Ashford Hospitality Trust, Inc. (NYSE:AHT) Q2 2019 Earnings Conference Call August 2, 2019 11:00 AM ET

Corporate Participants

Jordan Jennings - Investor Relations
Douglas Kessler - President and Chief Executive Officer
Deric Eubanks - Chief Financial Officer
Jeremy Welter - Chief Operating Officer

Conference Call Participants

Tyler Batory - Janney Capital Markets
Bryan Maher - B. Riley FBR
Michael Bellisario - Baird
Chris Woronka - Deutsche Bank
Robin Farley - UBS
Brian Dobson - Nomura Instinet

Operator

Good day and welcome to the Ashford Hospitality Trust Second Quarter 2019 Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jordan Jennings. Please go ahead.

Jordan Jennings

Good day, everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the second 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.

Your 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 and 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 are being made pursuant to the Safe Harbor provision of the Federal Securities Regulation. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call and the company is not obligated to publicly update or revise them.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on August 1, 2019 and may also be accessed through the company's Web site 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 to the second quarter of 2019 with the second quarter of 2018.

I will now turn the call over to Douglas Kessler. Please go ahead, sir.

Douglas Kessler

Good morning and thank you for joining us to discuss Ashford Hospitality Trust second quarter results.

I want to begin by providing some comments on the recent performance of our star. We hope that the information on our second quarter earnings release along with other topics discussed on this call will highlight a simple fact. It's business as usual at Ashford Trust. While launching restocks in general experienced some softness during the quarter, we believe that our dividend announcement let to an overreaction in our stock.

Management is entrusted with making the right decisions, once in often times about longer term vision and opportunity. This is exactly what you should expect from us given our significant insider ownership at 17%, the highest among our peer group. Our goal is to maximize shareholder returns over time. And our team is committed to achieving this via value added transactions, disciplined capital markets activity and aggressive asset management.

Our approach at Ashford Trust is always focused on how best to 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 make any acquisitions unless we can do it accretively without increasing our leverage. We strongly believe the ERP has improved the investment returns on our recent purchases.

However, we are prepared to be patient before accessing more ERP capital for new deals given the current stock price compared to where we traded when we acquired the past four hotels that led to ERP commitments.

Alternatively, we are engaged in some asset sales discussions. When we evaluate asset sales, we take into consideration many factors, such as the impact on EBITDA, leverage CapEx, RevPAR, et cetera. We have listed a few assets for sale and if we complete the sales, we plan to use the proceeds mainly to reduce our leverage. We may also consider share buybacks under the right conditions.

Also, our portfolio is currently realizing the benefits from our recent CapEx spending, which is evidenced by the outperformance in our operating results. As we stated earlier this year, we anticipate our CapEx spending will be more consistent with our long-term historical levels.

As I now turn to our second quarter performance, I would like to remind everyone that we have a very 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 2.8%, 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 second quarter comparable RevPAR for hotels not in renovation increased 1.6%. Additionally, we reported AFFO per share of $0.47 and adjusted EBITDAre of $132.1 million. We are pleased with our second quarter performance.

Since the ERP is an unique competitive advantage for us, it is worth highlighting where we stand with the program. Ashford Inc., is committed to provide $50 million to the company on a programmatic basis equating to approximately 10% of each new investments and acquisition price to be used for the purchase of FF&E properties owned by the company. Since establishing the ERP, we have already completed $406 million of high quality acquisitions that utilize the program, which equates to approximately 80% committed utilization of the pledged $50 million of ERP funding.

To-date we received approximately $29.2 million of the $40.6 million that Ashford Inc., has committed to provide us for the four acquisitions under the ERP. Jeremy will provide additional information on the performance of these properties along with other portfolio highlights in a few minutes.

Turning to our balance sheet we believe in the benefits of an approximate amount of non-recourse asset level financing to enhance equity returns. We have a target range of net debt to gross assets of 55% to 60% and we anticipate return into that range over time. We would like to remind everyone that our loans were mainly floating rate which we believe provides a natural edge to our cash flows.

At the beginning of this year, LIBOR was 2.51% and currently it is 2.24%, every 50 basis point reduction in LIBOR would result in approximately $19 million of annual interest savings based up on our current capital structure.

