Ashford Hospitality Trust Inc (AHT) 2022 Q1 法說會逐字稿

Greetings and welcome to Ashford Hospitality Trust's First Quarter 2022 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jordan Jennings, Manager, Investor Relations. Please proceed.

Good day everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the first quarter of 2022 and to update you on recent developments. On the call today will be Rob Hays, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Chris Nixon, Senior 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 a safe harbor provision of the federal securities regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties, and known or unknown risk, 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 May 3rd, 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 compare the first quarter of 2022 with the first quarter of 2021. I will now turn the call over to Rob Hays. Please go ahead, sir.

Good morning. 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 sequential RevPAR improvement each month as we moved through the first quarter, and that improvement has continued into the second quarter. Second, our liquidity and cash position continue to be strong. We ended the quarter with approximately $609 million in net working capital, which equates to approximately $17 per diluted share. With yesterday's closing stock price of $7.32, we believe 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 billion according to a decrease in our leverage ratio, defined as net debt plus preferred equity gross assets, by approximately 12 percentage points.

Fourth, during the quarter, we're extremely pleased to announce that we filed a preliminary registration statement with the SEC for the future offering of a non-traded preferred equity. Importantly, this announcement demonstrates our strategic pivot from defense to offense, as 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 attractive growth capital is a significant competitive advantage, particularly given the fact that luxuries are trading at material discounts to their net asset values. We expect to commence issuing limited amounts of non-traded preferred equity beginning the third quarter of 2022, subject to satisfying certain customary conditions.

We're optimistic about the long-term outlook for the company, and by taking strategic actions to strengthen our balance sheet, we feel well-positioned to capitalize on this recovery we are seeing in the hospitality industry. Having said that, we haven't raised any equity capital this year given the softness of our stock price, and we'll look to the potential proceeds from our nontraded preferred as our growth capital.

While our cash position is strong, we expect several of our loan pools to remain in cash traps over the next 12 to 24 months. For 2022, we are increasing our capital spending from the previous 2 years, but we will still be well below our historical run rate for CapEx. Given the sizeable strategic capital expenditures we made in our properties pre-pandemic, we believe our hotels are in fantastic condition and are well-positioned for industry rebound. CapEx spent during the first quarter was $22.7 million.

Let me now turn to the operating performance at our hotels. The lodging industry is clearly showing signs of improvement. RevPAR for all hotels in the portfolio increased approximately 103% for the first quarter. This RevPAR result equates to a decrease of approximately 23% versus the first quarter of 2019. March was the best performing month of the first quarter with RevPAR down only 13% versus 2019.

Preliminary numbers from April show that RevPAR continued to improve across the portfolio, with the month down only 7% versus 2019. We remain encouraged by the continued strength in weekend leisure demand at our properties. As we entered 2022, we did see some softness in demand during January with the Omicron variant that was similar to what we saw with Delta variant in mid-August. That industry softness bottomed out in the last 2 weeks of January and improved during the remainder of the quarter.

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 the 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, has really set 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. Additionally, capital recycling remains an important component of our strategy, and we are likely to begin to pursue some opportunities to sell certain non-core assets.

When doing this, we will remain disciplined in our approach and take into consideration many factors such as the impact on EBITDA leverage, CapEx, and RevPAR, among others. Turning to investor relations for the remainder of 2022, we will expand our efforts to get out on the road, meeting 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 these upcoming events.

We believe that 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 the 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 the plan moving forward. We ended the 2022 first quarter with a substantial amount of cash on our balance sheet, and with the upcoming launch of our non-traded preferred stock offering, we are excited about the opportunities we see in front of us. And now I'll turn the call over to Deric to review our first-quarter financial performance.

Thanks, Rob. For the first quarter of 2022, we reported a net loss attributable to common stockholders of $58.5 million, or $1.71 per diluted share. For the quarter, we reported AFFO per diluted share of negative $0.04. Adjusted EBITDAre totaled $40.2 million for the quarter. At the end of the first quarter, we had $3.9 billion of loans, with a blended average interest rate of 4.4%. 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 cash on those floating rate loans to protect the company against significant interest rate increases. Our hotel loans are all non-recourse, and currently 90% of our hotels are in cash traps. This is down from 93% 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'll be able to utilize that cash freely at corporate.

