Ashford Hospitality Trust Inc (AHT) 2023 Q1 法說會逐字稿

Greetings, and welcome to Ashford Hospitality Trust First Quarter 2023 Results Conference Call. (Operator Instructions) 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.

Good day, everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the first quarter of 2023 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 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 accompanying 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. Statements made during this call do not constitute an offer to sell or solicitation of an offer to buy any securities. Securities will be offered only by means of our registration statement and prospectus, which can be found at www.sec.gov.

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 May 1, 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 first quarter ended March 31, 2023, with the first quarter ended March 31, 2022.

I will now turn the call over to Rob Hays. Please go ahead, sir.

Good morning. Welcome to our call. After my introductory comments, Deric will review our first quarter financial results, and then Chris will provide an operational update on the portfolio.

The main themes for our call today are: first, we are very pleased with the strong RevPAR growth we achieved in the first quarter; and second, our liquidity and cash position continue to be strong, we ended the quarter with approximately $442 million of net working capital. We feel well positioned for our upcoming extension tests and continue to have access to undrawn capital, if needed, via our strategic financing; and third, the capital raising for our nontraded preferred is ramping up nicely and increased over 400% from the previous quarter. 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. Our preference will be to use that capital for future growth, though we may use some of the capital to pay down debt as needed. We continue to build the selling syndicate and currently have 30 signed dealer agreements representing over 4,700 representatives selling the security. We are still very early in the capital raising process. And to date, we have issued approximately $21.5 million of gross proceeds, including $9.1 million in March alone. We expect this fundraising momentum to accelerate as we get further into 2023.

Let me now turn to operating performance at our hotels. RevPAR for all hotels in our portfolio increased approximately 30% for the first quarter compared to the prior year quarter. This RevPAR growth was led by occupancy, which increased 17% over the prior year quarter, and we saw strong growth in average rates, which increased 10% over the prior year quarter. In addition to our solid hotel performance, the majority of our hotels are now out of their respective cash traps and only 40% of our hotels remaining cash traps under their respective loans compared to 79% at the end of the fourth quarter of 2022. Further, the hotels that are now out of their cash traps generated approximately 70% of the company's full year 2022 hotel EBITDA.

One of our main priorities for 2023 is maximizing our operating performance to minimize potential pay-downs for any extension tests associated with our property-level loans. We continue to make great progress on this front with the successful extension modification of the JPMorgan Chase 8 Hotels loan, as well as the completed extension of our BAML Highland Pool Loan. We're also working with a lender on the refinancing of the La Posada de Santa Fe and Hilton Alexandria loans, which are the company's only final debt maturities in 2023. Deric will talk about these more in detail. While we feel well prepared for the remaining upcoming extension tests, there may be situations where we have loan balances that exceed current market values of underlying hotels. If those situations arise, we may give assets back to lenders or allocate additional capital with a focus on maximizing 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. We believe that our relationship with our affiliated property manager, Remington, really sets us apart as well. 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 opportunities to sell certain noncore assets. We've identified several assets that we may bring to market for sale if market conditions warrant. We expect any net proceeds from these sales to 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 is an attractive investment opportunity at Ashford Trust. We have attended numerous industry and Wall Street conferences, which have led over 600 investor meetings over the past year. And we have several conferences coming up this year. We look forward to speaking with many of you at those events.

We believe [we've] 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 operating performance at our assets, improving the balance sheet over time, and looking for opportunities to invest and grow the portfolio. We have a track record of success when it comes to property acquisitions, joint ventures and asset sales, and we expect that they will continue to be part of our plans moving forward. We ended the first quarter with a substantial amount of cash on our balance sheet. And with the launch of this nontraded preferred offering, we are excited about the opportunities we see in front of us.

I'll now turn the call over to Deric to review our first quarter financial performance.

Thanks, Rob. For the first quarter, we reported a net loss attributable to common stockholders of $64.6 million or $1.88 per diluted share. For the quarter, we reported AFFO per diluted share of $0.19 compared to a loss of $0.04 per diluted share in the prior year quarter. Adjusted EBITDAre for the quarter was $75.6 million, which reflected a growth rate of 88% over the prior year quarter.

