Ashford Hospitality Trust Inc (AHT) 2019 Q3 法說會逐字稿

Greetings, and welcome to the Ashford Hospitality Trust third quarter 2019 conference call. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Jordan Jennings. Please go ahead.

Good day, everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the third quarter of 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; and Jeremy Welter, Chief Operating Officer. The results as well as the 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 and uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of the 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 October 29, 2019, 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 third quarter of 2019 with the third 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 third quarter 2019 results followed by the progress we have made executing on our strategy to pursue value-added transactions, disciplined capital markets activity and aggressive asset management initiatives. After that, Deric will review our financial results and Jeremy will provide an operational update.

Our third quarter performance benefited from our geographically diverse portfolio consisting of high-quality well-positioned assets across the U.S. We believe that this geographic profile provides some very distinct advantages with respect to operating performance.

Our actual RevPAR for all hotels for the quarter increased 3.5% while comparable RevPAR for all hotels increased 1.4%. Comparable total RevPAR increased 1.9% for all hotels, highlighting our focus on growing ancillary revenues.

For the third quarter, comparable RevPAR for hotels not under renovation increased 1.7%. Additionally, we reported AFFO per share of $0.28 and adjusted EBITDAre of $103.1 million. We believe our portfolio is currently realizing the benefits from recent CapEx spending, which is evidenced by the outperformance in our operating results. As we stated earlier this year, going forward, we anticipate our CapEx spending will be more consistent with our long-term historical levels. Our approach focuses on how to best capitalize on lodging and financial market opportunities while at the same time being fluid in our strategic efforts. 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 without increasing our leverage.

While we strongly believe the ERP improves our projected investment returns, we are prepared to be patient before accessing more ERP capital for new deals given the current stock price. Additionally, disciplined capital recycling is an important component of our strategy. When we evaluate asset sales, we take into consideration many factors such as the impact on EBITDA, leverage, CapEx, RevPAR, et cetera.

Towards this end, during the third quarter, we sold the 251-room Marriott Plaza San Antonio in San Antonio, Texas for $34 million. The sales price inclusive of the buyers estimated CapEx represented a trailing 12-month cap rate of 4.9% on net operating income and a 17.1x hotel EBITDA multiple as of June 30, 2019. After the loan payoff and transaction costs, the net proceeds from this sale were approximately $6 million. We also completed the sales of the 156-room Courtyard Savannah Downtown in Savannah, Georgia and the 128-room Hilton Garden Inn in Wisconsin Dells, Wisconsin for $37.8 million. The combined sales price inclusive of the buyers estimated CapEx represented a trailing 12-month cap rate of 5.3% of net operating income and a 16.2x hotel EBITDA multiple as of June 30, 2019.

Proceeds from the sale were used to pay down debt. Note that these sales' EBITDA multiples are significantly higher than where our overall portfolio is publicly valued in spite of our portfolio having higher RevPAR than each of these sold hotels. We strongly believe this is indicative of a greater intrinsic value of our assets when compared to current market metrics.

Regarding asset management, I'll provide some highlights that Jeremy will cover in more detail. We continue to engage in beneficial strategies that we believe will create long-term value. This month, we announced the sale of a 1.65-acre parking lot adjacent to the Hilton St. Petersburg Bayfront to a condo developer for a total consideration of $17.5 million to be paid over time. This price exceeded appraised value.

Net proceeds from the first payment tranche resulted in $8 million of debt paydown. When finished, the project will provide us with upgraded covered parking for our hotel guests. Also, in October, we entered into a new franchise agreement with Marriott International to convert our Crowne Plaza Key West La Concha to an Autograph Collection property by July 2022. The agreement includes a $13.7 million property improvement plan, of which approximately $7.8 million we believe is incremental and should yield a 19% unlevered internal rate of return. We anticipate the conversion will create a distinctive theme and style for the hotel that is commensurate with the upper upscale autograph product. With its prime location in old town Key West, the upbranding of this landmark hotel should elevate the property into a desirable niche, in a very attractive high barrier to entry, high RevPAR Key West market.

We also recently announced a new franchise agreement for the 252-room Hilton Alexandria Old Town whereby the hotel transition from being Hilton managed to being managed by Remington Lodging. We believe that there is a valuation premium for franchised hotels and this management conversion did not trigger a property improvement plan. Hilton Alexandria, La Concha and Hilton St. Pete are excellent examples of how we go about unlocking embedded value in our portfolio.