With all our recent refinancing activity, we believe we now 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 investment opportunities as they arise.

As of the second quarter of 2019, our net working capital totaled $367 million equating to approximately $2.95 per share, which represents a significant 115% of our current share price as of yesterday's close. I will repeat that, our net working capital per share was 115% of yesterday's closing price. We believe our current valuation is significantly below the intrinsic value of the company with the current market cap [Technical Difficulty] networking capital, the market seems to be ascribing negative value to our hotel portfolio, which is financed solely with non-recourse debt.

If you take just two of our 121 hotels, the Hilton Boston Back Bay and the Renaissance Nashville and apply a reasonable value for those hotels, we believe the implied equity value after debt pay down is approximately $200 million. You add the excess cash on our balance sheet as of the second quarter to the implied equity value of those two hotels, we believe the combined value significantly exceeds our market cap.

We still have 119 hotels a majority, which have been recently refinanced and with appraised value significantly above the loan amounts. We strongly believe the valuation-disconnect between our market value and the perceived value of the company is significant and our management team and Board are focused on this disparity.

We also continue to make progress on our Investor outreach efforts, more so now given the recent increase in our average daily trading volume. During the remainder of 2019, we will continue to get out on the road to meet with investors to communicate our strategy and the attractiveness of an investment in Ashford Trust. Once again, we are planning to have our Investor Day in New York City on October 3rd and hope to see many of you there.

Looking ahead for well diversified portfolio, we remain confident that we are well-positioned to outperform. We remain focused on proactive management initiatives across our platform to maximize value for shareholders.

I will now turn the call over to Deric to review our second quarter financial performance.

Deric Eubanks

Thanks, Douglas.

For the second quarter of 2019, we reported a net loss attributable to common stockholders, $26.9 million or $0.27 per diluted share. For the quarter, we reported AFFO per diluted share of $0.47. Adjusted EBITDAre totaled $132.1 million for the quarter, which represents a 5.8% increase over the prior year quarter. At the end of the second quarter, we had $4.2 billion of mortgage loans with a blended average interest rate of 5.7%. 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 5.3 years assuming all loans are fully extended. All of our loans are non-recourse, we have no corporate level debt. In terms of upcoming maturities, we have zero final maturities 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 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 our working capital, we ended the second quarter with $237 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 $367 million.

As of June 30, 2019, our portfolio consisted of 121 hotels with 25,552 net rooms. Our share count at quarter end stood at one 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 second quarter 2019 cash dividend of $0.06 cents per share or $0.24 on an annualized basis. Based on yesterday's stock price this represents a 9.4% dividend yield.

On the capital markets front, during the quarter we closed on the refinancing of the Ashton Hotel, this new loan has an $8.9 million balance bears interest at a floating rate of LIBOR plus 2% and as a five year term. The next hard debt maturity for the company is in June 2020, and we are currently in the market working on a refinancing of that loan.

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

Jeremy Welter

Thank you, Deric.

Comparable RevPAR for our portfolio grew 1.4% during the second quarter of 2019. Comparable RevPAR for those hotels not under renovation will be 1.6%. This growth represents a 120 basis point gain and a 50 basis point gain relative to the upper upscale class nationally and the total United States respectively. Year-to-date comparable RevPAR for the entire portfolio is grown 1.6%.

During the second quarter comparable hotel EBITDA grew $1.7 million or 1.2%, while year-to-date comparable hotel EBITDA grew $4 million or 1.6%. I also want to point out that Easter occurring later in April 2019 hurt April performance this year relative to 2018. Just want to update you on the performance of a couple of our most recent acquisitions which were acquired as part of the enhanced return funding program with our advisor Ashford Inc. The La Posada Santa Fe which is a hotel and [indiscernible] portfolio was acquired in October 2018.

During the second quarter comparable RevPAR grew 12.8% driven by 5.8% rate growth and 6.6% occupancy growth. As RevPAR growth represents 1380 basis point growth relative to the New Mexico, North Market. Year-to-date comparable RevPAR has grown 16.2%, since the Starwood and Marriott reservation systems merger during the third quarter of 2018 La Posada has seen significant higher rate of transient growth allowing the property to more strategically take group business.