At the end of the first quarter, we had $3.8 billion of loans with a blended average interest rate of 7.1%, taking into account in-the-money interest rate caps. Considering the current level of LIBOR and SOFR and the corresponding interest rate caps, 93% of our debt is now effectively fixed as almost all of our interest rate caps are now in-the-money. These caps are typically structured to expire simultaneously with the maturity date of the underlying loans, and many of these caps will expire during 2023 as we have several remaining 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 prepurchased caps should help defray the cost of any new caps we need to purchase. In fact, we utilized some of the value of these forward starting caps to defray the cost of the new cap we purchased for the recent extension of the BAML Highland loan.

On the capital markets front, during the quarter, we successfully modified and extended our $395 million JPMorgan Chase - 8 Hotels 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 8.5%, giving us significantly more flexibility for the next extension. Additionally, subsequent to quarter end, we extended our BAML Highland Pool Loan until April 2024. As part of this extension, we paid down the existing loan balance by $45 million. We're also working with the lender on the refinancing of the La Posada de Santa Fe and the Hilton Alexandria loans, which are the company's only final debt maturities in 2023. As part of this expected refinancing, we do not anticipate paying down either of the outstanding loan amounts.

Our property-level hotel loans are all nonrecourse to the company, and currently 40% of our hotels are in cash traps, which is down from 79% last quarter. A cash trap means that we are currently unable to utilize property-level cash for corporate-related purposes. Importantly, after the first quarter, the Highland Loan Pool, Morgan Stanley 17 hotels pool and the Indigo Atlanta loans came out of their respective cash traps and approximately $19 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 first quarter, we had approximately $29 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 $345 million and restricted cash of $144 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 $21 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 $442 million.

As Rob discussed, we've been pleased with the progress that we've made in the capital raise for our non-traded preferred stock, and 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 pay-downs or other corporate purposes, and we look forward to reporting back on our progress.

As of March 31, 2023, our consolidated portfolio consisted of 100 hotels with 22,316 rooms. Our share count currently stands at approximately 36.1 million fully diluted shares outstanding, which is comprised of 34.5 million shares of common stock and 1.7 million OP units. In the first 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 $130 million. While we are currently paying our preferred dividends quarterly or monthly, we do not anticipate reinstating a common dividend for some time. Over the past several months, we've 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 ramping up, and we believe the company is well positioned.

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. For the quarter, comparable hotel EBITDA for our portfolio increased 61% over the prior year quarter. In addition, our comparable RevPAR growth of 30% for the quarter compared favorably to the average RevPAR growth for the upper upscale and upscale chain scales. We are proud of the work that our asset management team has done to drive operating results and start the year off strong.

I would now like to spend some time highlighting a few of the recent success stories across our portfolio, including increased ADR, group demand across our portfolio and our tax assessment savings. Our team was successful this quarter in driving comparable ADR, which increased over 10% compared to the prior year quarter. Every month, our revenue optimization team conducts deep dive calls related to each property, focused on driving pricing strategy in each segment of top line business, pushing premiums on club and suite-room types, discussing the property forecast and ensuring our properties follow our optimized marketing strategy. Using this approach, the team was able to grow comparable total revenue by more than 33% in the quarter over the prior year quarter.

In addition to all the strategies our team has implemented to drive comparable ADR, our team has been focused on building back the foundation of group business, which resulted in the portfolio achieving group room revenue in the quarter which was 37% higher than the prior year quarter. That now marks the 8th consecutive quarter with positive year-over-year quarterly growth in group room revenue. That momentum continues to build, as our pipeline of group leads increased by approximately 21% in the first quarter compared to the prior year quarter.

We also saw excellent signs from our group booking volume in the first quarter, where revenue placed on the books for all future dates was up approximately 23% relative to the prior year quarter. We are excited about this momentum in 2023 and what the favorable group volume should mean for our portfolio moving forward.

Another successful initiative for us has been led by our property tax team, which through their assessment appeal process was able to drive approximately $1.6 million in property tax savings during the first quarter. This represents a 210% increase in overall savings during the first quarter compared to the prior year quarter. Our team was able to identify trends through analysis and isolate multiple markets that were showing potential for additional property tax savings at our properties. And then, the team used that data to focus their strategies within those areas.