We ended the quarter with cash and cash equivalents of $548.6 million and restricted cash of $102.3 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 $21.9 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 approximately $609 million. As Rob mentioned, I think it's also important to point out that this net working capital amount of $609 million equates to approximately $17 per share. This compares to our closing stock price from yesterday of $7.32, which is an approximately 58% discount to our net working capital per share. Our net working capital reflects value over and above the value of our hotels.

Additionally, as of March 31 2022, our current market value implies a portfolio value of approximately $170,000 per key, which represents a 58% discount to the weighted average hotel development cost of our portfolio of approximately $408,000 per key based on a recent HVS hotel development cost survey for upper upscale and upscale 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 $55.6 million in the quarter. Our current quarterly run rate for debt service is approximately $44 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 March 31, 2022, our portfolio consisted of 100 hotels with 22,313 net 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 at 1.6 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 of $7.32, our equity market cap is approximately $264 million. We are current on our preferred dividends, and 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've 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 with no final maturities in 2022, and we believe the company is well-positioned to benefit from the improving trends we are seeing in the lodging industry. This concludes our financial review, and I would now like to turn it over to Chris to discuss our Asset Management activities for the quarter.

Thank you, Deric. We are extremely proud of the work that our Asset Management team has done to drive operating results. RevPAR improved each month during the quarter with March RevPAR down only 13% compared to March of 2019. The team is also seeing other strong indicators of future demand returning. While leisure continues to lead the recovery, group business continues to accelerate rapidly.

Gross group bookings in March exceeded 2019 bookings by 19%. We've also seen our corporate transient business come back strongly, accelerating rapidly during the back half of the quarter. Guest satisfaction is the strongest it has been since 2019, and our property level forecasts continue to improve for the balance of the year. I would now like to spend some time highlighting a few of the recent success stories across our portfolio.

Crowne Plaza La Concha Key West had a strong first quarter with hotel EBITDA exceeding comparable 2019 by nearly 40%. The Key West market experiencing an incredible amount of transient demand, and our hotel was able to capitalize on this by successfully petitioning the brand to limit the terms of brand promotions for the hotel. Additionally, the team identified an opportunity to strengthen midweek performance by partnering with a local Navy group, which contributed to an increase in group room nights by nearly 250% during the first quarter relative to comparable 2019.

These strategic changes positioned the hotel for success, which contributed to first quarter RevPAR increasing nearly 36% relative to 2019. Similarly, our team was able to capitalize on transient demand at the La Posada hotel in Santa Fe, which exceeded 2019 RevPAR by more than 27% during the first quarter. Our team re-engineered the hotel's pricing strategy to maximize rates during weekends with high transient demand, which resulted in a first-quarter weekend ADR growth of 29%.

In addition, in order to fill midweek room nights, our team ran an initiative to increase repeat group business. That initiative was a success, capturing 886 more weekday group room nights during the first quarter relative to 2019. In fact, one of those groups booked 3 additional stays for this year. Also, One Ocean Resort and Spa had a great first quarter with RevPAR of 12% relative to the same time period in 2019.

Our team tested the launch of a new guest package, focusing on friends looking for a getaway. The offering was a huge success, with it becoming the highest-rated offering during the first quarter. In addition, we have seen strong group demand, with our hotel nearly reaching its 2019 group levels during the first quarter. Our team has also tightened the booking guidelines for group business to target opportunities that would include large banquet, food and beverage, audiovisual, and other outlet spend to drive ancillary revenue.

The last hotel I'll highlight is the Hyatt Regency Savannah, which had a strong first quarter with hotel EBITDA exceeding comparable 2019 by 11%.

The majority of this success was contributed through room rate, which was up nearly 15% during the first quarter relative to comparable 2019. Our team built a foundation of midweek business through targeted promotions, which increased that segment by over a 1,000 room nights relative to 2019.

