Greetings, and welcome to the Ashford Hospitality Trust, Inc. Fourth Quarter 2019 Results Conference call. [Operator Instructions].It is now my pleasure to introduce your host, Jordan Jennings with Ashford Hospitality Trust. Thank you, Ms. Jenny, 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 2019 and to update you on recent developments.On the call today will be Douglas Kessler, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; 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 in a press release that has been covered by the financial media.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.These 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 25, 2020, 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 the fourth quarter of 2019 with the fourth quarter of 2018. I will now turn the call over to Douglas Kessler. Please go ahead, sir.

Good morning, and welcome to our call. I'll begin by giving a brief overview of our fourth quarter 2019 results, followed by several highlights of our value-added initiatives. After that, Deric will review our financial results, and Jeremy will provide an operational update.Our fourth quarter performance benefited from our geographically diverse portfolio consisting of high quality, well-positioned hotels across the U.S. We believe that having the large percentage of our EBITDA managed by Remington provides some distinct advantages with respect to operating performance. Our actual RevPAR for all hotels for the quarter increased 3.1%, while comparable RevPAR for all hotels increased 0.7%. Comparable total RevPAR increased 1.3% for all hotels, highlighting our focus on growing ancillary revenues.Additionally, we reported AFFO per share of $0.22, an increase of 22% over the prior quarter, and adjusted EBITDAre of $89.1 million. We accomplished these results despite tepid industry RevPAR growth and increasing operating cost pressure. However, we are far from satisfied, and we continue to take steps to outperform operationally.Turning to our investment approach. We focus on how to best deliver accretive returns. Our cost of capital matters to us. While we see an increased number of hotels available for sale, we will remain prudent for example, despite the attractive features of our enhanced return funding program, we currently do not plan to add to our portfolio unless we can transact accretively, while enhancing our balance sheet. We strongly believe that ERP improves our projected investment returns, yet we are prepared to be patient before accessing more ERP capital for new deals, given our current stock price. Disciplined capital recycling through asset sales is another important component of our strategy. When we evaluate selling a hotel, we take into consideration many factors, such as the implications for EBITDA, leverage, CapEx, REVPAR, et cetera.…

Thanks, Douglas. For the fourth quarter of 2019, we reported a net loss attributable to common stockholders of $38.8 million or $0.39 per diluted share. For the full year 2019, we reported a net loss attributable to common stockholders of $156.2 million or $1.58 per diluted share.For the quarter, we reported AFFO per diluted share of $0.22, which represents a 22% increase over the prior year quarter. For the full year of 2019, we reported AFFO per diluted share of $1.22.Adjusted EBITDAre totaled $89.1 million for the quarter, while adjusted EBITDAre for the full year was $425 million. At the end of the fourth quarter, we had $4.1 billion of mortgage loans, with the blended average interest rate of 5.1%. Our loans were 9% fixed rate and 91% floating rate. We focus on floating rate financing as we believe it has several benefits. As Douglas mentioned, we also believe we have a well-laddered, attractive maturity schedule, with a weighted average maturity of 4.8 years, assuming all loans are fully extended. Our loans are nonrecourse, and we have no corporate loans. When you see loans in our tables that have extension options, most of those extensions have no tests in order to extend, except that we purchased an interest rate cap, and that the loan being good standing. That's why we include another schedule in our earnings release, which shows our maturities, assuming all extension options are exercised.I will also point out that we have interest rate caps in place on almost all of our loans to protect us against any sort of spike in rates. Additionally, the current forward LIBOR curve shows LIBOR coming down through the remainder of 2020, which would potentially lower our interest costs even further.Looking at our cash and net working capital, we ended the fourth…