In addition, Marriott reward redemptions have provided an incremental $50,000 per month in reimbursement revenues. During the second quarter, we were not only able to realize strong revenue growth, but we also saw a 14% increase in hotel EBITDA. Year-to-date hotel EBITDA has grown 37.3%.

Another ERP success story has been the acquisition of our Embassy Suites in New York City which recently renamed was renamed the Embassy Suites New York Manhattan Times Square, a change that we believe could drive additional demand. Comparable RevPAR during the second quarter grew 31.5% driven by 23.4% occupancy growth and 6.6% rate growth. This RevPAR growth represents a 3,370 basis point increase relative to upper upscale New York market class.

Total hotel revenue grew 31.1%, while hotel EBITDA grew $803,000 or 41.9%. Tear to date, hotel EBITDA has grown 86.3%. We plan to continue to build on our success as group pace is strong for the second half of 2019 and 22, [indiscernible] is strong as well.

During 2019, we will continue to invest in our portfolio to maintain competitiveness, in total, we estimate spending approximately $135 million to $155 million in capital expenditures during the year. This estimate is down significantly from what we spent in 2018. We have completed guest room renovations at the Embassy Suites Crystal City, Hyatt Regency Coral Gables and six select service hotels. We are currently in process with a guest room renovation at the Marriott DFW Airport.

We've also completed lobby renovations at the Marriott Crystal Gateway in Westin Princeton. Additionally, we continuously identify opportunities to create value throughout the portfolio. The first phase of the Renaissance national redevelopment is complete and the second phase is underway, which includes a build out of additional main space and event space. Furthermore we have identified creative opportunities to add back additional keys within our portfolio. We'll be adding 4 keys at the Hilton Boston Back Bay and have added 2 keys to the embassy suites Crystal City and one key to the Hyatt Regency Coral Gables. I want to again highlight that our capital expenditure forecasts for 2019 is significantly below our spend in 2018, which ended up over $2 million.

Not only has a dollar value of our capital expenditures decreased since last year, but the number of hotels and rooms impacted has also been reduced from 28 to 17 hotels and 7,462 to 5047 rooms.

I'm now excited to discuss the positive performance benefits, we've experienced from some of these transformational renovations and how they have positioned us for long term success. There are a number of hotels and renovation 2018 that are delivering strong performances in 2019, specifically 7 hotels that completed renovation store in 2018 experienced double digit compatible rep growth during the second quarter of 2019.

The residence in Jacksonville, residence in Orlando SeaWorld courtyard Denver Airport Hilton St. Petersburg Bayfront hotel in the Indigo Atlanta midtown and Anchorage and Hilton Tampa Westshore.

I'd like to quickly highlight four of those hotels the Courtyard Denver Airport which completed its guest room renovation during the first quarter of 2018 continues to see strong comparable rep growth with growth for the second quarter of 2019, equaling 17.5% today. Comparable ramp our growth has been 25.9%, hotel EBITDA growing $488,000 or 30.8%.

Last year's means base and fitness center relocation at the Hilton St. Petersburg, Bayfront led to comparable RevPAR growth of 17.4% during the second quarter. They showed Anchorage's guest room and lobby renovation was completed in the first quarter of 2018 and comparable RevPAR growth during the second quarter of 2019 was 16.2%. Year-to-date comparable RevPAR growth has been 26.2% and hotel EBITDA has grown 414,000 or 41.2%.

Finally, the Hilton Tampa Westshore, following it's guest room, meeting space renovation experienced comparable RevPAR growth of 15.2% during the second quarter. Year-to-date, hotel EBITDA has increased $583,000 with hotel EBITDA flow through of 53%.

In addition to our focus on continuously reinvesting in our assets, I want to highlight a number of other steps we're taking in order to drive hotel EBITDA. First, we have analyzed hotels competitors to find opportunities in a restaurant banquet pricing in a rolling out price increases over the summer. Second, we're also focused on directing e-commerce spending to various digital programs to increase visibility and advertising to the leisure and group segment to that end, in the group segment we are working closely with [indiscernible] to increase exposure to group lead. Third, in terms of cost management, we are utilizing efficiency programs to introduce better methodologies to reduce payroll hours. These programs have achieved 5% to 6% payroll savings at various hotels even after taking into account wage rate increases. And lastly, this past month, we have completed deep dives at 19 of our properties to further reduce operational expenses.

