Ashford Hospitality Trust (AHT) Q4 2021 Earnings Call Transcript

Ashford Hospitality Trust (AHT 0.76%)
Q4 2021 Earnings Call
Feb 24, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Ashford Hospitality Trust fourth quarter 2021 results conference call. [Operator instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Jordan Jennings, manager of investor relations.

Thank you. You may begin.

Jordan Jennings -- Investor Relations

Good day, everyone. And welcome to today's conference call to review the results for Ashford Hospitality Trust for the fourth quarter and full year of 2021 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 the accessibility of this conference call on a listen-only basis over the internet were distributed yesterday afternoon and a press release.

At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the federal securities regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in 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 February 23, 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 compared to fourth quarter of 2021 with the fourth quarter of 2020. I will now turn the call over to Rob Hays.

Please go ahead, sir.

Rob Hays -- President and Chief Executive Officer

Thank you, Jordan. Good morning and 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 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 the lodging recovery continuing to take hold in the fourth quarter leading to strong hotel performance and solid earnings. Second, our liquidity continues to improve and our cash balance is meaningful. We ended the quarter with approximately $639 million of net working capital, which equates to approximately $18 per diluted share.

With our current stock price of around $8, 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 $1.1 billion equating to a decrease in our leverage ratio, defined as net debt plus preferred equity to gross assets, by approximately 13 percentage points. Fourth, during the quarter, we announced an amendment to our strategic financing which provides us with more flexibility to access the undrawn capital, if needed, even after we have paid off the current balance.

During the quarter, we paid off the strategic financing's PIC interest and are now paying interest current. While the loan doesn't mature for several years, we are looking for opportunities to pay it off later this year if the industry recovery continues to make progress. Finally, even with an already attractive loan maturity schedule, we remain proactive in our capital markets activities and balance sheet management. During the quarter, we refinanced our mortgage loan for the Marriott Gateway Crystal City.

And with the completion of debt financing, our next hard debt maturity is not until June of 2023. We are optimistic about the long-term outlook for the company and, by taking decisive actions to strengthen our balance sheet, we feel well-positioned to capitalize on the recovery we are seeing in the hospitality industry. While our optimism remains, we also must acknowledge some risks to the pace of the recovery due to ongoing variants of COVID-19. In addition, we believe the majority of our loans could continue to be in cash traps over the next 12 to 24 months or more.

And as a result, we are focused on building our liquidity and improving our capital structure in the months to come. In regards to common dividends, the company and its board of directors previously announced a suspension of its common stock dividend, and therefore the company did not pay a dividend on its common stock and common units for the fourth quarter. However, the board will continue to monitor the situation and assess future dividend debt declarations. Regarding our preferred dividends, during the fourth quarter, we reinstated and caught up on all of our accrued preferred dividends and currently plan to pay those quarterly going forward.

As we've discussed, this is important to us for several reasons including it was one of the requirements for Ashford Trust to regain its S-3 eligibility. For 2022, we will increase our capex spending from the previous two years, but will still be well below our historical run-rate for capex. Given the sizable strategic capital expenditures we made in our properties over the past several years, we believe our hotels are in fantastic condition and are well-positioned for the industry rebound. Let me now turn to the operating environment at our hotels.

The lodging industry is clearly showing signs of improvement. RevPAR for all hotels in the portfolio increased approximately 164% in the fourth quarter with only eight of our hotels having negative hotel EBITDA in the first quarter. This RevPAR result equates to a decrease of approximately 21% versus the fourth quarter of 2019, and improvement from the third quarter of 2021 when RevPAR was down 26% from the same period in 2019. We remain encouraged by the continued strength in weekend leisure demand at our properties.

And as we enter 2022, we did see some softness in demand with the omicron variant that was similar to what we saw with the delta variant in mid-August. That industry softness bottomed out in the last two weeks of January and has improved since then. 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 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, really sets 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. Turning to investor relations, during the quarter we attended several small-cap and lodging investor conferences, and we also 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 2022, we will expand our efforts to get out on the road, to meet 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 upcoming events. We believe 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 our 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 our plans moving forward.