Turning to our balance sheet. We believe in the benefits of an appropriate amount of nonrecourse property-level financing to enhance equity returns. We have a target range of net debt-to-gross assets of 55% to 60%, and we anticipate returning to that range over time. In fact, you can see that we are working to make progress given that most of our recent sales proceeds were applied to reduce outstanding loan balances. Our loans are mainly floating rate, which we believe provides a natural hedge to our cash flows and positions us to benefit from recent interest rate movements. At the beginning of this year, LIBOR was 2.51% and currently, it is 1.79%. Every 50 basis point reduction in LIBOR would result in approximately $19 million of annual interest savings based upon our current capital structure. In addition, with all of our refinancing activity, we believe we have an attractive, well-laddered maturity schedule.

We also seek to maintain a high cash and cash equivalents balance between 25% and 35% of our equity market capitalization for financial flexibility. We note that this excess cash balance can provide a hedge during uncertain economic times as well as the requisite funds to capitalize on attractive opportunities as they arise.

As of the third quarter of 2019, our net working capital totaled $346 million, equating to approximately $2.79 per share, which represents a significant 107% of our current share price as of yesterday's close. This is really remarkable when you consider that on top of this networking capital, we have a portfolio of 118 high quality predominantly upper upscale hotels. Apparently, these assets, many of which have been recently refinanced at reasonable loan-to-value levels, are not getting much equity value credit in the public market. To help address what we see as an intrinsic value gap, we continue to be active with our investor outreach efforts. We recently held a well-attended Investor Day in New York.

If you were not able to join us, I encourage you to go to our website and watch the webcast. For the remainder of the year and into 2020, we will expand our efforts to get out on the road, to meet with investors and to communicate our strategy and attractiveness of an investment in Ashford Trust. We look forward to speaking with many of you during upcoming events.

In summary, we remain committed to generating solid operating performance, completing opportunistic transactions and proactively managing our balance sheet. We believe we have multiple core competitive advantages that should lead to outperformance and that make Ashford Trust an extremely attractive long term investment. For example, our investment focus is predominantly on upper upscale full-service hotels, but we also have balance in our portfolio given that we own select-service hotels as well.

With respect to our asset management initiatives, we remain diligent in exploring ways to increase profitability and create more value in our existing assets. Our affiliate companies are high-quality service providers that seek to maximize the value of our assets and improve guest satisfaction. Adding to the list of competitive advantages is our capital markets execution given that we believe we have proven our financial expertise over multiple cycles.

With approximately 17% insider ownership, we believe we have tremendous alignment with our shareholders, which encourages us to think and act like owners to maximize long-term total shareholder returns.

Looking ahead, we remain confident that we are well positioned to outperform. I’ll now turn the call over to Deric to review our third quarter financial performance.

Thanks, Douglas. For the third quarter of 2019, we reported a net loss attributable to common stockholders to $41.8 million or $0.42 per diluted share.

For the quarter, we reported AFFO per diluted share of $0.28. Adjusted EBITDAre totaled $103.1 million for the quarter, which represents a 1.3% increase over the prior year quarter. At the end of the third quarter, we had $4.1 billion of mortgage loans with a blended average interest rate of 5.3%. Our loans were 9% fixed rate and 91% floating rate. We focus on floating-rate financing as we believe it has several benefits. Also, as Douglas mentioned, we believe we have a well-laddered, attractive maturity schedule with a weighted average maturity of 5 years, assuming all loans are fully extended. Our loans are nonrecourse and we have no corporate debt.

In terms of upcoming maturities, we have 0 final maturities remaining in 2019. When you see loans in our debt table that have extension options, most of those extensions have no tests in order to extend, except that we purchase an interest rate cap and that the loan not to be in default. That's why we include another schedule in our earnings release, which shows our debt 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 debt to protect us against any sort of spike in rates.

Additionally, the current forward LIBOR curve shows LIBOR coming down through the remainder of 2019, which would potentially lower our interest costs even further.

Looking at our cash and net working capital, we ended the third quarter with $256 million of cash and cash equivalents. And including the market value of our equity investment in Ashford Inc, we ended the quarter with net working capital of $346 million. As of September 30, 2019, our portfolio consisted of 118 hotels with 25,017 net rooms.

Our share count at quarter end stood at $124.1 million fully diluted shares outstanding, which is comprised of 102.1 million shares of common stock and 21.9 million OP units. With regard to dividends, the Board of Directors declared a third quarter 2019 cash dividend of $0.06 per share or $0.24 on an annualized basis. Based on yesterday's stock price, this represents a 9.2% dividend yield.