This incremental business allowed our team to strategically push rate during higher demand periods, which propelled RevPAR by nearly 12% during the first quarter relative to the same time period in 2019. 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 demand continues to accelerate. We currently anticipate strategically deploying approximately $110 to $120 million in capital expenditures in 2022, which includes a guestroom renovation at Marriott Fremont, a meeting space renovation at the Hyatt Coral Gables and a lobby bar renovation at the Ritz-Carlton Atlanta.

Before moving on to Q&A, I would like to reiterate how optimistic we are about the recovery of our portfolio and the industry as a whole. As mentioned earlier, a number of our hotels are experiencing heightened levels of demand. With group bookings exceeding 2019 and a continued expected rebound in corporate travel, we are extremely bullish about the potential of this portfolio.

During the first quarter, 11% of our hotels exceeded the comparable 2019 hotel EBITDA. When you look at just the month of March, the number of properties outperforming 2019 hotel EBITDA levels increased to 27%. This portfolio is positioned extremely well to capitalize on the industry's continued recovery. That concludes our prepared remarks, and we will now open up the call for Q&A.

(Operator Instructions) Our first question is from Tyler Batory with Oppenheimer.

First for me is just on trends in the business. There's certainly some optimistic commentary with the direction we're moving into Q2 here. Are you seeing any signs of consumer weakness, or perhaps macro softness impacting things? And I'm also really curious, you know the business travel commentary sounds quite good. Have you seen the leisure side of things slow down at all the past month or so, any indication that's perhaps there's a little bit more price sensitivity on the leisure side as well?

Hey, Tyler, this is Chris Nixon, and I can give you some color on kind of the broad trends we're seeing. Everything that we're looking at suggests that there are no signs of this slowing down. As you mentioned, we're seeing a very strong trends out of our corporate travel. That's accelerating as we look ahead to Q2. Q2, from a corporate standpoint, is currently pacing ahead of Q1 by about 16%. And we passed a milestone earlier this month in May, where we booked more corporate bookings for the next 30 days than we did in 2019. And so that was huge for us.

We're also seeing from our corporate traveler more corporate rate codes that are staying through the weekend than we've ever had before. And so we think that that bodes really well for us long term, in terms of helping us on shoulder nights and even out kind of the production. From a group standpoint, as you mentioned, we're seeing very strong trends.

In March we saw more group bookings than in 2019, and what's more encouraging are the group bookings that we had in Q1 had 9% higher ADR than the bookings we had in Q1 of 2019. And so again, from that segment, very little rate resistance and continued acceleration. Leisure continues to lead the way, it's showing no signs of slowing down. Our weekend ADR continues to accelerate, and that's the case as we look ahead to Q2 and beyond. And so on the whole, we're seeing probably the most optimistic signs that we've seen thus far coming out of the recovery.

Okay. Very helpful. As a follow-up question, you know, in terms of the cash traps, and I think you're 90% right now, you were at 93% in the prior quarter. Just talk a little bit, if you could, about when that percentage might move substantially lower, what might need to happen in the broad environment for that to occur and, you know, assuming things continue to move in the right direction, if we get kind of into the back half and the percentage of loans in cash traps is much lower than it is today, how does that change your perspective on liquidity and how much cash you would need to hold on hand to meet some potential obligations?

Yes, good question. So I guess the first step is just to think about that we've got about $12 million trapped today in those cash traps, and actually the vast majority of that is in basically a single -- or 2 pool assets, the Renaissance Nashville and Western Princeton. And given what we're seeing in Nashville, I do think that sometime this year, it's likely that loan will be coming out. So I think from a functional standpoint, the vast majority of cash that we have trapped in there, I think we have a path to getting that out here in the next several months. More broadly speaking, I think if you look at how our cash traps typically work, most of them are based on some either mix of either debt yield or coverage ratio on them. For example, I think a lot of them have kind of a DSCR of around 1.2x. is kind of about the average of them. And I think, to the extent that we see what we're seeing now in April and that continued through April, May, June in the second quarter, and then through the third quarter, I think there is the potential for a significant number of our assets to come out of cash traps, because they typically are 6 month or 2 consecutive quarter tests.