We enter 2022 with a substantial amount of cash on our balance sheet and are looking for ways to go on offense. I will now turn the call over to Deric to review our fourth quarter financial performance.

Deric Eubanks -- Chief Financial Officer

Thanks, Rob. For the fourth quarter of 2021, we reported a net loss attributable to common stockholders of $59.3 million or $1.75 per diluted share. For the full year of 2021, we reported a net loss attributable to common stockholders of $267.9 million or $12.43 per diluted share. For the quarter, we reported AFFO per diluted share of negative $0.09.

For the full year of 2021, we reported AFFO per diluted share of negative $1.23. Adjusted EBITDAre totaled $40.7 million for the quarter, while adjusted EBITDAre for the full year was $113.6 million. At the end of the fourth quarter, we had $3.9 billion of loans with a blended average interest rate of 4.1%. 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 caps on those floating rate loans to protect the company against significant interest rate increases. Our hotel loans are all non-recourse and currently 93% of our hotels are in cash traps. This is down from 97% 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 will be able to utilize that cash freely at corporate. We ended the quarter with cash and cash equivalents of $592.1 million and restricted cash of $99.5 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 $26.9 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 $639 million. As Rob mentioned, I think it's also important to point out that this net working capital amount of $639 million equates to approximately $18 per share. This compares to our closing stock price from yesterday of $8.31, which is an approximate 55% discount to our net working capital per share.

Our net working capital reflects value over and above the value of our 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 $55.4 million in the quarter. Our current quarterly run-rate for debt service is approximately $41 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 December 31, 2021, our portfolio consisted of 100 hotels with 22,313 net rooms. Our share count currently stands at approximately 34.9 million fully diluted shares outstanding, which is comprised of 34.5 million shares of common stock and 0.4 million OP units. In the fourth 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 $8.31, our equity market cap is approximately $290 million.

During the quarter, we refinanced our mortgage loan for the 701-room Marriott Gateway Crystal City in Arlington, Virginia which had a final maturity date in November 2021. The new, non-recourse loan totals $86.0 million and has a three-year initial term with two one-year extension options, subject to the satisfaction of certain conditions. The loan is interest only and provides for a floating interest rate of LIBOR plus 4.65%. Our next final debt maturity is now in June 2023.

As we previously discussed, we selectively exchanged our preferred stock for common stock in 2020 and 2021 as a way to de-lever our balance sheet, remove the accrued dividend liability, and improve our equity float. Through these exchanges, we have exchanged approximately 71% of our original preferred stock, which is approximately $401.8 million of face value, into common stock. These exchanges also eliminated a significant amount of accrued preferred dividends. After taking into account the $200 million of new corporate debt from last January and our cash balance at the end of the quarter, we have lowered our net debt plus preferred equity by approximately $1.1 billion since its peak in 2020.

We opportunistically raised equity capital in 2021 to shore up our balance sheet, improve our liquidity, and to be prepared for potential loan paydowns needed to achieve extension tests or meet refinancing requirements. For the full year 2021, we raised approximately $564 million of gross proceeds at an average price of $28.17. During the quarter, we paid off the PIC interest associated with our Oaktree loan of $24 million and also utilized cash of $18.6 million to bring our preferred dividends current. 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 have 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, 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.

Chris Nixon -- Senior Vice President and Head of Asset Management

Thank you, Deric. Comparable RevPAR for our portfolio increased by 164% during the fourth quarter relative to the same time period in 2020. We are extremely proud of the work that our asset management team has done to drive operating results. The team has accomplished so much this year, including driving 21 of our properties to exceed their comparable fourth quarter 2019 RevPAR.

I would like to spend some time highlighting a few of those success stories. Sheraton Anchorage had a strong fourth quarter with RevPAR exceeding comparable 2019 by 43%. The team secured two new valuable pieces of business during the quarter that were very profitable: the first was a group of extended stay nurses that provided approximately 5,000 group room nights and the second was a new airline crew that generated 5,400 room nights. Together, these two pieces of business brought in an incremental $1.7 million in room revenue for the hotel.