In October, we entered into a stock purchase agreement with Ashford Inc. Under the agreement Ashford Inc. purchased 393,077 shares of its common stock for $30 per share, resulting in total proceeds of approximately $11.8 million to the company. The purchase price reflected a premium of approximately 20% based on the closing price of Ashford Inc. common stock on October 1, 2019.

We also announced a plan to distribute the remaining 205,086 shares of Ashford Inc. common stock on a pro rata basis to Ashford Trust common shareholders and unitholders. The pro rata distribution is expected to be completed on November 5, 2019, to shareholders of record as of October 29, 2019.

This concludes our financial review. I would now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Thank you, Deric. Comparable RevPAR for our portfolio grew 1.4% during the third quarter of 2019. Comparable RevPAR for those hotels not under renovation grew 1.7%. This growth represents a 1 percentage point gain and a 0.8 percentage point gain relative to the total United States and the upper upscale class nationally, respectively.

Year-to-date, comparable RevPAR for the entire portfolio has grown 1.6%. During the third quarter, hotel EBITDA was essentially flat decreasing 0.3%. Year-to-date, hotel EBITDA has grown $4.4 million.

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 that we have in place with our adviser, Ashford Inc. First, is the Hilton Alexandria Old Town, which we acquired in June 2018. Comparable RevPAR increased 5% during the third quarter. The RevPAR growth represents an increase of 0.5 percentage points relative to the Washington, D.C. Maryland/Virginia market. The hotel benefited from July and August city-wide compression.

When we acquired the hotel, we had the right to convert it from Hilton managed to a franchise. We exercised this right and Remington Lodging took over management of the property on October 1. Remington is budgeting higher RevPAR growth going forward for the hotel than Hilton management was either forecasting or actualizing, indicating untapped potential.

In addition, in December, we will begin the buildout of a new lobby grab-and-go market that will be completed during the first quarter of 2020, that should provide additional total revenue upside. Our next ERFP acquisition was La Posada de Santa Fe, which is now a hotel in Marriott's Tribute Portfolio that we acquired in October 2018.

During the third quarter, comparable RevPAR grew 8.8% driven by 4.8% occupancy growth and 3.9% rate growth. This RevPAR growth represents 3.6% and 3.3 percentage point growth relative to hotel's competitors and the New Mexico North market respectively. Year-to-date, comparable RevPAR has grown 12.7%. Versus the same benchmarks, this growth represents increases of 9.1% and 10.8 percentage points. We continue to see significant growth in transient bookings following the Marriott reservation merger.

In addition, Marriott Bonvoy redemptions are providing an additional $50,000 of revenue per month. During the third quarter, we are not only able to realize strong revenue growth, we also saw a 22.6% or $356,000 increase in hotel EBITDA with hotel EBITDA flow-through of 67%. Year-to-date hotel EBITDA has grown 27.4% or $641,000.

Another ERFP success story has been the acquisition of the Embassy Suites in New York Manhattan Times Square in January of this year. Comparable RevPAR during the third quarter grew 14.5% driven by 10.6% occupancy growth and 3.6% rate growth. This RevPAR growth represents increases of 16.7 percentage points and 16.5 percentage points relative to the New York City market and the Midtown South submarket, respectively. Year-to-date comparable RevPAR has grown 23.7%. Our revenue optimization team is focused on driving longer stays in order to cover shoulder nights.

Year-to-date, hotel EBITDA has grown $1.7 million or 42%. We plan to continue to build on the success experienced since the property's opening in 2018. Following the favorable performance of our recent acquisitions, I want to call attention to the diversity of our portfolio and how we see this as a benefit, especially given where we are in the current cycle. During the third quarter, industry-wide RevPAR for the top 25 markets decreased 0.4%. RevPAR growth for all other markets in the United States was up 1.3%. We expect the RevPAR to continue to benefit from the diversity of our portfolio, especially from those hotels outside the top 25 markets.

Not only is the diversity of our portfolio important, but we are also looking to leverage the value of our assets, as Douglas highlighted earlier, by determining their highest and best use.

To that end, we recently announced that our Crowne Plaza Key West La Concha will be converting by July 22 -- 2022 to Marriott's Autograph Collection. A diverse portfolio of approximately 180 upscale luxury hotels around the world. Approximately $7.8 million in incremental capital expenditures will be needed to update the exterior guestrooms, guest bathrooms, corridors, lobby, restaurant, lounge, pool and meeting space under the property improvement plan.

The limited availability of full service, Marriott branded product in the heart of supply-constrained old town Key West presents us with the unique opportunity to upbrand our hotel and capitalize on Marriott's strong distribution capability.