So I think, given what we're seeing, there is some hope that a good number of them -- I don't know if it's a majority of them, but a significant amount of them could be out of cash traps by the end of the third quarter this year. Some of the more difficult pools it may be next year, but again, it's really dependent upon the trajectory of the recovery. And if things continue like they're going, then I think we're optimistic that those will be coming out sooner rather than later.

Our next question comes from Bryan Maher with B. Riley Securities.

Maybe following a little bit along Tyler's questioning, when we think about the potential for dispositions and maybe some assets held in the loan portfolio, and maybe you want to sell 2 out of 5, just being hypothetical, and, you know, assuming there's some cash trapped in there, would the plan be to use your significant cash position to maybe temporarily pay off that loan, free up the assets you want to sell, and then maybe refinance the ones you want to continue to hold? Are we thinking about that correctly?

I think so. I think maybe a little bit more nuanced, which is -- and we're having these discussions now. And we've identified, call it, at least an initial wave of, call it, maybe 5 or 6 assets that we're contemplating disposing of over the next, you know, breadth of the year. And some of those are crossed with other assets that we definitely want to keep.

The struggle that we have on those specific loans is that there are ways to extract them, and typically, I think almost universally on those loan pools, is that it's typically a price of 115% of the allocated loan balance is the extraction price. However, that typically assumes that you're able to meet certain debt yield tests and other tests that the lenders require, of which, generally speaking, we're not meeting just because of the current state of the industry.

What is I say most likely to happen is that we would be willing to pay the lender the 115%. And then to the extent that there's incremental proceeds above that, that they would likely want that themselves to pay down that loan. So I think it's unlikely that incremental cash proceeds that we get from any sales would go to corporate cash, because even with our strategic financing, to the extent there is excess proceeds coming from an asset sale, those would need to go down to pay down the strategic financing.

So the asset sales are being primarily used for a combo of deleveraging and cleaning up the portfolio from a kind of RevPAR and quality standpoint, and not from a kind of a cash generation standpoint. So I think overall, they could be even depending upon the assets that we pick, there could be a little bit of cash being used to pay down those loans, to delever. So that explains a little bit of, I think, what's the most likely scenario.

And the assets that you're looking to potentially dispose of, are those more of your select-service hotels or full-service hotels?

They're mostly full-service. I think we've got a handful of assets that have franchise agreements that might be expiring over the next several years that have maybe what we think are some of the weaker brands in our system, where we don't think the PIPs required will make it worth it, or some of our lower-RevPAR full-service assets that when we look at the life of the assets and the amount of CapEx that we have to put in over time, given their lower RevPAR profile, it just makes it hard for them to cash flow in a significant basis.

So I think that's probably our focus is initially lower quality full service. So there may be a select-service or asset or two that comes up from time to time. I do think overall, we'd like to, to the extent that we either kind of dispose of or get rid of our select-service assets, it's more likely to be kind of many of them together in some sort of strategy where we're either selling them as a pool, or contributing them as a pool, or spinning them out as a pool, or something more strategic rather than -- I mean, there's a few of them that I think are maybe not long-term holds, but to the extent you see us do something substantial on limited-service, it will be probably a bigger strategy.

Right. I mean, I recall a few years back, probably 5 or 6 years back, there was some discussion about selling a large chunk of your select-service hotels. Are you receiving -- and there seems to be a lot of capital out there right now chasing hotel assets, and we're seeing some transactions. Are you receiving inbound calls on doing something like that? Or do you plan on picking out hotels and then actively marketing those?

Well, we are getting inbound calls, but as you can imagine, it's typically for our highest quality and best assets and significant cash-flowing assets, which, obviously, we have less interest in selling those right now. And so we haven't gotten really any inbound interest in, you know, large portfolios. We just kind of -- just kind of a one-offs here or there, and as in all these things, it's complicated just because a lot of those are crossed with other assets, and so it's not necessarily easy to transact on those.