Next, I'll turn to The Marriott Beverly Hills. This hotel experienced a 16% increase in hotel EBITDA during the fourth quarter, relative to the same period in 2019. While the hotel's RevPAR had nearly fully recovered to 2019 levels, the hotel found a number of successful ways to deliver margin expansion in every single department, increasing overall hotel EBITDA margin by over 740 basis points. The team accomplished this through a number of initiatives, including closing the guest club lounge, optimizing F&B operations through menu changes and operating hours, and executing on long-term labor efficiencies.

With this increased productivity in place, and the Super Bowl having been held in Los Angeles, this hotel is primed for a great first quarter. The Embassy Suites Flagstaff also produced fantastic results during the fourth quarter, with hotel gross operating income increasing more than $200,000, or over 30%, relative to the comparable period in 2019. Again, our proactive sales efforts identified and secured two large pieces of business: the first being a new long-term airline contract, and the second being a team of high altitude training athletes that were preparing for the Olympics. The increase in base business allowed the hotel to drive rate while yielding effectively, which resulted in a RevPAR increase of nearly 16% over the fourth quarter of 2019.

The last hotel I'll highlight is Historic Inns of Annapolis. This hotel had strong results with RevPAR increasing 18% during the fourth quarter, relative to the comparable period in 2019. These results were driven by our team's tenacity and adapting to the new challenging work environment to attract group business. The team reached out to large groups that had previously stayed at the hotel over the last six years and offered them a unique and special package to return.

In addition, the team utilized a new selling tool to attract new groups that allows future clients to have a 3D tour of different spaces within the hotel. The tool proved to be a great resource in closing new business. These initiatives drove Hotel EBITDA above 2019 levels during the fourth quarter by nearly 5%. 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 the market continues to rebound. Not only are our properties more attractive to potential travelers but we can also deploy capital more prudently throughout the recovery. In 2021, we restarted a number of capital projects, including the guest rooms at Marriott Fremont, the guest rooms at Hilton Santa Cruz, and the corner pantry at Embassy Suites Portland.

For 2022 we currently anticipate spending between 110 and 120 million in capital expenditures of which we estimate approximately half will be owner funded. Before moving on to Q&A, I would like to reiterate how optimistic we are about the recovery of our portfolio. As I mentioned earlier, more than 20% of our assets exceeded 2019 RevPAR levels during the fourth quarter. When you look at just the month of December, the number of properties with RevPAR outperformance over 2019 jumps to nearly 30%.

With group lead volume increasing steadily, we fully anticipate that this RevPAR momentum will continue. That concludes our prepared remarks. We will now open up the call for Q&A.

Questions & Answers:

Operator

Thank you. Ladies and gentlemen, at this time, we will begin question-and-answer session. [Operator instructions]. Our first question comes from the line of Tyler Batory with Janney.

Please proceed with your question.

Tyler Batory -- Janney Capital Markets -- Analyst

Thank you. Good morning. Starting with a general question here. Just in terms of the cap structure, clearly making a lot of progress there.

How are you feeling about your position today? How comfortable are you with your liquidity in light of some of the expected upcoming cash flows? And just help us think through some of the next steps as we move through this year in terms of making even more progress on your capital stack?

Rob Hays -- President and Chief Executive Officer

Sure. This is Rob. So let me take a whack at that one. So I think we're obviously happy with where we are overall from a cash and liquidity standpoint and believe both the access we have to what's on our balance sheet as well as having access to additional funds from the strategic financing if we need, we feel good about where we are.

But you're right to the extent that there are other cash needs that are -- some are known. We talked about, for example, we've got capex that is starting to ramp up again. We've been having that depressed for the last couple of years, just spending 30 to 40 million a year, and now it's going to be back up in the triple digits and about half of that is probably going to be owner funded. So those are cash needs that we know we need to do.

It's the ones that are uncertain that are just making it a little more difficult, Tyler to lay out the specific plan just as -- and I think a lot of it goes around the extension tests on some of our loans that are due in '24, '25, and '26, but some of those extension tests start up as early as kind of middle of the year next year. And it is depending upon the shape of this recovery, it really could be something where there's no need for capital to do anything on those and they will be fine to they could be several hundred million dollars of paydowns in order to meet those loan extension tests. And so I think realistically, what's going to happen is you're going to see us now that we're getting within 18 months or 12 months of some of those tests hitting is we're getting to a place where those lenders are willing to engage a little bit more in discussions. And so I think a combination of talking with the lenders because they also don't want these loans to be in any sort of difficult situations to see if there's ways to potentially modify some of those tests, maybe it is associated with some aspect of a paid out.