Another way in which we creatively -- we are creatively maximizing the value of our assets is evident at the Hilton St. Petersburg Bayfront, where we were able to sell the parking lot adjacent to the property at above appraised value to a developer, who will be building at 35-story condominium and parking garage. The end result will be an adjacent potential demand generator along with upgraded covered parking where we will own 205 spaces.

We also negotiated a restriction to prevent a future competitive hotel or use as temporary lodging. While we are discussing the Hilton St. Petersburg Bayfront, it would be remiss to not mention that during the third quarter, comparable RevPAR grew 10.2% and hotel EBITDA grew 28.1% or $178,000. The RevPAR growth represents increases of 9.8% and 6.5 percentage points relative to the Tampa/St. Petersburg, Florida market and the St. Petersburg, Florida submarket, respectively.

Year-to-date, comparable RevPAR has grown 11.9% and hotel EBITDA has grown $358,000. The future of this hotel and market look bright. In addition to our focus on continuously looking for ways to maximize asset value, I will highlight a number of other steps we are taking in order to control costs and drive ancillary income.

The following list is meant to be illustrative, but not exhaustive. First, we have analyzed our hotel's competitors to find opportunities in our restaurant and banquet prices which led us to roll out price increases in many of our properties over the summer. We're also focused on directing e-commerce spending to various digital programs to increase visibility and advertising to the leisure and group segments. For example, in the group segment, we're working diligently to increase exposure to group leads.

In terms of cost management, we're utilizing programs to introduce more efficient methods of performing work to reduce payroll hours. To save costs and reduce environmental wastes, we have added wall mounted soap and shower dispensers in the guest bathrooms at our independent hotels.

And lastly, we continue to complete operational deep dives at our properties to ensure expenses are at the property levels. Given all the above efforts, we are proud to say comparable total hotel revenue, excluding rooms revenue, has increased 4.4% year-to-date or $9.8 million. During 2019, we'll continue to invest in our portfolio to maintain competitiveness. In total, we estimate spending approximately $145 million to $160 million in capital expenditures during the year. This estimate is more in line with industry averages as a percentage of revenues compared to the significantly higher amounts we have deployed in the recent years.

We have completed guestroom innovations at Marriott DFW airport, Embassy Suites Crystal City, Hyatt Regency Coral Gables and 5 select service hotels. We've also completed lobby renovations at Marriott DFW, Marriott Crystal City Gateway and Westin Princeton.

We continuously identify opportunities to create value throughout the portfolio. To that end, the first and second phases of the Renaissance Nashville redevelopment are complete, which included the buildout of meeting and event space. Furthermore, we have identified accretive opportunities to add additional keys within our portfolio including 2 keys at the Embassy Suites Crystal City and 1 key at the Hyatt Regency Coral Gables.

I want to elaborate more on the Renaissance Nashville. Despite being under major renovation throughout most of 2019, comparable RevPAR has grown 3.1%. Incredibly, this RevPAR growth represents increases of 5.7% and 4 percentage points relative to the hotel's competitors in upscale and above chains in the Nashville, CBD market.

Hotel EBITDA has grown $4.8 million or 26% with hotel EBITDA flow-through of 55%.

Let me take this opportunity to highlight even further an incredible job our affiliate Premier Project Management has done during this major improvement project. Using their stealth renovation program, which is designed to significantly minimize the impact to guests, Premier has contributed to the hotel gaining significant market share despite being under a substantial ongoing renovation. Following the renovation, Q4 group pace is up nearly 20%. And 2020 group pace is up 15%. Catering pace is up substantially for both of these time periods as well. Not only has Premier helped our bottom line through their work during this renovation, but they were also recently recognized by Marriott for the incredible design and space they created.

In addition to Premier's positive impact on the property, I want to also note that since JSAV audiovisual took over audiovisual services at the hotel, revenue per group room night has increased over 50%.

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

(Operator Instructions) Our first question today is coming from Tyler Batory from Janney Capital Markets.

The first question, probably for Jeremy. Can you talk a little bit more about the demand environment and general trends in the quarter. I know it might be tough with the hurricane and some holiday shifts, but your results obviously outpaced the STR data. So just curious how the quarter came in versus your budgets? And then additionally, I understand that you don't give guidance, but has your view on where we are in the lodging cycle changed at all, just given some of the data that's been out there in the past couple of months?