So I think we're going to be focused on trying to start chipping away at cleaning up the portfolio. And we do, as I said, have this the reality that we're dealing with, that until we pay off our strategic financing, we really aren't able to generate incremental cash proceeds, and this goes to pay down the strategic financing. But I think we hope that as the recovery continues and values continue, and we're paying off the strategic financing, and that is a way to delever and generate some cash maybe going into next year.

Okay. And just last for me, everybody knows that you guys have been heavy users of floating rate debt over the past nearly 20 years. It's worked out really well for the past 12 or 13 years, but with the new interest rate environment we have, I think people might be a little bit more on edge about that. Deric, you've talked about caps being in place on those pieces of debt. How much higher are the caps relative to where interest rates sit today?

Yes. You know, the caps are really meant to protect us from a significant spike in rates, not a traditional sort of slow increasing of rates. So those caps typically kick in at sort of the 3% to 4% range on LIBOR, and they tend to cover whatever the remaining maturity is of the loans that we have in place. So I don't really anticipate those caps kicking in, but we'll just have to see.

But you're right. Our strategy has been predominantly floating rate financing. And even sitting here today, I would continue to defend that strategy and believe it's the right strategy. We do have some fixed-rate debt in the portfolio, so it's not exclusive, but we do feel like there's a lot of benefits to having the floating-rate financing. Obviously, we've benefited from that over the last few years. And as we sit here today, if rates do go up, then you know that would be a headwind that we would face as we look at our AFFO and our earnings. But again, we believe that's a bit of a natural hedge.

And I think if you look historically, you'd also see that when rates are going up, spreads on hotel debt is coming down. And so in some cases, your all-in rate that you're paying may not change that much. And we're also in a fortunate position of really having no maturities for the balance of this year, and being able to be opportunistic on any refinancings, if we want to go pursue refinancing. So we're still comfortable with the mix of fixed and floating debt in our portfolio.

(Operator Instructions) Our next question comes from Chris Woronka with Deutsche Bank.

Wanted to follow up a little bit on kind of the operating model, and, you know, you guys don't have a ton of brand-managed hotels. Where do you think you are in terms of, you know, getting it to where you want to be given that rates -- or occupancy is coming back, corporate travel is coming back?

Sometimes there's, you know, expectations going up on the customer's part. Just on some of the, you know, the food and beverage, and also the housekeeping, where do you think you are in terms of getting to a final place where you can live with the extra labor that is starting to come back?

Yes, I'll take that. This is Chris Nixon. So, you know, we're at about 70% of our pre-COVID staffing levels. And so where we've needed to add labor, we have, but our brand management and management company partners have done a great job through the pandemic of re-engineering, you know, our labor models. And so I don't see us getting back to kind of pre-COVID levels. So there's going to be some efficiencies that are built in and pulled through.

And what we're really seeing it is on the management side, in terms of management FTEs and management wages. We've done a lot of consolidating and complexing, and our management companies have found efficiencies there. And it's really pulling through. When we look at our undistributed expenses for the quarter, they're down about 10% per available room to 2019. And so that's a really encouraging sign. You mentioned us having less brand-managed hotels. When we talked to our third party -- our largest third-party manager, Remington, they cited nearly 20% productivity improvements in Q1.

And so there's a lot of efficiencies that we're pulling through in our labor model that we're really encouraged by. We have had to add staffing back, and we've done so successfully. Where there's been any gaps, we've been able to use temp labor, but we have been in a situation where we've had to turn away business because of staffing. And in terms of what the customer experience is, we're encouraged. Our guest satisfaction scores are as high as they've been since 2019.

They continue to show a strong uptick, and so that tells us that we're focusing on the right things. We're bringing back labor prudently, and we're focusing on the things that are important to the customer, and it's coming through in kind of their feedback surveys to us.