A great example of this is the Ritz-Carlton Atlanta, where we saved more than $600,000 in annualized property taxes. All of these efforts and more contributed to our strong performance in the quarter. In fact, 35% of our hotels set all-time first quarter records in comparable RevPAR, and 20% of our hotels set all-time first quarter records in comparable hotel EBITDA. Collectively, these record-breaking hotels exceeded their previous comparable hotel EBITDA records by 16%. We are particularly pleased that these record-breaking performances are spread out over our hotel locations, including resort, urban, suburban and airports. They are also in markets ranging from heavily leisure-focused areas like Miami and San Diego to major urban metros like Atlanta and Dallas/Fort Worth.

Moving on to capital expenditures. We have noted in previous calls how we have taken a proactive approach to renovating and strategically repositioning our hotels. That commitment has now resulted in a competitive advantage as demand continues to accelerate. We are currently renovating the lobby and bar at the Ritz-Carlton Atlanta. Later this year, we plan to start guestroom and public space renovations at the Embassy Suites Austin, Dallas and Houston, as well as guestroom renovations at Embassy Suites Flagstaff, Embassy Suites Portland, La Posada de Santa Fe, Marriott Memphis and Marriott Sugar Land. We are also working to strategically reposition 2 assets.

For 2023, we anticipate spending between $110 million and $130 million on capital expenditures. Looking forward, we have started a number of new initiatives, including looking at brand conversions in several hotels, key addition opportunities and rolling out high-margin ROI projects.

That concludes our prepared remarks, and we will now open up the call for Q&A.

(Operator Instructions) Our first question comes from the line of Michael Bellisario with Robert W. Baird.

Rob, first I want to go back to your comments on potential jingle mail of certain debt pools and portfolios. Presumably, you're talking about the KEYS portfolio. Maybe just big picture, which ones are most concerning to you? I mean we can look at the trailing EBITDA. We can look at the debt yield test, debt service coverage ratios. What are the potential range of outcomes there? And what do you think the best solution is for AHT shareholders as you sit here today?

Yes. Thanks, Michael. To me it's -- given that that's really the only major extension test that we at least have some concerns about really for this year, that's the most complicated one. And it's -- honestly, we're kind of in the middle of negotiations right now with lenders. And so we're hoping to come up with the best solution for our shareholders, because it is complicated. Because it adds -- there are 6 different pools within the KEYS pools. The senior loans are -- have similar holders across all 6 pools, but each pool also has different mezz holders. So there's a lot of, as you can imagine, kind of give and take where we're trying to optimize the right solution. We also obviously don't have an infinite amount of capital to be able to pay down loans and deal with these problems.

So it's a complicated answer, and it could be everything from some pools you go back and we pay down some to there's a holistic solution where we deal with all of them. And there's a way that that can make financial sense for us. But we're kind of in the throes of that right now. So I would just say stay tuned.

But we have obviously had a lot of success here over the past year of negotiating on these extension tests. Typically, they require some sort of pay-down. Obviously, the last couple ones that we've done have been kind of $40 million to $50 million type pay-downs. This is a significant loan. So I would imagine it's going to be something similar, and that is going to have some capital from our perspective that we'll be able to put in, but we're obviously not going to do anything that doesn't make economic sense for us. And we're fortunate that we've got some, what I think, are pretty good lenders on the other side of the table that are sophisticated and understand this business well. And so they know that we've got to do something that's in our best interest, and they're trying to figure out what's in their best interest.

And it is true that the transaction market out there right now is pretty soft with where the debt markets are. And so in terms of where values are exactly on assets, it's actually kind of hard to say. I mean you definitely don't want to be in a position where you're being forced to market an asset. But at the same time, it's usually kind of a lack of a transaction market. And so hopefully, that's something that as we're negotiating with the lenders that all of those facts are taken into account.

Got it. Understood. And then maybe sort of along the same lines of your comment about the capital being precious, in the 10-K you guys filed from last quarter, you guys made an investment, the joint venture investment in Napa.

Maybe help us understand why you made that investment with cash on hand today when having cash is at such a premium? And then also just more details on the investment, what are the hotels, what's your ownership, what are the economics of that deal?