Maybe there's an asset sale that we can pair with it because that is a process we're going through right now is looking at what do we think market is on a good number of our assets to see if that's a alternative way to maybe help on some of the loan extension tests. We obviously have some restrictions on those given the broader strategic financing that we have in place. But there's, I think, ways to use those. So it's still a little bit of a fluid situation, but we feel that we've got kind of ample capital right now to address those.

And then the question then is, well, we also have some desires to go on the offense. And so we're trying to balance the need for capital to still deal with some of the loan issues versus seeing opportunities in front of us. And so that's where we -- you may see it at some point in time, we mentioned in the call in the script because like joint ventures and whatnot to maybe go out and work with some capital partners to go on the offense, but those are still TBD.

Tyler Batory -- Janney Capital Markets -- Analyst

OK. Great. I appreciate that. And as a follow-up, I thought it was interesting and helpful the commentary about 2023 and 2024 in the earnings release.

Can you talk about what sort of macro or perhaps industry assumptions are supporting that outlook? And then it's interesting you're expecting to hit 2019 RevPAR before you hit 2019 hotel EBITDA. So just explain that a little bit more. You're expecting some extra cost creep perhaps that's causing the lag there in achieving 2019 hotel EBITDA?

Rob Hays -- President and Chief Executive Officer

Yes. Good question. So I'll start this first and then maybe Deric may have some comments as well. But we do think it's important that -- we've obviously never really given long-term formal guidance, but we wanted to at least give investors in the Street an opportunity to get some thoughts around what we're thinking in order from a modeling standpoint.

And from a -- and so given what we're seeing, and obviously, you, Tyler, know well about some of the forecasts we're coming from Smith Travel, about how the U.S. is basically overall going to get back to 2019 levels, potentially this year in 2022, it's just that as we look at our portfolio, which is predominantly upper upscale assets, that's a little bit laggard, a little bit behind, but then we also have some upscale and limited service assets that have also been coming back stronger. So as we balance all of that, we do think that 2023 is the year as we sit here today, where RevPAR will get back. Now the reason why it's not 2023 and instead 2024 on the EBITDA side, it's probably a little bit less on the margin side.

I think over the long term, we still think that margins may have a little bit of upside to them after everything is said and done because of the new operating models. But it's maybe relatively small. It's just the fact that when we look at all of our ancillary and SMB-type revenues, particularly around the catering side and group side, those are just a slower ramp. And so the offset is one where even though we think margins may be OK, it may be just a little bit longer before those get us all the way back to kind of a total EBITDA number.

OK. Great. That's all from me. Appreciate the detail.

Thank you.

Operator

Our next question comes from the line of Kyle Menges from B. Riley Securities. Please proceed with your question.

Kyle Menges -- B. Riley Securities -- Analyst

Good morning. This is Kyle on for Bryan.

Rob Hays -- President and Chief Executive Officer

Good morning, Kyle.

Kyle Menges -- B. Riley Securities -- Analyst

Good morning. I was hoping that you could talk a little bit more about the Oaktree loan? I know you mentioned that you'd like to address that by the end of this year, if possible. And I was curious if you could just dive in a little bit more into kind of how you're thinking about addressing that as well as the kind of industry trends you think you'd need to see this year in order to pay that off?

Rob Hays -- President and Chief Executive Officer

Yes. No, it's a good question. So as we sit here today, that loan is about $200 million. As we mentioned on the call, we were accruing the interest last year on it.

And in order to get our preferred paid in order to try to get our S-3 eligibility back, we began paying the strategic financing current as well. So there's no accruals on that. And so as we look at what it would take to pay them off, they do have a two-year make-whole provision. So there's, in some sense, no real benefit economically of paying them off today versus in 12 months or in January of next year.