Okay, yes, thanks Chris, very helpful. And then just as a follow-up, you know, it's been a while since we've talked about supply, but just kind of looking at your portfolio, right? You got a little bit of exposure to places like Nashville, and areas in Texas, Dallas, Austin. I mean, you know, those are areas that are, you think are continuing to grow economically. There were a lot of projects on the board pre-COVID. What's your general sense as to whether, you know, at some point we actually see supply as an issue in some markets again?

Yes, that's a good question. Obviously, we have our eye on -- and you said, there's always kind of those handful of markets that have some supply issues: Nashville, Austin, Dallas, maybe, you know, Atlanta, you know, Denver, that we don't have much exposure there. So there are some markets where it seems like, at least on the drawing board, there's a lot of supply potentially coming in.

And obviously, what we've experienced in Nashville is that that market's had a ton of supply, but given the asset that we have, the location where it is, the quality of the renovation that was done, the other things going on around that hotel, the demand is kind of through the roof. And so we've seen just no impact whatever, I think, to that hotel from an impact to supplies because of how well located it is.

I do think it could be a potential headwind in some of these other markets. You know, it's hard to know exactly what, for example, will happen in Austin. I mean, Austin is blowing and going. I mean, demand is growing. That city is growing. There's definitely something to be said about it becoming the new Silicon Valley. That being said, Texas does have lower barriers to entry, and it's something that we have seen across Texas markets in our history, particularly being from Dallas, that we've had a hard time raising rates historically.

And so it is something that could be a little bit of a headwind in those markets. But, I think, as we look across our overall portfolio of what we think supply growth is, and even by kind of our tracks within those markets, I think we see over the next 24 months or so, that supply growth probably isn't going to be more than maybe low 1%, so 1% to 1.5%. And so, you know, obviously, we see demand growing significantly above that on kind of a normalized basis.

So I think for at least the next several years, we think that things are looking good, and obviously, as you see continued geopolitical concerns, these inflationary concerns, and the cost concerns -- I mean we're seeing on the construction side, even our own CapEx budgeting, projects being skinnied down a little bit, you know, in certain situations to keep down costs, that with what it's now taking to build, particularly in larger, more urban markets, I think what you see coming into the pipeline, a lot of that is not going to be made, and that even with this inflationary environment and cost situations, I think, a lot of banks have a lot of concerns on the construction sites cost. So, anyway, and Chris may have something.

Yes, I'll add some color to Nashville. You called out Nashville as a market that's obviously one that's very important to us and on our radar. We've been really impressed with the resiliency of that market. Our Renaissance Nashville hotel there, there's a large hotel within the portfolio.

They had nearly $4 million in Omicron cancellations in Q1 and still managed to achieve a 90% occupancy in March with total revenue that was up over 11% to 2019. When we look ahead for that hotel, group pace for 2022 is up 5% in 2019. So very strong performance in the quarter, even more encouraging signs as we look ahead. So that market has been really resilient in its ability to absorb that new supply.

Our next question comes from Michael Bellisario with Baird Company.

I just wanted to go back, Deric, to one of the prior questions on the floating-rate debt. Any quantification that you can provide on say 25 or 50 basis point change in LIBOR, what that does to your $44 million of quarterly interest expense?

Yes, so, you know, a 25 bps increase in rates would increase our interest expense about $9 million. And you can sort of extrapolate from there. That's more of an annualized basis, not on a quarterly basis.

In annual impacts.

Correct.

Got it. Okay. Thanks. Rob, I want to go back to the info you guys gave last quarter on your kind of recovery expectations broadly for revenues and EBITDA coming back to pre-pandemic levels in '23 and '24. Any change in your view with what you guys have seen more recently, in terms of the timing of the top line and bottom line recovery broadly?

I think broadly, we're getting definitely more bullish on it, and Chris has got, you know, some thoughts on that given what he's seen on the property level, so I'll let Chris take that one.

Michael, we're very optimistic that we return to kind of normalized levels in 2023. I think that we could come back sooner than that. What we're seeing from the properties is forecasts continue to increase each month, there's renewed optimism and desire to pull forward those trends, we're seeing it in pace, you know. At nearly every stat we look at, it's very encouraging. And so we think that there is a good chance that we probably pass that point before 2023, but this just conservatively given all the unknowns, we're kind of sticking with that expectation that 2023 is when we expect to return.