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we will take our first question from Tyler Batory with Janney Capital Markets. Please go ahead.

Tyler Batory

Thank you. Good morning everyone. So the first question I had, Douglas, I think it would be helpful. We got a lot of questions from investors just on the dividend and on the reduction and whatnot. Can you maybe just address that a little bit more your decision why you made that decision, and then your thoughts on redeploying some of that capital?

Douglas Kessler

Sure, Tyler. So each quarter we evaluate the dividend and we determine that we weren't getting credit for what was an outsized dividend. We also realized that we were paying and had been paying well in excess of our required distribution to meet REIT rules. We've always been opportunistic with cash and felt that with that extra cash we could use it for more opportunistic purposes. So, really everything the same that we highlighted in our statement related to the dividend.

Tyler Batory

Okay, guys. That's helpful. And then, my second question probably for Jeremy. Operationally looked like a strong quarter here and we see the outperformance. How did the second quarter from a RevPAR perspective come in versus your expectations for sure your budgets any significant surprises one way or the other.

Jeremy Welter

No. I wouldn't say there's any significant surprises. We've been projecting all year long that we would gain market share. And so during the second quarter we gained about 100 basis points little bit over 100 basis points actually and year-to-date we're tracking that same level as well. So, I think it's pretty consistent, it's challenging. It is been tough and we've been really focused on cost as well. But we've been doing a good job doing what we can do to increase market share.

Tyler Batory

Okay, great. That's all I have. Thank you.

Operator

We'll take our next question from Bryan Maher with B. Riley FBR.

Bryan Maher

Good morning. Couple of quick questions plus clarifications, so I guess it's safe to say based upon Douglas your comments that you're not really out there meaningfully looking for acquisitions and that's going to take a backseat now and maybe expand in the URFP to 100 million is also of lesser importance, is that correct?

Douglas Kessler

Well, first of all, we're always underwriting transactions because we always want to stay in the flow of transaction activity. The transaction pipeline right now is relatively thin. But, more importantly from our own standpoint, given where our stock is trading, and given the desire not to increase leverage, we believe that it's best to stand on the sidelines until we can find transactions that are both accretive and do not negatively impact our leverage.

So for those reasons, it all makes sense to me to not be aggressive on the acquisition pace of things. And we're not actively looking to acquire hotels that can certainly change given -- changes in those in those features, right?

With respect to the ERP, we sell some capacity on the ERP, we still have the ability for about $90 million of transactions that could benefit from this current tranche of the ERP. And I think if we get closer to the point where it makes sense to engage in discussions about a second tranche of the ERP, then we feel like it's been a real benefit to the Ashford Trust shareholders based upon the returns. We think that the ERP has contributed to the deals that we've acquired and we hope the same is true on the Ashford Inc. So, when that time comes, we hope to have a mutually beneficial discussion on how to expand that program. But we're just not there yet.

Bryan Maher

Okay. And then on the flipside of that, you mentioned having a few assets out there in the marketplace for sale. How would you characterize those assets are they -- I would assume more of your select service product?

Douglas Kessler

We will provide color on the sales of those assets to the extent we complete sales. And I would just make a general statement that these sales are financially calibrated. They are not necessarily a strategy to sell a particular type of asset. They're based upon either benefits that we see in selling the property from a price that we're going to get for the asset, a debt pay down, an impact on our portfolio RevPAR because maybe they're lower RevPAR assets or perhaps or assets that would require an amount of CapEx that we would not have seen the types of returns that we would like to see. I mean look at the numbers that Jeremy's mentioned with respect to the CapEx that we did spend and the types of performance that we got from many of those assets.

So it's not a specific type of asset necessarily, it takes all those factors and others into consideration to make good economic decisions to try to enhance the value of our portfolio for shareholders.