Thank you, Deric. Comparable RevPAR for our portfolio grew 0.7% during the fourth quarter of 2019. Comparable RevPAR for those hotels not under renovation grew 1.2%. This growth represents a 0.5 percentage point gain and a 0.2 percentage point gain relative to the United -- total United States and the upper upscale chain scale nationally, respectively. For full year 2019, comparable RevPAR for the entire portfolio grew 1.4%.During the fourth quarter, comparable hotel EBITDA decreased 2.2%. For full year 2019, comparable hotel EBITDA grew $2.4 million. PG&E power issues impacting our Northern California assets and the shift of the Jewish holiday from September 2018 to primarily October 2019 impacted performance during the quarter.I want to update you on the performance of some of our most recent acquisitions, which were acquired in combination with funds from the enhanced return funding program with our adviser, Ashford Inc. First is the acquisition of the Embassy Suites New York, Manhattan Time Square in January 2019. Comparable RevPAR during the fourth quarter grew 3.7% at this hotel, which represents an increase of 8.6 percentage points relative to the hotel's competitors. I can see that -- for the quarter finish at 98%. A healthier mix of sales shifting away from the more cost-conscious customer segment, but the bar, consortia and corporate growing 18% in occupancy for the quarter.For full year 2019, comparable RevPAR grew 16.5%, representing increases of 20 percentage points and 18.8 percentage points relative to the New York market and the upscale change in above hotels in the Midtown South submarket, respectively.Our property manager, Remington, successfully implemented a number of revenue enhancement initiatives, which led to hotel EBITDA growth of $1.7 million or 24.8%. We plan to build on the success experienced since the properties opening in early 2018 and to continue to outperform…

[Operator Instructions]. Our first question comes from the line of Tyler Batory with Janney Capital Markets.

First one for me, just specific to the fourth quarter, can you talk a little bit more about how results came in versus your budget? And then Jeremy, I'm sure if there are any trends worth calling out that surprised you, either positive or negative in the quarter?

Sure. Relative to budget, I -- we don't really look at that so closely as much as just our forecast in the near term. And what I'd say is that if you look at the quarter, we started off a little bit weaker in the first month and then each month picked up with stronger RevPAR for November, December. So that was a trend that we observed.

All right. I mean, I appreciate the information that you just closed on the current virus impact. And I know it's still early, but can you give any color in terms of your exposure to international travel across your portfolio? And then maybe just to take a broader step back, maybe ex what's going on with some of those headlines? Any change to your view on the fundamentals today versus three months ago?

So our international exposure in our portfolio is very limited. We're mostly business transient, and we have very little group business as a percentage of our portfolio relative to some of our peers. Our market locations are diverse. And so given that we don't have heavy concentrations in some of the more international destinations within the U.S., we are a little bit insulated. Now that can all change if something becomes different in terms of the spread of it throughout the U.S., but specifically on the international front, I think we're positioned reasonably well with respect to that, which -- I think, which is why when we highlighted the number that we've calculated so far, that's a relatively minuscule amount. Now admittedly, what we don't know is those were cancellations that specifically mentioned the coronavirus, but there may be other cancellations that occurred that didn't specifically mention that. So in terms of anything that we see, our view going forward -- our view is really consistent with the industry RevPAR forecast and the increased cost structure. And I think some of the things that Jeremy highlighted point to the fact that we have been very aggressive in managing costs, trying to do a few things that are guest-facing and more things that can improve margins.We also -- I think, in light of the coronavirus, giving a little bit more attention to booking distributions and possibly being a little bit more aggressive on booking to backfill in the case cancellations increase. Jeremy, anything you want to add to that?

Yes. And I think that the way you got to look at it, Tyler, is it's less about international travel for us or inbound foreign travel. And it's more -- coronavirus does have a broader impact to the overall economy, and that's where our exposure is.

I'd say, one thing to keep in mind, though, is that the virus spreads, and there is an impact to GDP growth, which I think a lot of the industry experts would anticipate the impact of the supply chains and a reduction in the growth of the economy, obviously, we know that, that has a spillover effect in lodging demand. But given that our capital structure is 91% floating rate debt, we have the benefit of what we see to be a very favorable forward curve where the expectation for 3 rate cuts forthcoming has increased. And every 50 basis point reduction in rates is approximately $19 million of bottom line savings from an interest rate expense standpoint. So again, better positioned with respect to that component of fixed versus floating rate than our peers.