Sure. Okay. So for the quarter, group and government were both healthy in Q3. And in fact, group was -- grew over 5% or -- I'm sorry, just under 5% for the quarter, in terms of year-over-year RevPAR growth. And it was really the government demand actually helped our D.C. hotels perform pretty strongly. If you look at the market, D.C. stood out as an outperformer for us in the quarter. And we also think our D.C. exposure is going to help us in tougher times in the lodging cycle. Transient growth for the quarter was just under 1%. And then when you segment that out, our negotiated was up slightly and our leisure was down slightly. But overall, transit growth was up 1% for the quarter. And then we experienced growth in direct booking channels. So our brand.com channels continue to outperform. The OTA channels were down year-over-year, which is obviously a good thing for us. And then when you look at -- to the later part of your question, kind of turning to corner to future quarters or 2020, we don't give guidance. And it is -- there are some elements out there that I'm pretty optimistic about. When you look at the TravelClick data across all the different top 25 markets, for the first time in probably the last maybe 6 weeks that we've been tracking it, we've seen an uptick in occupancy. But a lot of that is going to be obviously group positioning for the entire industry. So given that most of our bookings and most of the industry bookings are 3 to 4 weeks out. I wouldn't read into that too much. But for our portfolio, we do see some healthy potential increases in negotiated rates. We're in that process right now. And I would estimate that we're going to land somewhere between 2% to 3% year-over-year increase in our special corporate negotiated rates. And then from a group perspective, as we stand right now we have 50% on the books as -- if you compare like our 2018 total group rooms revenue, 50% of that's already booked where we stand right now. And that's up 3% in terms of group pace for all of next year.

Tyler, it's Douglas. Let me just maybe comment also on just a broader view of the economy and whatnot. Obviously, there is a lot of talk about a recession. And I think that people are looking at maybe slight fissures in economic reported information and expanding them into cracks because they want to talk about a recession. And I think that while there certainly feels like there's some softness in some of the numbers, we're obviously monitoring and we're planning for both upside and downside. But when you look at our portfolio and you look at how it compares to the national averages, if you think about some of the trends. So 11 of the top 25 markets had negative RevPAR for the third quarter. We have both top 25 market exposure as well as non-top 25. And for us, only 8 of our top 25 markets had negative RevPAR. But we also have 26% of our EBITDA, which is outside of the top 25. And so I think the balance of our portfolio, as we commented in our prepared remarks, helps us. And along with the recent movement in interest rates helps us. And I think that we've been through cycles before and I think that we are staying on top of every movement to the positive or to the negative hoping to see catalysts in the economy, but also preparing for the continued up-and-down movement of various data points and seeing how that impacts the lodging demand numbers. So I think we're taking all the right steps across many levels of the platform. Also having in mind the fact we spent a lot on our assets in recent years. So I think we're well positioned and we continue to grab greater market share as a result of that.

Okay. Perfect. That's very helpful. And just to follow up. Obviously, you have a lot of financial flexibility here, cash on the balance sheets. Any updated thoughts on what you could do with some of that capacity? And when would share repurchases start to make more sense than paying down debt?

So we got a, I think, a really good track record of exercising buybacks if you look at our history. And when we think about what to do with our cash, we're obviously looking at a lot of opportunities. We're trying to also seek a balance in our cash position, our leverage, transactions that are available in the market and the opportunity to buy back stock, but also taking a view on what impact that could also have on decreasing our float. And so share buybacks are an option for us, clearly at the right time. And we're hopeful though that our strategy of selling some assets, improving our operational performance and working to lower our leverage will actually result in improved share price. But it's something that -- specifically share buybacks continue to be on our radar. And we'll just see how the few quarters progress with respect to that.

Our next question is coming from Michael Bellisario from Robert W. Baird.

I know you made a quick comment on CapEx, but can you maybe give us your high-level initial thoughts on 2020 CapEx plans, and then maybe just directionally how you're thinking about spend next year versus this year?

So we've been spending quite a bit, as you know, over the past few years on CapEx, well above the kind of the industry averages. We've been sort of in the 13% to 15% of our revenues, which again I think has positioned our hotels well. We expect to see tailwind's from that impact of refreshed properties relative to their competitive set. And I think that's proving up in our numbers as we demonstrated this quarter. For 2019, we clearly have stated and are showing that we're spending less than the approximate $207 million that we spent in 2018. In our prepared remarks, we're going to be in the 150-ish range as we said in our CapEx spend for 2019. We're working on the 2020 numbers and it's a little bit early to tell. But I would say that generally they're going to be commensurate with this year, perhaps slightly lower. But in that general range, but more work to be done on that point. And we're excited about what we've completed on our hotels. We've clearly announced a couple of other really exciting additional opportunities such as the upcoming conversion of the Key West La Concha property to an Autograph Collection, which we think is going to be a big benefit to that asset in improving its market share and improving RevPAR and just delivering better results relative to what we've been able to achieve out of that asset. So opportunities like that we think can really move the needle with respect to our CapEx expenditures.