Sure. Yes. So I think given that we know that at Ashford Trust that like I said, capital is precious and we don't have kind of enough to make significant investments just given some of the other cash parties we have over the kind of short term. But we are looking to continue to grow the platform and in some sense invest into great long-term assets that we'd love to own over the long term, and there was an opportunity to invest in a hotel called The Meritage that's in Napa that was doing a recap of their hotel. And there's an opportunity for us to put a small investment in, but that would give us certain rights on exits. So it's just a way for us to invest in a very high-quality asset that we like.

We obviously know that market very well given our experience on the Braemar side with Hotel Yountville and Bardessono. So we like that market long term. It was a small investment for us to be able to both get attractive returns on it but then also potentially have access to an attractive deal sometime down the road. So we've got certain rights in there to be able to have kind of a first look at the asset if that's ever going to be sold. So it was a small thing, but again a way for us to kind of get involved in an asset. I think to the extent, at least here in the short term that you see us making an investment, it will be something similar where we're making small investments into really high-quality assets that give us a lot of optionality over time.

Got it. Understood. And then just last question for me, a follow-up really. Just -- you commented on asset sales or potential asset sales, did I hear it correctly that you might bring assets to market for sale? Or do you have assets on the market listed with brokers for sale currently?

We have both. We have assets that are currently for sale in the market, both portfolios and individual assets. We also have both portfolio and individual assets that may be brought out to market here in the next month or 2.

But it is tough going out there. I think -- right now, what we're seeing is that if you've got kind of a one-off, smaller asset that maybe doesn't require somebody to take down financing, that's something that you can get done kind of regionally. And so we've got a couple of assets like that, that were ones in the market right now and others that we may be putting on the market here shortly.

We've had a couple of portfolios in the market that are still in process right now. So it's a little bit of everything. I mean it's a pretty fluid situation out there, given just with the financing world. And we're not really in a position where we're willing on some of these assets to provide significant seller financing, which seems to be -- for those deals that are getting done, so where financing seems to be one of the more important things. And we're just -- that's obviously a little bit less attractive to us than normal. So it's -- I'd just say we're -- it's a little bit of everything, Mike, right now.

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

This is a follow-up question to Michael's question. If you did -- in the event you did give back any hotels to the lender, are there any tax or potential tax or dividend considerations with any of those?

Chris, it's Deric. There's no issues that we're aware of at the moment on anything that we're looking at. I mean I don't know if something could come up down the road or something. But at the moment, there's no issues that would preclude us from doing any of that.

Okay. Just meaning a sale would not -- or I shouldn't say a sale, the giveback would not trigger any kind of rights since you're not getting proceeds, shouldn't be any trigger on taxable or dividend requirement. That's what I was kind of getting at.

Yes. I don't think there would be anything on the dividend requirement side just given -- if there was any gain, we've got a lot of NOLs that we could use to offset any of those gains. So I wouldn't anticipate that would be a problem for us.

And at least during the downturn when we unfortunately had to hand back some assets, those didn't trigger anything historically. So I don't know why it would be any different than this, but...

Okay. And then this might be a question for Chris. So flow-through, I think in Q1, was about 42%, right? And that was with RevPAR growth more than half occupancy driven. That's, I think, pretty, pretty solid.

Is there anything -- I know you talked a little bit about tax. I don't know how much property tax appeals -- I don't know, how much that impacted Q1. Could you maybe talk a little bit about anything that drove that or how sustainable that is if occupancy is driving RevPAR growth going forward?

Yes. Thanks, Chris. So we were really happy with margin performance. EBITDA margins were up about 480 bps to prior year. As you said, it's obviously helped by our revenue growth.

I think when we drill into it, it's even more impressive when you look at kind of our 2 revenue streams: rooms and F&B. F&B revenues increased 60% year-on-year, while rooms are only up 30%. And historically, F&B revenues come in at a much lower margin.

And so we were able to drive margin improvement with kind of a larger percentage of our revenue tied to F&B. And what we're seeing within F&B is that catering revenues were up significantly. And so that helps. That's the highest margin F&B business. We had catering revenues that were double prior year.

We're also still running very efficient operations. So our staffing levels are still running at a lower rate than the kind of the occupancy recovery to pre-COVID. We are seeing -- we're focused heavily on energy and utility costs. Those continue to increase significantly. We've rolled out a number of energy audits and ROI projects that we've got planned to kind of offset that. We're seeing within our labor, which is a big component of expenses and margins, improvements. Our contract labor utilization is down to last quarter. Our overtime wage rates are down to last quarter.