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

You talked about a lot of the asset management initiatives each quarter, which is helpful to us. Notice you still have -- I think you still have 5 independent hotels. Is there anything on the radar in terms of maybe converting those over to a brand or a soft brand?We evaluate the cost and the distribution benefits is really what it comes down to. The hotels are performing well. With their RevPAR index in a market, we have to justify why we would brand it. We obviously believe in the power of the brands and the distribution capabilities. So that's part of our decision process.What's the return on the capital expended to brand the asset. I think we've clearly taken a step with respect to our Le Pav [ph] property. So that's an asset that we have decided to brand that. And then we also still have looked at rebranding opportunities, which, as we said in our prepared remarks regarding the conversion to our property in Key West La Concha property to an Autograph Collection. So it's a decision that we evaluate, we evaluate relative also to competition that can come into the market and how that changes the landscape. But what we've announced to date is what we think currently our best options.

And we like to have some flexibility within our independents. And we look at some of the hotels, particularly the ones in D.C., Melrose and Churchill. There's already a pretty significant brand presence. And being an independent does in a lot of ways, give us, we think, a competitive advantage.

Okay, that's helpful. And then just on asset sales, which you guys have obviously done accretively. And you've adjusted the dividend. I mean, is there anything prohibiting you or give you hesitation to do larger amount of asset sales, given what appears to be still kind of a solid pricing environment for sellers? Is it something like shrinking the EBITDA too much or any other concern that would stop larger sales?

I think we've been extremely skilled in selling what we sold and going about it the way we've done it. We've sold over $400 million of assets. We've sold assets that were priced at much better multiples, much higher multiples collectively than where our portfolio trades, which I think highlights the intrinsic value of our assets that we contain still in our portfolio. These were assets that we sold also that we're at materially lower RevPAR overall than our portfolio. So that benefits us by elevating the RevPAR of our remaining portfolio, but also shows that the trading prices of some of these perceived lower-quality assets should indicate the value that we have with our remaining assets that are, perhaps, better located, more strategic, higher REVPAR. And we also sold assets that required some more CapEx that we really didn't think we might get a return on.There are a lot of reasons why we decided to sell those assets. But in making that decision, we also evaluate a lot of things. We do evaluate what is the impact on EBITDA? The ability to improve our balance sheet through the reduction of debt or additional pay downs related to specific asset sales. Obviously, taking into account market considerations and the future CapEx spend on those assets. And then what we would use the capital for redeployment. Given our current share price, the acquisition forecast is absent finding external third-party capital to help us grow accretively and to improve our balance sheet, it's pretty challenging in the market right now given the price that we're trading at. And so we're not inclined, as I said in the prepared remarks, to be anything other than very prudent with looking at acquisitions. So there is a market for assets today. We think we've got high-quality assets. We think the sales that we've demonstrated point to the demand for the assets that we have in our portfolio. And typically, Chris, we don't comment on sales until actually they occur. So I think, at this point, you have a general view of our perspective on asset sales, but nothing specific until we announce anything if we have something in the future.

Our next question comes from the line of Matt Boone with B. Riley FBR.

Just kind of in the same vein of the dispositions. I get that you can't provide too much detail now, but is it fair to say that you're currently marketing additional assets for sale? Or will that be a little bit more of an opportunistic thing?

We've generally been opportunistic on the strategy of asset sales. Sometimes we responded to unsolicited inquiries, sometimes we've been out there with directed marketing efforts. But again, it's something that we don't typically comment on until such time as we can announce a transaction.

[Operator Instructions]. Our next question comes from the line of Robin Farley with UBS.

This is Arpine here for Robin. The group is a smaller percentage of your portfolio overall, and some have talked about better group and tougher transient business and better leisure trends into start of year. What have you seen so far in each of those buckets? And then I have a quick follow-up.

Sure. This is Jerry. Yes, group is a much smaller percentage of our portfolio than maybe some of our peers. For the fourth quarter, it was 19% of our mix. And then in terms of what we saw in the fourth quarter, actually, our transient occupancy was up, transient rate was up, and we had a decline in group for the fourth quarter. But looking ahead to this year, our group pace is essentially flat, and most of that is actually a decline in the first quarter, and the second, third and fourth, we do see increased demand in our portfolio for group business. And then moving on to 2021, our group room revenues, as a percentage of pace and a comparable time period from last year, is up 6%.

That's very helpful. And then, RevPAR was pretty strong for the quarter versus what we were sort of expecting, given everything we knew about the quarter. But then flow-through was a bit softer when you look at sort of increase in revenue and EBITDA flow through. I guess, could you talk about drivers and what you're seeing in cost inflation and everything else that causes that?