So we'll have to be paying that regardless, that's another $32 million. So we know that we are going to owe them at least $232 million as part of all that. Now we did obviously previously announced that we have the ability to pay them off and keep the additional draws outstanding, which gives us a little bit of flexibility to the extent that we ever want to draw additional capital. But it, Kyle, goes to this tension that we're looking at where we obviously have the cash on our balance sheet today to pay them off and pay the make whole, but we're just coming off the heels of omicron and we've seen numbers come back.

And I think it's just a question for us if this trajectory recovery continues where more tend to what we were just talking about with Tyler, where we think RevPAR numbers are going to get back to 2023 levels next year, we will be able to see that here in the next three, six, eight months as we see what happens with the group business, what happens with business travel, what are the continuing trends with leisure. And depending upon if those are strong enough, that will, I think, give us probably more confidence in order to write the check for the $200-plus million. But we just don't -- we're cautious on doing that right now until we see just a little bit more traction kind of on the ground on the heels of omicron.

Kyle Menges -- B. Riley Securities -- Analyst

Great. Thanks for that color. And then you've also mentioned in the past that you'd like to rationalize the portfolio, maybe sell 10 to 15 hotels. I was curious if you're still thinking in that way and also you mentioned you'd like to go on offense.

Could we actually see you maybe going offense in some creative ways like doing a JV maybe before you actually sell any assets?

Rob Hays -- President and Chief Executive Officer

The answer is I think all of those things are possible. And all things are on the -- are available to us right now. Right now, we are going through a process of looking at our assets. But again, it's a little bit more complicated because we do have, obviously, certain provisions within our Oaktree loans within the strategic financing loan which determines kind of how we can use proceeds which makes it a little more complicated.

And we do have these other loans I mentioned that have extension tests that are coming up in the next year to two years. That depending upon where -- what assets are in different pools, it may make sense to pair those up together as a way. And so there's just a bunch of moving pieces that we're looking at. But I think, hopefully, here in the next few months, you'll see us try to lay out a game plan for that.

At least that's my intention as I sit here now. And then to your second part, which is could you see us be creative and go on the offense? The answer is yes. I mean there is a lot of private capital out there and available. And if it's something where Ashford Trust can at least have some participation in a deal and have some sort of rights on the backside where we can create access to a proprietary pipeline, then it's definitely something that we're going to take a look at because we do have to be, again, cautious to in terms of deploying all of our cash, we want to see a little bit more recovery before we put that out in earnest.

So we're looking at a few alternatives right now.

Kyle Menges -- B. Riley Securities -- Analyst

Great. Thanks. That's all from me.

Operator

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

Chris Woronka -- Deutsche Bank -- Analyst

Yes. Hi. Good morning, guys. I just wanted to start with maybe asking about the -- what your thoughts are on if you're going to be using an ATM or anything like that this year? I know those things can be kind of opportunistic in nature, but just thoughts given the amount you did raise last year and kind of stock bouncing around, any thoughts on whether that's more or less likely this year?

Rob Hays -- President and Chief Executive Officer

Well, I mean, obviously, Chris, we have not raised almost any capital here since kind of this fall since the -- our price pulled back pretty significantly. And so we've been on the sideline on that. I think it's likely, as you know, just from a standard operating procedure, that will -- whenever we get our S-3 eligibility, we will likely put an ATM in place just to have it there. But where our stock price is currently, I wouldn't anticipate using it until the stock price is materially higher than what it is.

I mean you saw the stat -- I heard the stat that we had in the release where the capital that we raised last year, which was substantive is a little over $500 million but it was obviously done at prices materially higher, close to $30 per share, so materially higher than where it is right now. And so I think until we are at a place where we are much closer to that, we're not going to be very comfortable raising equity. So we'll probably be on the sidelines that we will likely at least set up the ATM just to put it in place.

Chris Woronka -- Deutsche Bank -- Analyst

OK. Very helpful. And then one operational question for you. If you look out across your portfolio, pretty diverse, right, and a lot of -- some urban exposure.