Bryan Maher

And then, when we think of use of proceeds, I mean you talked about both delevering and the potential for stock buybacks. It doesn't have to be one or the other, right? You could split the proceeds across both areas, is that correct?

Douglas Kessler

That's correct. Obviously, the assets that we have debt on -- any sort of sale is going to require associated pay down and perhaps additional pay down related to extracting that specific asset out of a loan pool. Excess proceeds can be used for general corporate purposes, it could be used for CapEx, it could be used for share buybacks any and all of those and others. So to the extent there are excess proceeds will obviously be looking at the appropriate use of those proceeds.

Bryan Maher

And then, just lastly for me and maybe this is a cause for Jeremy -- question for Jeremy on labor costs. Can you give us an update on how that's trending is it still increasing? Has it flattened out? Is it declining? What's going on there?

Jeremy Welter

Sure. Yes. It is still increasing and we're seeing as much as 4% to 5% increases in wages. It's really market driven. And the other headwind is some of these local ordinances that are being passed to basically implement not only higher wages, but different work rules that apply to hotels or not subject to a collective bargaining agreement. And we're seeing that more and more in different jurisdictions. So, that has been challenging as well. But we just continue to do everything we can to find more opportunities to drive more productivity in our hotels.

Bryan Maher

Okay. Thank you.

Operator

We'll take our next question from Michael Bellisario with Baird. Please go ahead.

Michael Bellisario

Good morning, everyone. Could you please explain the high watermark and how that works for the ERFP program, if you do sell assets and then how the calculation works there for that amount to get -- so to speak backfilled for the asset sales?

Deric Eubanks

Hey, Mike. This is Deric. I'll address that. So, if AHT sells assets, the dollar amount of any sold assets goes into what's called a net asset fee adjustment as part of the total advisory fee. So, there would still be 70 bps off of the total market capitalization of the company. And then, there would also be either 70 bps on the net asset fee adjustment, the amount that's in that or if it's an ERFP asset there's a slight premium to that.

Obviously, the ERFP assets would have been recently acquired hotels, but and then as long as there is a balance in that net asset fee adjustments, if the company then goes and acquires another hotel, if AHT wants ERFP associated with that assets then that amount would stay in that net asset fee adjustment. If the company acquires a hotel and it does not take ERFP then that net asset fee adjustment amount would be reduced by the amount of that acquisition. So any dollars that are associated with assets sales go into the net asset fee adjustment, so that that advisory fee wouldn't really change very much during that period where there's an amount in there.

Douglas Kessler

And obviously, Mike there's logic to that because it wasn't going to be the case where the adviser provided capital to help fund accretive growth and then turning right back around the company was shrinking the portfolio. So we felt that that was a fair give and get for both sides to incorporate into the advisory agreement with respect to the ERFP situation.

Michael Bellisario

Right. So I guess just high level, if sell an asset and it's in a cap for corporate purposes more like a 8.7% cap rate, right, because [Technical Difficulty] plus minus the correct asset?

Jeremy Welter

I haven't thought through the cap rate impact of the sale, so I can't address it on the call.

Douglas Kessler

It's on the value.

Jeremy Welter

Yes. It's on the value. And I'm not sure how you would back into the impact of the cap rate because the advisory fee would basically stay about the same as it was prior to the sale.

Michael Bellisario

That's helpful. And then, just maybe you provide your latest thoughts on some more disclosure around the termination fee, kind of similar to what Braemar does? And have you and the Board had any discussions on this topic?

Douglas Kessler

Obviously, the calculation of the termination fee is disclosed in our advisory agreement and it's based on numerous inputs as you know Mike.

Michael Bellisario

Right. I guess I was asking more along the lines of the actual net revenues and net earnings to be able to calculate the termination fee using the 12x multiple, the tax grows up in the 10% step up, to actually do the mechanics of it.

Douglas Kessler

So, Mike -- you referenced the Braemar, what Braemar. The Braemar disclosure was something that was negotiated between Ashford Inc. and Braemar's part of the amendment to the advisory agreement so that that does not exist in the current structure with AHT and Ashford Inc.

Michael Bellisario

Do you think that would be helpful from a transparency and an investor perception perspective though?

Douglas Kessler

Look we believe that investors should view this as a long-term agreement Mike.

