or refinancing at favorable times. The run rate I provided is based on current rates, and the market forecasts a significant rise in short-term rates. We will need to see if the Fed actually implements those increases as quickly as anticipated. Our index is linked to LIBOR and will likely shift to 1-month SOFR, which is usually close to the Fed funds rate. As the Fed adjusts rates, we expect our rates to follow suit, but we'll have to monitor the situation closely. Our economy has a lot of debt, and rising rates may slow it down, so the Fed's pace of increase is something we need to watch. Historically, the market tends to overestimate the speed and magnitude of rate hikes. We benefited from this in the past. We're comfortable with our exposure now that the debt markets for hotel assets have improved faster than I initially expected. Last year, we completed two financings on assets without any trailing cash flow, yet we secured attractive terms. We plan to be opportunistic with refinancing opportunities. We're in a good position, with no final maturities due this year. It wouldn’t surprise me if we refinance some pools for additional flexibility and potentially lower our spread. Overall, I feel confident about our balance sheet, maturity timing, and exposure to interest rates.

Chris Woronka, Analyst

Okay. Very good. Appreciate all the color. Thanks guys.

Operator, Operator

Our next question comes from the line of Michael Bellisario with Robert W. Baird. Please go ahead with your question.

Michael Bellisario, Analyst

Thank you. Good morning, everyone. I want to revisit your 5-year stock price analysis that you previously discussed more frequently before the pandemic. Could you provide an update on your thoughts regarding your implied cost of capital, both currently and when you were issuing stock at around $15 per share or higher before the sell-off in the fall? Any insights on this would be appreciated. Thank you.

Rob Hays, President and CEO

That's a great question, Michael. Currently, we are not actively underwriting significant assets, as mentioned previously. The 5-year stock price analysis primarily related to our asset acquisitions, which we have now paused. We are working on defining our capital structure. Before the pandemic, we were operating at over 10 times net debt and preferred to EBITDA, and if we look back to the 2019 EBITDA figures, we are likely in the mid to high-8 range. I would prefer to see that closer to 6 in the coming years. Therefore, as we evaluate our cost of capital, we need to ensure the company is in a healthy position with a sustainable capital structure. The capital raising we undertook last year was challenging, but we had to decide between that and filing for bankruptcy or restructuring. There is a significant risk for shareholders, and as we move forward, we may adopt a more conventional approach to understanding our cost of capital, potentially focusing on unlevered internal rates of return instead of stock price modeling for acquisitions. However, we are not yet fully aggressive in our strategy. We are aware of the level at which the stock price becomes too low, and given our current share price, we believe it significantly undervalues both our underlying assets and our cash holdings, as Deric pointed out, which is why we have not raised any capital recently. The decision will largely depend on our needs, whether they involve pursuing deals or addressing other capital requirements, which may involve assessing the state of the company and whether it's better to sell debt pools rather than raise new capital. This situation is likely to remain fluid until we establish a sustainable capital structure for the company.

Michael Bellisario, Analyst

Got it. Just to clarify, you mentioned mid-8x today. Is that a pro forma figure? Was it based on 2019 numbers? What was the...

Deric Eubanks, Chief Financial Officer

Yes, it's similar to 2019. If we look at the numbers from 2019, I think we would be in the mid-8s. We've managed to reduce that by 150 to almost 200, which is about two turns over the past year and a half, and we likely still have another two to go.

Michael Bellisario, Analyst

Got it. And then just along the same lines, thinking about the stock price. Obviously, there's some amount of debt overhang and refinancing risk weighing on the stock price. So maybe why even think about going on offense and allocating any amount of time or dollars on new investments? And I get that it might be 2-plus months out. But why you been thinking talk about that instead of being solely focused on addressing the liability side of the balance sheet?

Rob Hays, President and CEO

I think part of this is that whenever we see opportunities to create value, we will pursue them. It's never a situation of being completely one way or the other. We're always looking for ways to grow, improve our balance sheet, and increase liquidity, which depends on where we are in the cycle. While we are not dedicating a significant amount of time to underwriting assets at Ashford Trust, there are a few interesting prospects we're considering. Most of our efforts are focused on the liability side, but we want to emphasize that it is important to us. If an opportunity arises that allows us to invest a limited amount of capital while generating attractive returns and contributing positively to the company in the long term, we will certainly discuss it and evaluate it. However, it's true that the majority of our time is currently being spent on repairing and strengthening the balance sheet rather than pursuing new investments.

Deric Eubanks, Chief Financial Officer

Michael, this is Deric. The other thing I would add there is that just given the nature of our financing, you've really got to look loan by loan to kind of see where the equity value is in the company. And so we may spend more time on one individual loan on a restructuring or a forbearance agreement or what have you, given that we think there's a significant amount of equity in that specific loan pool. And there may be other loans like you've seen in the last 18, 24 months, where, look, we've got to let something go we'll let it go. Obviously, that's not what we want to do. But when you're analyzing the value of the business, given the nature of our nonrecourse debt at the property level, you really have to look loan pool by loan pool and that's what we've spent a lot of time and focus on. And as we think about restructuring debt, paying down debt or how to just fine-tune the capital structure of each loan pool, that's what our focus is. And I think that's something that the market misses when you say there's sort of an overhang of leverage on our platform. That may be the case for certain loan pools. But in other loan pools, you may look like, well, there's a ton of equity in that loan pool. So it takes us a little bit extra work to kind of dig into the balance sheet a little bit more.

Rob Hays, President and CEO

Yes. I would like to add that we experienced a significant decline in our stock price towards the end of the year. What’s noteworthy is that for a period, we were not aligning closely with other stocks but instead showed a strong correlation with some of the other meme stock peers. This was due to a major change in our shareholder base, where at one point, retail investors made up about 80% or 85% of our shareholders. As we moved towards the end of December, our shareholder base has shifted to approximately 50% retail and 50% institutional holders. The recent sell-off appeared to mostly involve retail shareholders, possibly due to year-end actions or the struggles of other meme stocks and investments causing them to liquidate their retail accounts. Ashford Trust seemed to be affected by this trend. It was interesting to observe that we had a closer correlation with GameStop, AMC, and other meme stocks than with our peers. I believe there is some noise in that situation, and as time goes on this year, we may see an increase in the institutional shareholder base in our stock.

Michael Bellisario, Analyst

Got it. Helpful. And then just one last one for me, switching gears. Just wanted to go to your 2024 kind of margin commentary that you made, maybe this is for Chris here. But just can you help us think about the cadence of group recovery. So let's say, in 2023, group demand is 10% or 20% below pre-pandemic levels, rates the same. How do you see that AV spending trending relative to group demand? What's kind of the sequencing there on the group side?

Rob Hays, President and CEO

Thanks, Michael. From a group standpoint, group, it's definitely the lagging segment. I mean you're right. As we look ahead to 2022, our group pace is down about 26%. One of the things that we're really optimistic about is the key leading indicator is lead volume. And we continue to see lead volume increase quarter-to-quarter. But Q4 was the strongest lead volume of any quarter we've had since the start of the pandemic. We're also very encouraged by our group ADR pace, group ADR is up next year by 2% and then even further ahead in 2023, it's up high single digits. And so what we're seeing a lot right now are some of the smaller meetings, a lot of social and really to get that high banquet high catering contribution you need those larger group programs, convention associations to come back. And we think that that's going to be one of the last segments to return. So I think as we get further along in the recovery in the ‘23 ‘24. That's when we really see that catering spend return to kind of pre-pandemic levels.

Michael Bellisario, Analyst

Helpful. Thank you.

Operator, Operator

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Rob Hays, President and CEO

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

Operator, Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.