Do you have a view on the industry, and we're getting back -- we're not back to prior peak occupancy levels yet, we're hopefully getting there. Still need to hire some more people, right, in some of the hotels. I mean is there any way to think about -- are those people out there? Is there another leg up in wages coming? Or do you think this thing can all kind of self-out over time?

Rob Hays -- President and Chief Executive Officer

No, that's a good question. I mean I do think it will smooth itself up over time. I mean we were looking at, at least on the hourly side, wages are up anywhere between 15 and 20% from pre-COVID. And as we're looking at where do we think those can go, I think the best guesses we have is that wages may be growing over the next year or two years maybe it's in the 5% type of annual range.

So something and -- but not nearly as steep as it has been. So we do think that as the economy opens up that you're going to see some, I guess, less dramatic increases. And so at the end of the day, I do think we still can potentially hold on to maybe some of the margin increase because there's no doubt from an operational set we're running leaner. I mean we're -- like I said, we're still running at about 70% of our pre-COVID people.

And I don't think we're ever going to get back to 100%. It may end up being something closer to 90. So it's a little bit of wait and see, but I do think it will smooth out a little bit.

Chris Woronka -- Deutsche Bank -- Analyst

OK. Helpful. And maybe a quick one for Deric. How do you guys kind of internally underwrite interest rates given where we appear to be headed on higher interest rates over time? And just, I guess, the second question --  I'm assuming we're nowhere near where the caps would come in.

But as we think about going forward, you guys gave us guidance on the run rate interest. How much does that change if we go 2.5%, 3% on the treasury?

Deric Eubanks -- Chief Financial Officer

Yes, Chris, it's Deric. A couple of things there. I think, one, we take the position that it's a natural hedge to our operating cash flow. So we're somewhat indifferent into what happens with rates because, look, we've benefited from it on the downside.

And when now our earnings are going up, we would anticipate some increase in cost as interest rates go up. So like I said, there's a bit of a hedge there. But we do spend a lot of time thinking about it. We do have cash to protect us from any spike.

We're not really tied to the treasury. We're tied to short-term rates, and we spent a lot of time digging into this and really came to the conclusion that, look, most of the time -- the vast majority of the time, you're better off being at the short end of the curve and being floating. And it also provides a lot more flexibility to us to be opportunistic to either sell assets or refinance at an opportune time. And so the run rate I gave you is based on current rates.

Obviously, if you look at the forward curve and what the market is expecting short-term rates to do, there's a pretty significant increase. Now we'll just have to see if the Fed ends up doing that and rates end up going up as fast as the forward curve currently predicts, we're tied to LIBOR or will ultimately probably be one-month SOFR. And that tends to be pretty close to the Fed funds rate. So as the Fed moves rates, we'd expect our index to be pretty close to that, but we'll just have to see.

There's obviously a lot of debt in our economy. And as that rate goes up, it really puts the brakes on our economy. And so we'll just have to see how aggressive and how quickly the Fed moves. One of the things we have always seen in our history is that the market always overestimates how fast and high rates will go, and we benefited from that years and years ago when we would bought some floor doors to participate in that sort of dynamic.

But needless to say, we're comfortable with the exposure to have the debt markets have ramped back up and become more attractive sooner than I thought they would for hotel assets. We were able to -- the two financings that we completed last year were on assets that had no trailing cash flow. So on a trailing basis, there was no cash flow, yes, we were able to get pretty attractive financings completed. We'll continue to be opportunistic as we look at refinancing opportunities.

We're sitting at a great spot, and then we have no maturities this year, final maturities. But I wouldn't be surprised if we go refinance a few pools to give us some more flexibility. We may even be in a position to lower our spread. So I feel very good with where we sit from a balance sheet standpoint, maturity standpoint, also from an interest rate exposure standpoint.

Chris Woronka -- Deutsche Bank -- Analyst

OK. Very good. Appreciate all the color. Thanks, guys.

Operator

[Operator instructions]. Our next question comes from the line of Michael Bellisario with Robert W. Baird. Please proceed with your question.

Michael Bellisario -- Baird -- Analyst

Thank you. Good morning, everyone. I want to turn the clock back and kind of go back to your five-year stock price analysis that you guys -- I'm assuming you still do, but you talked about it a lot more pre-pandemic. Could you maybe update us on how you're thinking about kind of your implied cost of capital, both today and then also when you were issuing stock, call it, $15 per share or higher before the before the sell-off happened in the fall? Any color there would be helpful.