And just thinking about the Remington transaction, does a fully combined Ashford Inc. change the way you guys underwrite either renovations or new investments. And then should we be thinking about any potential operational list at the property level once the transaction is complete?

I think that the general view would be no real change. It's business -- as we've been conducting business, I think the real benefit is in the Ashford Inc. platform with the consolidation of all of these various ancillary services that really create a very unique company with respect to hotel services and hotel financing and hotel operations and hotel project management. And so that's a very special entity that has, I think numerous growth opportunities both with respect to the companies that they own, potentially companies that they will acquire as well as the growth of new platforms potentially to enhance the revenues coming into that company. Ashford securities was recently announced as a potential source of capital to grow assets under management within that operation. With respect to impact on Ashford Trust, we will continue to benefit from the exceptional service that we get cost-effective, great delivery that we've been experiencing over the years and we're excited about that combination maybe slightly a little bit more fluid. But other than that, no real change in what we would expect out of that relationship.

Got it. And then just lastly, a housekeeping item what's the timing of that next tranche for the Hilton St. Pete proceeds?

That is still subject to some work that the development needs to take in order to hit certain thresholds for whether it's commencing construction or obtaining the construction financing and then getting the certificate of occupancy. So it's multiple tranches of receipt of that payment. And I'd say at this point, while we have time limits on the actual receipt here of those funds, it's still just kind of kicking off with respect to that. So it's going to be over time.

So it sounds like it's a few years out then, is that correct?

I'm sorry. Say that again.

It sounds like it's a few years out, that it's not 2 or 3 quarters from now?

It's possible that we could start getting additional payments in the near term. But I think it's really a staged payment to us as certain thresholds are achieved.

Our next question today is coming from Bryan Maher from B. Riley.

So staying on St. Pete for a minute. Is that lot currently used for hotel guests? And what happens to the hotel guest parking when that goes under construction?

So the lot is currently used by hotel guests for parking, surface-level parking. And we have clearly made arrangements to protect the parking access, either through valet parking on nearby surface lots, and with payments for that coming from the developer to pay for that cost from valet standpoint. It's something we clearly studied, evaluated the efficiency of being able to do that. And then at the end of the day, when the development is complete, instead of just surface parking, we'll have the benefit of a beautiful parking garage with 205 owned covered spaces.

Yes. Bryan, we -- this was a heavily negotiated and evaluated part of this overall transaction. And so I would -- for your purposes, we just don't see that there's going to be an operational impact. If anything, because of some of these subsidies we negotiated, there might actually be a little bit of a net positive in terms of the bottom line. But I wouldn't assume that this is really going to impact the property.

Okay. And then just shifting gears, you guys have dribbled out a few hotels over the past quarter. Should we continue to expect maybe 1 or 2 asset sales per quarter? And if so, are those inbound calls you're receiving or are those kind of marketed transactions?

The assets that we've sold recently have been marketed transactions. And I think anyone today that has a high-quality portfolio is also getting inbound calls just because of the lack of product that's on the market today. And we evaluate inbound calls. We also look at our asset base. And as we've talked about in the past, we're very thoughtful about how we think through the decision to sell an asset. We take into account what its RevPAR relative to our portfolio is, what the potential future CapEx is, and what the return might be on the CapEx. We look at the leverage levels. We look at the debt pools that the assets are in. So I think what you've seen us do so far has been executed quite well. We've sold lower RevPAR assets, many of which were in either weaker markets or had a higher CapEx spend that we really didn't think that we would get value out of. And yet we've sold those assets at materially higher multiples than where our portfolio trades today, even though our portfolio has a higher overall RevPAR than those assets that have sold. So I think that's great execution. And we've always said that we're going to not sell just for the sake of a sales strategy but we're going to be very economic about our approach. And we don't comment on future sales until they actually occur. So we'll just leave it at that for now.

Okay. And just staying on that for 1 second. Are the inbound calls that you're receiving more kind of opportunistic buyers or is it buyers that need or want to be in a specific market and your hotel happens to be there?