And so I think that's indicative of where we need to. In most markets, we're having an easier time hiring folks. There are still some markets that are very challenged where we are relying on contract labor, especially in housekeeping and in some of the culinary departments. But on the whole, that reduction in higher cost contract labor is encouraging. And I think we'll see that as we go forward.

I think Q2 is probably going to be our toughest quarter from a margin standpoint, just because you had so much revenue pull forward last year from kind of the Omicron buildup. But we're very optimistic about our continued margins through the back half of the year and for the full year as a whole. So I hope that added the color you were looking for.

Our next question comes from the line of Tyler Batory with Oppenheimer.

This is Jonathan on for Tyler. First one from me. Can you provide some color on the more recent demand trends? Any pockets of weakness or slowing that are worth calling out, whether that's in BT or leisure or wherever you may be seeing anything like that, given some of the volatility that we've seen over the past few months?

Yes. Thanks, Jonathan. This is Chris. I'll be happy to take that. So for this portfolio, I mean we're continuing to see strong signs of recovery. I mean we've got sequential growth quarter after quarter. And in Q1, we were 99% recovered to kind of pre-COVID levels.

We're seeing very strong signs out of group. I cited that Q1 group was up 37% year-on-year. Within that segment, it continues to be short term within 60 days. I think that's afforded us a lot of pricing power so we could take advantage of the groups that we are looking to take and kind of build around the business we've got.

We're seeing really strong growth in group from our full-service hotels. It's associated with that additional catering revenue that I cited. And we're really seeing that within the group segment, business is kind of stabilizing well. It's more corporate groups, and that's a great sign for us.

We're seeing continued signs of recovery within a lot of our urban markets. DC was very strong. Boston was very strong. Atlanta was very strong. We're seeing encouraging signs out of citywide and convention business within those markets. Business transient continues to improve quarter-over-quarter. One of the things I was most happy to see within that segment was the ADR growth. ADR for our BT business was up 15% to last year. And I think that's indicative of the negotiations that our brands and management companies took with the corporate accounts to really move them to dynamic pricing and hold the line.

The negotiations went later into the year last year and we're finally starting to kind of see the benefits of that. So -- there's no real signs of softening that we're seeing. Urban is growing. Leisure is growing. I mean resorts are growing at a slower clip, but still growing within this portfolio. And so, it's all signs of continued success.

Appreciate all the color there. And then in a similar vein, I'm curious, maybe for Rob or Deric, your perspective on the financing markets right now, given the regional bank issues in March? Has that caused any noticeable changes in the conversations you've been having with lenders?

I wouldn't say I've noticed a significant change just over the last 6 to 8 weeks or so, given some of the issues we've been seeing in the bank markets. But it's been a challenging debt financing markets for hotels for months now. Definitely not getting any better. Spreads continue to be, what I would say, historically wide in terms of what we've seen historically. So I'm hopeful -- hopefully, we're getting to the end here of the Fed raising rates, which will provide some visibility to the market in terms of where the index is going to go, which hopefully would then result in spreads coming down.

It's kind of a weird dynamic to have spreads this wide when -- really from a credit perspective, the credit is just getting better because our EBITDA is growing and the -- obviously, the industry and our hotels are performing very well. So a bit of a disconnect between the capital markets and the underlying fundamentals.

And so yes, from our perspective, we think at some point, that will turn around. But it continues to be a very challenging market to access from a debt standpoint. Thankfully, we don't have a lot of final maturities where we need to be in the market. And the few where we are in the market, we've actually -- like I mentioned in my comments, we're working with a lender on 2 final maturities that we've got this year, at an outcome that we're pretty happy with, and I think it's pretty attractive for us.

But as we sit here today, our goal is to try to keep the debt that we have in place as long as we can through some pay-downs, some extension options and just try to keep that in place.

(Operator Instructions) Our next question comes from the line of Bryan Maher with B. Riley.

Just a couple of quick ones for me. Maybe for Rob and Deric, you might want to weigh in. How are you balancing your level of CapEx spend? I think you said $110 million to $130 million for this year versus saving at least some portion of that for debt reduction payments that you're going to have to put up, maybe not even this year, but a lot of expirations next year and the following year.