Thank you.

Rob Hays -- President and Chief Executive Officer

Yes, this is a good question, Michael. I mean, I think we -- obviously, the way that we're obviously not in a process right now of doing significant underwriting of assets given some of the comments we had before. So the five-year stock price analysis, obviously, was more in regards to what we -- when we were acquiring assets, and that's obviously been put on hold. And so I think we're -- as we're trying to figure out what our capital structure is going to be looking like.

Right now, we were running at over 10 times net debt and preferred to EBITDA going into the pandemic on a kind of a run rate basis, we're probably close to -- if you kind of go back to 2019, EBITDA numbers, we're probably in the mid to -- mid-eights right now. I'd like that number to probably be closer to six over the next several years. And so I think as we think about the cost of capital right now, it's -- we've got to get the company into a position where we are, I guess, healthy that we've got a capital structure that is sustainable. And so the capital raising that we did last year, obviously in many cases, was painful at times, but it was -- at times had to make a decision, is that the best way to do it? Or do we want to file bankruptcy or restructure the opening? And so -- and I'll say now, there is significant risk to our shareholders of losing the whole thing.

And so I think as we look forward, we're probably going to take some sort of more, I don't know, traditional understanding of or common understanding of our cost of capital, probably trying to hit some sort of unlevered IRRs as opposed to stock price modeling on our acquisitions, but that's still kind of TBD as we aren't yet in kind of full offense mode. But also, we have some sense of what -- at what point is a level that is too low. And obviously, where our stock price is now we think it's a pretty substantial discount from both the underlying value of the assets and even the cash on our balance sheet, as Deric mentioned, so -- which is why you haven't seen us raise any capital. But -- so I think it's really dependent upon like what are the significant needs? Is it something that it's about going on offense and trying to do deals.

Well, then I think you'll see us look more kind of a traditional IRR type return structure on a deal, probably on an unlevered basis to underwrite acquisitions. And then I think if it's raising capital for other reasons, I think it will just all be related to what's the state of the company and what's the cost of -- whether it's maybe debt pools that are better to sell than raise capital to solve them. So it's probably a little bit -- probably a little bit more fluid until we kind of get the company to a place where we have a sustainable capital structure.

Michael Bellisario -- Baird -- Analyst

Got it. And just to clarify, you said mid-eight times today. Is that -- I don't think I heard that was a pro forma. Was that on 2019 numbers? What was the --

Deric Eubanks -- Chief Financial Officer

Yes, it's kind of like of 2019. Like if you took 2019 numbers, I think that's -- yes, we'd kind of be in the mid-eights. So I think we've reduced that by 150 to almost 200, I guess, the best way of putting two turns or so over the last year and a half, and we probably still have another two to go or so.

Michael Bellisario -- Baird -- Analyst

Got it. And then just along the same lines, thinking about the stock price. Obviously, there's some amount of debt overhang and refinancing risk weighing on the stock price. So maybe why even think about going on offense and allocating any amount of time or dollars on new investments? And I get that it might be two-plus months out.

But why you been thinking talk about that instead of being solely focused on addressing the liability side of the balance sheet?

Rob Hays -- President and Chief Executive Officer

Well, I think some of it is, if you see -- I mean, if we see opportunities to create value, we're going to take them. And, as you know, it's never 100% and 0%, right? You're always trying to find some ways to grow, some ways to repair your balance sheet, some ways to grow liquidity, and it just depends on where you are in the cycle of how much of a dial that is. And so yes, we're not spending a ton of time underwriting assets at Ashford Trust. We're looking at things.

There's a few things that we see that are interesting. But yes, our vast majority of our energies are on the liability side, but we also want people to know that that it is important to us. And if there is an opportunity that makes sense, where we can put out maybe it's a limited amount of capital, but create some attractive returns and maybe it can be a healthy step for the company over the long term. And that's something that we've got to be talking about it and taking a look at.