Yes, I'll comment a little bit and then Douglas, will jump in. But yes, so for the year, we ended up about 3.8% increase in wage rates. Now we were able to offset some of that by increased productivity, actually, quite a bit of increased productivity when you look at the hours per occupied room across the portfolio. But unfortunately, there is definitely some headwinds in rates. Now what we're seeing is that it's starting to decelerate for the first time in quite some time, and we're seeing that happen actually in January of this month. It's come down a little bit from that 3.8% level, and we're seeing a downward trend going forward.In terms of other headwinds, insurance certainly has been something that's been very challenging for us and property taxes. What you see a lot of times is that property taxes don't start to come down until later in the cycle. And so we still start to see some increase in property taxes, in excess of what our revenue growth is. One of the big wins that we did see for the year, and if you look at it from maybe a higher level perspective, is that our actual non-rooms revenue growth was 7.3%. And so that's been a huge focus for us and our team is to -- in tougher RevPAR environment, when we're not able to grow rate as much or not able to grow occupancy or see the occupancy pickup that we'd like to see, we've made a huge push by our team to continue to find other ways to drive ancillary revenue, and you see that in the numbers. And you certainly see it, not only in the fourth quarter, but for the course of the year, which has given us some good tailwinds for the portfolio.

And I just would add to that. This is one of the distinct advantages that we feel we have within the Ashford Trust portfolio. About 60% of our EBITDA is managed by Remington. And Remington, time and time again through cycles, proves to be more nimble, more responsive to changes in market conditions and more opportunistic to figure out how to drive bottom line results. And with this high percentage within our portfolio, I think, clearly, some of the numbers we shared with you today for the fourth quarter performance are indicative of that group's capability, both on the top line and bottom line when it comes to cost controls. And it's a very proactive effort that our asset management team, in coordination with Remington, engages, particularly when market conditions are both tepid on the top line and more pressure on the bottom line given the cost situation. So a real advantage for us.

Our next question comes from the line of Michael Bellisario with Robert W. Baird.

Just one quick one on me. Going back to the $550,000 impact that you referenced from the virus. That's just top line revenues, correct release of room revenues?

So that's basically an estimate on the canceled room revenue. But the one thing that we didn't comment on in those prepared remarks is that there could still be some offset to that depending upon when the cancellation occurs with respect to a cancellation fees. Our understanding is that the industry is still, when applicable, applying the cancellation fees. So again, that's kind of a headline number. That number could be increasing, but there could be some offsets also to that number, Mike.

One real quick point on that is that one of the things we've done to kind of combat that is that we've been more aggressive in overselling our hotels. And that's one of the areas of focus. If you track our road optimization team, we have had some great gains in RevPAR index over the last 5, 6 years. And one of the things we've always looked at and held our properties accountable for is sell out efficiency. We have some of the highest expectations of selling our hotels. And so that's one thing that we continue to push, but we're actually a lot more aggressive on it and taking a little bit more risk because we do expect probably a little bit more cancellations just because of the -- because of the virus that's going around.

Yes, that's helpful. And then more broadly, with cancellations, I know you can collect cancellation fees later, but what's the typical flow through that you guys would experience? Just trying to kind of ballpark a hotel EBITDA impact using the $550,000 of revenue impact that you guys gave.

I think that, that is a difficult question, Mike. It's a good question. But because it's cancel doesn't necessarily mean that we don't then backfill it with a new reservation. So I'm not really sure actually how to calibrate that, but we'll give it some more thought.

Yes, the potential revenue loss, I would say that's probably -- a good metric would be 50%, 55%. But in most cases, there are rebookings that can occur, and we certainly do have cancellation and attrition fees in this group business. We do enforce attrition piece pretty aggressively that are in the contract.

Yes, that's helpful, certainly different if it's 3 days out versus 30 days out.

So correct. Yes, that's right. And there's just so many variables that you can understand.

So the numbers that we gave you could have been within any time spectrum. So that's why providing more accurate answer is challenging on that question.

Yes. And keep in mind, that the average booking window for our properties is about three weeks.

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

Thank you for joining today's call, and we look forward to speaking with you again next quarter.

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.