Michael Bellisario

Okay. Fair enough. Thank you.

Operator

We'll take our next question from Chris Woronka with Deutsche Bank. Please go ahead.

Chris Woronka

Hey. Good morning guys. Douglas, I just want to follow-up a little bit on your earlier comments. Understanding you have a lot of options if you sell assets, there's debt reduction, you might have to do. But, you also have cash, you have networking capital. What's the trigger internally like what's the trigger point for share repurchase because if you decide to do it at a certain point, there would have to be some kind of trigger that made you do it? I think we're trying to get better understanding of what goes into that calculation.

Douglas Kessler

Sure. So, just a couple of points regarding this. The company has a share buyback authorization in place and a $20 million buyback authorization. Historically, this management team and members of the Board have engaged in buybacks for the company. We think we did it exceptionally well the last time that we did it and created a lot of value for shareholders. It's something that could be a possible use of our cash, but we don't give any particular guidance if or whether we will do that or what prices.

Deric Eubanks

Yes. I would add Chris. As you said there's a lot of moving pieces, there a lot of variables. Obviously, we look at our leverage, we look at our trading volume, our floats available cash on hand where we are in the cycle et cetera. So, there's a lot of factors that are consistently changing that all go into that analysis. But, as Douglas mentioned and I would highlight in our history we've been very active buyers of our stock at certain periods of time. And so that is something that is, it is constantly on the on the radar screen for us.

Chris Woronka

Okay. That's helpful. And then, probably another question for Deric. On the negative advisory the incentive fee which I think was a reversal right of the first quarter number, is that -- can you just remind us the mechanics of how that will -- how that gets every quarter? Is that something it will reset again or is it something where it's zero or it's a positive number, but it's not a negative number for the full year, right?

Deric Eubanks

Right. So, if you are referring to the advisory incentive fee calculation and that's actually done at the end of the year based on a total shareholder return performance versus the peer group, for GAAP purposes, we have to accrue for that at the end of each quarter assuming the year ended at the end of that quarter. And so, we had a fee that was accrued for the first quarter that when we looked at it the second quarter performance, the year-to-day performance would have resulted in a lower incentive fee. So, we had to reverse some of that out.

For our reported metrics of adjusted EBITDAre and AFFO, we add that adjustment back in quarters 1 through 3 because of that volatility. And then, in Q4, if there's an actual incentive fee for the year then that would be reported and recognized in our adjusted metrics in the fourth quarter.

Chris Woronka

Okay. Got you. Thanks Deric. I guess I do have a question for -- probably for Jeremy, which is kind of -- what impact are you guys seeing from some of these -- I'll just use an example the Courtyard or a Hampton Inn or something where hotel gets renovated and you guys have been doing a lot of this. So, in some ways, it's a good story, but in other markets maybe you get a renovated hotel drop right next to it, doesn't increase the supply numbers everybody looks at essentially it's a more competitive supply. What do you think the puts and takes are overall for your portfolio top to bottom?

Jeremy Welter

I think the actually supply a lot more meaningful, new supply versus renovated supply within your comp set, if I understand your question correctly. There are [Technical Difficulty] where mainly if you have a big hotel on your comp set that made it out for an extended period time with a massive renovation that certainly can have an impact. But, a Hampton Inn or a Courtyard in your comp said, it was under renovation last year, now it's renovated, it's not a huge factor to us. The bigger issue is supply in general as it comes in, in certain markets and tracks within our comp sets. Does that answer your question?

Chris Woronka

Yes. That's great. Appreciate it. Thanks guys.

Operator

We'll take our next question from Robin Farley with UBS. Please go ahead.

Robin Farley

Great. Thanks. I know you've commented a little bit already on the ERFP and the idea of not increasing that from 50 million to 100 million. Just some -- is that -- is it just a signaling thing that you don't want it to signal that you might be looking to do acquisitions? Or is there, I guess both sides have to agree to that? Has there been maybe a change in the approach to whether another 50 million would make sense because just authorizing it or agreeing to have additional funds available, it doesn't seem obvious why you wouldn't have that available strip dry powder. Is it just a signaling issue or is there more in terms of being in two minds?