And then as a second part of that question, are any of the extensions you're getting conditioned upon you spending capital on those properties that are getting the extensions?

Yes, let me add -- this is Rob. Let me take a crack at that, Bryan. So to your second question, the answer is no. We've not had really any kind of extension tests that have some sort of material amount of capital needed to be invested into the properties.

The reality is that as we're looking at this and to kind of answer your first question is, a lot of the capital that we have are -- is a mix. Most of it is PIPs. So as we've been like most people in the industry, having not spent a whole lot of CapEx during the downturn or during the COVID, those PIPs are now starting to hit over the next 2, 3, 4 years.

So a lot of what we are doing, I'd put it into 2 buckets. You've got kind of required PIP CapEx. And so, for example, some of the ones that Chris mentioned in his comments in terms of that kind of wave of Embassy Suites and whatnot, a lot of those are kind of PIPs that we need to do.

At the same time, then you've got the other bucket, which is really more ROI and repositioning. We've got a couple, I think, pretty cool projects that we're working on repositioning assets that we'll be talking about kind of more directly in the next quarter or 2, because we really do think we've got some really awesome value add, some great real estate that really can have some great returns on.

But a lot of the CapEx that we have is just required via PIPs with our various brand partners. So in terms of value engineering, I mean we do that very, very aggressively, in terms of how we're negotiating those PIPs. That is an advantage that we have because of our size and scale to be able to work with Hyatt and Hilton and Marriott, kind of our brand partners in terms of getting those PIPs. Whether it's for franchise extension or management contract extensions to getting those things down and as effective and efficient as we can be because, as you can imagine, we love our brand partners but they would love us to coat everything in gold if we could and (inaudible).

So we've got a pretty good sense on how to optimize and value engineer those things. And so we fight on those things pretty hard of what's value-add and what's not. So I think it's -- we've got those things down about as low as we can get them.

Yes. I'll add to what Rob said. I mean we've got monthly calls with our big brand partners where we discuss kind of capital deployment and the upcoming PIPs. And for the most part, they've been incredible partners and are very understanding and willing to work with us. I'd also say that the planned spend in 2023 as a percentage of revenue is lower than our historic run rate and lower than a lot of our peers in the space.

Okay. And then maybe for Deric. On the cap, I know you prepurchased some last year that you're using this year. But do you have a rough estimate of what you think the balance of 2023 cap cost might be?

It's impossible to know, Bryan. Like I said, we used some of the value in the prepurchase caps to offset the value really dollar for dollar for the cap that we acquired for the extension of the Highland Pool Loan here in early April. So ideally, I think we would do that on any caps that we need to buy from here. And that would mostly be on the KEYS pools.

We do have another loan, what we call the Morgan Stanley 17 hotel loan that's later this year. But it's just -- it's impossible to know what the caps are going to cost really until the day we need to buy them because the pricing can be very volatile based on the market's perception of where interest rates are going, in the term that we're needing to buy and then the strike of where we're needing to buy, which in some cases is based on the underlying performance of the hotels. So there's just a lot of kind of moving pieces there that go into that pricing.

Okay. And then just last for me. On the non-traded preferred shares, is the goal to kind of raise as much capital there as soon as possible, as soon as the market would bear? Or are your plans more to try and match up those capital raises with needs for debt extension money?

Good question, Bryan. I wish it were as simple as we could time it as we'd like. It just doesn't work that way in terms of the process of how that capital is raised, just because it does tend to grow and accelerate over time as you get additional signed -- selling agreements with different broker-dealers and registered investment advisers and their firms, you just start adding on more people selling the security. And so it just tends to go up and accelerate over time until you tend to end it. I mean if you look at the trajectory of Braemar's raise of which, right now, Ashford Trust's preferred rate is actually pacing faster than Braemar's did, it tends to accelerate as you go into it.

But I think in terms of where Ashford Trust is, is that we've got plenty of uses of capital. And we still have debt pay-downs. We do see some opportunities. We obviously have the strategic financing that we'd like to pay off at some point in time. So that's -- in terms of this first kind of round of this first offering, which is up to $500 million, we've got plenty of opportunities to place that capital, whether it comes in tomorrow or if it comes in 2 years from now.

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 us on our first quarter call. We look forward to speaking with you all in the next one.

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.