I think it's a variety. Look, what's fascinating, I think, if you look at the public market versus the private market, there's clearly a value disconnect between public market, lodging REIT values versus how the private market is valuing assets. And there's this abundance of capital in the private side that would like to be in hotels. And yet when you think about the transaction activity this year, one survey that I looked at showed that there was a 28% decline in the number of single asset sales and a 42% decline in the dollar volume of single-asset sales. And just -- when you look at this third quarter data, you realize that there's just not a lot of product out there. So it's easy to target the public companies whose portfolio is readily accessible on websites. And people can look at it and say, I'm an owner-operator in this market. I like that hotel. I have 2 other hotels in the vicinity, I see operational synergies. Or people that just have an interest in being in a certain city. So there's a wide variety of interest both coming from private equity funds as well as regional owner-operators when it comes to unsolicited appetite.

Right. And to that end, look, I mean Douglas, you know we speak with a lot of buy-side investors, and from our vantage point, we talked to a lot this summer that we think it might sell well. To them, if you continue down that course and redeploy, I don't know, 1/3 to share buybacks of net proceeds and 2/3 to debt or something like that. But I think a lot of people that we've spoken with thought for sure you guys would have been in the market, sub $3 buying back stock, particularly with how much cash you guys have.

I think my earlier comments with respect to the balance that we're trying to achieve across the items that I mentioned holds true. And yet you've seen us clearly execute on a share buyback strategy that had significant benefit to shareholders at the time that we executed on it. And we're trying to find the right balance between that strategy as well as sales of assets, cash flow, all the things that I mentioned and others that really are relevant to a longer-term perspective on seeking to increase total shareholder returns.

I understand that. And I heard what you spoke with Tyler about. But I would just suggest that I think it would play really well with the investment community to see some split on the net proceeds because it just leaves everybody scratching their heads as to what is the level that you step up to the plate? Is it $1? Is it $2? Where is it? We don't know. But I think a lot of the people we spoke to thought it was something below $3? So I just wanted to put out there. But that's all I have.

The next question today is coming from Robin Farley from UBS.

My question was related to the last topic, not so much on the share repo, but on the idea of your comments about the intrinsic value being greater than what the market is giving you credit for. I know you said you won't comment on things before they're sold. Maybe if you could just give us a sense of -- I've got to assume it increases your appetite to want to sell some assets. And then is -- are you seeing that type of demand that you talked about the abundance of private capital? Are you seeing that type of demand across your whole portfolio? Or were there sort of property-specific reasons that these -- the transactions you did announce were at those levels?

Well, for the assets that we've taken out to market, we've been very pleased with the execution. So whether it's a deep buyer pool for some assets or just that 1 buyer who strategically wants that asset in their portfolio, the pricing we've been happy with. Otherwise, we won't execute. If it's not something that we feel that we're going to get value and benefit from. I can't really comment on the rest of our portfolio because we obviously haven't -- that would take a widespread marketing effort to evaluate what the demand is for some of those assets. But I think the way that I would reference kind of the level of interest, which is when I think about some of the other assets that have been put up for market and the depth of the buyer pool because we may still be looking at assets even though we're not actively seeking to deploy our capital at the current share price, we still stay in the flow of deals. And I look at some of the prices and the depth of the buyer pool and it's interesting. It's interesting because the cap rates are holding up. And if you look at some of the national averages, even from CBRE, cap rates are relatively flat over this time period compared to last year. The one comment I would make is that it would appear that there's some slight improvement in cap rates, in terms of lower cap rates, for secondary and third-tier cities. Whereas some of the more urban markets, which have experienced a little bit more new supply, there's been a very slight uptick in cap rates. But not meaningful either way other than just a comment that cap rates are generally flat across the board, which I think indicates the more bullishness that the public -- or, excuse me, the private market has relative to the public market where you're seeing multiple contraction.

And we've been focused on the lower-quality assets and so you can look at assets we've bought, much higher quality, on average, in our portfolio. And so I think we continue to elevate the quality of our overall portfolio.

Okay. Great. And then just maybe the last question, when you were giving commentary on business transient versus leisure transient. Is this the first time -- I feel like it may be the first time that you commented that leisure transient was down. And seems like that's been up the last few quarters. I'm just wondering if you have any insight on what's driving that?

Yes. I don't have any insight. And I don't know that it's necessarily a trend at this point. It was just a mix in our business for the quarter. But it was nice to see that we had a healthy increase in corporate demand. And as you know that our portfolio is much more weighted towards corporate than leisure.

(Operator Instructions) Our next question today is coming from Chris Woronka from Deutsche Bank.