Douglas Kessler

Sure. So, as I mentioned earlier, we still have capacity under the existing agreement and for $90 million of transactions and there's about $9 million left and so you pay that 10% to it and that's how you get to the $90 million. And given our earlier comments, based on the current stock price and looking to find accretive opportunities, while we're underwriting we're really on the sidelines from new acquisition standpoint. So, it would seems premature for management to spend their time working on a mutual agreement with our advisor when we're not really at the cusp of having to make that call because we still have some excess capacity.

From Ashford Trust standpoint and we believe also from Ashford Inc., standpoint the ERFP has been successful. And so we'll have to cross that bridge when the time comes if there's a mutual desire to reload by both parties. We hope there will be.

Robin Farley

Okay. All right. Thanks. And then, just one other clarification, when you were talking about market share in your opening comments, are you -- is that kind of looking at your portfolio versus upper upscale segment in the U.S. or are you actually without a weighted by the different geographies because obviously some of the markets where you are like Atlanta where -- there's been stronger results there. So, just wondering if the market share is weighted for your geographic exposure as well.

Jeremy Welter

Yes. That's great question. So anytime I quote a market share number on a portfolio wide basis, it's revenue weighted for a portfolio and I'm usually specific on whether or not I'm talking about a change scale or if we're talking about different tracks within our hotels or if we're talking about our direct competitive set for each individual hotel. So, what I mentioned earlier in terms of my comments earlier, when I mentioned that we were gaining over a 100 basis points in market share that is relative to the competitive set of each individual hotel in aggregate weighted on a revenue basis -- revenue weighted basis.

Robin Farley

Okay, great. Thank you.

Operator

We'll take our next question from Brian Dobson with Nomura Instinet.

Brian Dobson

Hi. Just a couple of quick questions. So, given the disparity between the market value and your perception of asset values, would you consider accelerating asset sales to free up some capital to either pay down debt or repurchase shares?

Deric Eubanks

It's a good question and certainly a possible strategy. We have some assets for sale in the market currently. Let's see what the reaction is to that and we'll be fluid in our strategic analysis of next steps.

Brian Dobson

Sure. And then, you can you briefly mentioned increasing your group exposure. That's been a key driver of outperformance for some of your peers. How do you see that ramping over the next call it two years or so? And what kind of early indications have you seen?

Jeremy Welter

This is Jeremy. Actually in the second quarter our group RevPAR growth was essentially flat and the growth that we have RevPAR was over a 100% for transient. We had a decline in contract and increase in transient and basically flat in group. But, if you look forward, through the balance of the year, we are looking at probably between 2% to 3% growth in group business, what's on the books right now in terms of forward looking pace. And then, heading out to 2020, our group business is up 10%, when you look at it that's compared to same time last year.

Brian Dobson

Great. Do you think that will ultimately lead to higher transient rates?

Jeremy Welter

It can help. Yes. It definitely because it works slice of where we fill in our group patterns and so we look at where we need business. And then, we can press hotel and then our inventory is essentially smaller and then that allows us to push rate more aggressively for transient business.

Brian Dobson

And then, just finally, I guess, looking through your portfolio, do you see opportunities to press your manager's to drive property level efficiencies to help to increase margin, I guess over the next two years or so, if you do, do you think you could elaborate on some of those opportunities? I know it's generally about little things but...

Jeremy Welter

Yes. You're exactly right. What I tell my team, a small drops of water build muddy oceans. And so we are constantly mining our portfolio for opportunities to drive more margin on our hotels, not to drive more rate, to drive more revenue, whatever the case maybe. There is an extensive amount of initiatives we have going on right now. A lot of them, I would say are proprietary to our asset management approach and I feel those I did highlight and are covered or prepared remarks on the script earlier.

Brian Dobson

Great. Thanks very much.

Operator

That concludes today's question-and-answer session. At this time, I would like to turn the conference back over to management for any additional or closing remarks.

Douglas Kessler

Thank you for joining today's call. We hope to see at our Investor Day in New York on October 3 and look forward to speaking with you again next quarter.

Operator

This concludes today's call. Thank you for your participation. You may now disconnect.