Yes. And all these things, Mike, just the trends that we're seeing are very encouraging, but we also saw those trends at times last year and little hiccups along the way, but I think if things continue, given what we're seeing on the books right now, we would anticipate that pulling forward.

Got it. That's helpful. And then just last one from me on capital allocation, just the non-traded preferred, call it, low-8% coupon there. With investments you've looked at to date -- not that you're going to do anything, it sounds like imminently, but as you think about required rates of return and underwritten projects that you looked at so far, where do you see that cost of capital spread on potential investments? I get that it might be 6 or 12 months out when you deploy some of that capital, but what have you seen so far on the initial deals that you've looked at and underwritten?

Yes, a good question. And I think we're really excited about this. We've always struggled at times with frustration at the fact that there's times when lodging rates are trading at premiums or at NAV, but it seems like the vast majority of time luxuries are trading below NAV, and it just makes it difficult to accretively issue equity to go do deals at times.

And so it's something that we decided years ago, that if we had the opportunity, that we would try to take capital raising into our own hands to be able to continue to grow the platform, because you see opportunities all the time of great deals to do and you don't always have the capital to do it. At the same time, you're trying to avoid, obviously, leveraging up over time. We've been down that path before and we want to have a lower leverage profile.

And so that's why we're really excited about this non-traded preferred, because it achieves the ability to raise significant capital. I mean just to see what our kind of sister REIT Braemar is doing, where they're coming up on nearly $100 million raised on their platform to be able to go out, and you've seen some of the deals that they've been able to do. But what's interesting about this preferred structure is that it does allow -- it has much more equity-like features that, to the extent that down the road our stock price, you know, is at a more attractive level, it does allow us to convert it over, and so it's different than the traditional perpetual preferred that we've had. And so I think it's a way that we can give some comfort to our common shareholders that there's ways for us to grow without issuing equity at lower-than-ideal prices. I mean, so then as we're looking at deals, I think, you know, it's something where this will be a [significant] piece of that. I think we are going to be looking at, you know, assets that are kind of the un-levered returns, kind of 10% plus is kind of what we're targeting.

The types of assets, I think, there will be full-service assets. There will be assets that are most likely in top 25 well-diversified markets. I think we're not a group that's just going to focus in only the Sun Belt or only in the top 5 markets, you know. We're going to be looking for opportunities across kind of top 25 and other resort markets, and try to, you know, accrete our overall RevPAR a little bit. You know, we're obviously not going to be in the luxury space, but higher quality, upper upscale assets.

And I think the combination of cleaning up some of the lower-quality assets in our portfolio along with this growth capital really gives us an ability and, you know, a place where over the next several years we can really put Ashford Trust in a place where we both have a better leverage profile and have a higher quality portfolio.

One follow-up there, and I get cash is fungible, but it sounds like your preferred is really earmarked for external growth, or will some of that capital maybe be used to repay Oaktree when you can start repaying them early next year?

That's a good question. I think it's ideally mostly for growth, but to the extent that we have very expensive pieces of debt, you know, for example, we do have the strategic financing, which is obviously quite expensive. And then even on some pools of assets in our Highland portfolio, or our Keys portfolio, you know, as we're doing refinancings, and maybe as we're trying to delever, some of that mezz on top of that is pretty expensive, less pieces of paper.

And so there may be a little bit of an arbitrage at times, where to be able to pay down a loan and bring in this preferred as opposed to refinancing at comparable levels, at really expensive junior pieces of paper. So there may be, I'd say, some used, you know, limited amounts used to pay down debt that's pricey, but we'd like to have most of it towards growth capital if possible.

Ladies and gentlemen, we have reached the end of the question-answer session, and I would now like to turn the call back over to management for closing remarks.

All right, thank you, everybody, for joining us on this quarter's call. And we look forward to speaking with you on next quarter.

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