I had a question I guess for -- I had a question more for Jeremy. Jeremy, I think you mentioned earlier in the prepared comments that you're hoping to get maybe 2% to 3% increase on the corporate negotiated rates. Can you maybe tell us what you got for '18? And then are some of the renovations, is that kind of -- if you were lower than that for '19, was that maybe due to some of the renovation activity?

Yes. Sure. So we were actually hopeful that we get in the 2% to 3% for '19, and that's where we landed. But some of the accounts that were lower-rated accounts grew more than the higher-rated accounts. And so the mix kind of actualized, I think we're trending a little bit under 2% for this year in terms of where we're actually ending up. And it's hard to predict because there are movements between all of your accounts. But as it stands right now, all things being equal, we're in the 2% to 3% range for next year. The second part of your question was on how CapEx may have impacted it, is that correct?

Yes. That's right.

I think it does. And we certainly leverage the investment we put in our portfolio both from the group and from a business standpoint, and really market our properties I think very, very well coming out of renovation. And you look at Nashville being an incredible example, where -- this is mainly on the group side, but the type -- the quality of the group business, the outlook of the group business we have with that renovation has been phenomenal. And that has been direct result on -- our teams working with the property teams to really market and advertise the investment that we have done. We do that certainly as part of the special corporate or negotiated rate process as well.

Okay. That's helpful. And then just going back to the commentary about corporate being a little bit stronger in the third quarter. Is there any I guess discernible trend among bigger accounts or smaller accounts or industries or anything like that, that you feel changed since earlier in the year?

No. I'm not prepared to comment on any initial trends at this point just because it could change very quickly as you know. And I think as you look 6 weeks ago -- when we looked at -- actually really over the last probably 1.5 years, we always look at forward-looking data for our hotels as well as all the top 25 markets. And the only trend I've seen is that for the first time in quite some time we've seen a pretty good healthy outlook across the board in commitments and bookings. But again, a lot of that's group related and it's just hard to know, is that going to be a continued trend on a go-forward basis. Because sometimes in -- our average booking window is 3 to 4 weeks out, and it's just really difficult to kind of see if that's going to actually actualize where we stand right now.

Okay. Fair enough. And then I guess one for Douglas. To come back to the Capital allocation, maybe a slightly different way which is -- do you guys have internally some -- is it kind of a formulaic view on capital allocation in terms of where you might repurchase stock or deleverage? Or is it more of a gut feel, or based on your expectations of the economy, your interest rates? Just trying to get a sense for a little bit of a peel the onion on how you guys look at it internally?

I think it's all of those Chris and others as well that we're looking at. It's a 360-degree view of where is the best place to allocate capital. And not necessarily at the immediate moment, but also a perspective on where the industry or where the economy is headed that weaves into that decision-making. So it's tough to do that on a purely formulaic base because the variables are constantly moving. And I think you have to have some judgment, some experience and a perspective on obviously, the metrics, the impact that it does have on the various key features of our platform, liquidity, our view on share price, our view on leverage levels, our view on a lot of different components to arrive at a decision. And sometimes that decision may be just to wait and see what direction things go. And so we have experience, we've been through numerous cycles. And so I think keeping all of those in the right perspective will help us arrive at the appropriate decisions when it comes times to utilize that capital for whatever purpose it may be used for.

Okay. Fair enough. And then just a quick follow-up to that, Douglas. Do you guys -- again, internally, do you take a view of the market and have you studied -- I'm trying to get a sense, I know you guys do a lot of analysis, I know, and that can be helpful. And I'm just curious as to whether kind of you have an internal view of the market itself that maybe drives some of the -- again some of these other decisions that factor into allocation?

Well, we definitely are analytical. And I think we come through more data, both hotel related as well as broader-based economic information -- financial information to arrive at our strategies. And I think that just one general comment I would provide is that I feel like this cycle is different than any prior cycle. We have certain features to it that look and feel different. For example, homesharing is a bigger component of this cycle than prior cycles. I also feel like the financial situation with the direction that LIBOR is headed is somewhat unique. We're not in a recession technically, but the rest of the world is showing greater weakness, an so we're responding here with lower interest rates on more of a preventative measure per the Fed as opposed to a reactive measure. So there are little bits here and there that are different in terms of how this is all playing out from a cycle standpoint. And we oftentimes look back on reference points in prior cycles to help us evaluate the direction that things are going, but it's fluid. And so our analysis doesn't stop, but sometimes analysis doesn't give you all the answers. So there's judgment involved in this as well.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you for joining today's call. And we look forward to speaking with you all again next quarter as well as seeing those of you who may be attending NAREIT in Los Angeles in mid-November.

That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.