But there's no doubt that the vast majority of our time is being spent on kind of repairing and healing the balance sheet as opposed to going on offense.

Deric Eubanks -- Chief Financial Officer

Michael, this is Deric. The other thing I would add there is that just given the nature of our financing, you've really got to look loan by loan to kind of see where the equity value is in the company. And so we may spend more time on one individual loan on a restructuring or a forbearance agreement or what have you. Given that we think there's a significant amount of equity in that specific loan pool.

And there may be other loans like you've seen in the last 18, 24 months, where, look, we've got to let something go we'll let it go. Obviously, that's not what we want to do. But when you're analyzing the value of the business, given the nature of our nonrecourse debt at the property level, you really have to look loan pool by loan pool and that's what we've spent a lot of time and focus on. And as we think about restructuring debt, paying down debt or how to just fine-tune the capital structure of each loan pool, that's what our focus is.

And I think that's something that the market misses when you say there's sort of an overhang of leverage on our platform. That may be the case for certain loan pools. But in other loan pools, you may look like, well, there's a ton of equity in that loan pool. So it takes us a little bit extra work to kind of dig into the balance sheet a little bit more.

Rob Hays -- President and Chief Executive Officer

Yes. And one other thing I'd add, Michael, it's interesting is that over the -- we obviously experienced a pretty good downdraft in our stock price kind of then to year-end. And what was interesting was the reality is that for a while there for several month period, we were trading not really in line with the other, but we were trading much more highly correlated with some of the other kind of mean stock peers that are out there because we obviously had a pretty big shift in our shareholder base where I think at some point, as much as 80, 85% of our shareholder base was on the retail side. And I think what has had happened as we got kind of our new shareholder base is that we've now at the end of December, we're now probably back to being 50% retail and 50% institutional.

So we've got a big swath of that sell-off seem to be retail shareholders, whether it's for year-end purposes or some of the other mean stock and crypto stocks and investments that were being made were struggling that people are liquidating their retail accounts. And I think Ashford Trust got caught up in that. And so it was interesting to look, we had a much tighter correlation with GameStop and AMC and other mean stocks than our gears. And so I think there's a little bit of noise that is caught up in there.

And I think over time, this year, I think you'll probably see more and more of an institutional shareholder base come into the stock, perhaps, we'll see.

Michael Bellisario -- Baird -- Analyst

Got it. Helpful. And then just one last one for me, switching gears. Just wanted to go to your 2024 kind of margin commentary that you made, maybe this is for Chris here.

But just can you help us think about the cadence of group recovery. So let's say, in 2023, group demand is 10% or 20% below pre-pandemic levels, rates the same. How do you see that AV spending trending relative to group demand? What's kind of the sequencing there on the group side?

Rob Hays -- President and Chief Executive Officer

Yes. Thanks, Michael. From a group standpoint, group, it's definitely the lagging segment. I mean you're right.

As we look ahead to 2022, our group pace is down about 26%. One of the things that we're really optimistic about is the key leading indicator is lead volume. And we continue to see lead volume increase quarter to quarter. But Q4 was the strongest lead volume of any quarter we've had since the start of the pandemic.

We're also very encouraged by our group ADR pace, group ADR is up next year by 2% and then even further ahead in 2023, it's up high single digits. And so what we're seeing a lot right now are some of the smaller meetings, a lot of social and really to get that high banquet high catering contribution you need those larger group programs, convention associations to come back. And we think that that's going to be one of the last segments to return. So I think as we get further along in the recovery in the '23, '24.

That's when we really see that catering spend return to kind of pre-pandemic levels.

Michael Bellisario -- Baird -- Analyst

Helpful. Thank you.

Operator

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

Rob Hays -- President and Chief Executive Officer

Thank you for joining us, and we look forward to talking with you all on our next quarterly earnings call.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Jordan Jennings -- Investor Relations

Rob Hays -- President and Chief Executive Officer

Deric Eubanks -- Chief Financial Officer

Chris Nixon -- Senior Vice President and Head of Asset Management

Tyler Batory -- Janney Capital Markets -- Analyst

Kyle Menges -- B. Riley Securities -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

Michael Bellisario -- Baird -- Analyst

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