Ashford Hospitality's (AHT) CEO Douglas Kessler on Q4 2017 Results - Earnings Call Transcript

Ashford Hospitality Trust, Inc. (NYSE:AHT) Q4 2017 Earnings Conference Call March 2, 2018 11:00 AM ET

Executives

Joe Calabrese - Financial Relations Board

Douglas Kessler - President and CEO

Deric Eubanks - Chief Financial Officer

Jeremy Welter - Executive Vice President, Asset Management

Analysts

Chris Woronka - Deutsche Bank

Bryan Maher - B. Riley

Tyler Batory - Janney Capital Markets

Michael Bellisario - Robert W. Baird

Operator

Good day, ladies and gentlemen, and welcome to Ashford Hospitality Trust Fourth Quarter 2017 Earnings Call. Today's conference is being recorded. And at this time, I'd like to turn the floor over to Joe Calabrese with Financial Relations Board.

Joe Calabrese

Thanks, Rick. Good day, everyone, and welcome to today's conference call to review the results for Ashford Hospitality Trust for the fourth quarter 2017 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; Jeremy Welter, Executive Vice President of Asset Management.

The results, as well as notice of the accessibility of this conference call on a listen-only basis of the Internet, were distributed yesterday afternoon in the 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 contained or are based upon forward-looking information that are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 risk 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 March 1, 2018. It may also be accessed through the company's website at www.ahtreit.com.

Each listeners are encouraged to review those reconciliations provided in the earnings release together with all our information provided in the release. Also, unless otherwise stated, all reported results discussed in this call compare to fourth quarter 2017 with the fourth quarter 2016.

I'll 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 results. We're extremely pleased with our most recent quarter's performance. Our fourth quarter comparable RevPAR growth for all hotels was 3.9%, while comparable RevPAR growth for all hotels not under renovation was 5.8%. These results were significant improvement from our third quarter performance and are a reflection of the benefits of our more diversified, high-quality lodging portfolio and the efforts of our management team.

For the quarter, we reported AFFO per share of $0.24, a 50% increase over the prior year quarter. Additionally, we reported adjusted EBITDA of $92.4 million for the quarter, an increase of 10% over the prior year quarter. We generated an impressive hotel EBITDA flow-throughs of approximately 60% and a hotel EBITDA margin increase of 82 basis points for all hotels, while all hotels not under renovation experienced a 144 basis point increase in hotel EBITDA margin for the quarter. Lastly, regarding operating performance, we succeeded in growing our RevPAR penetration index for the fourth consecutive year, which is quite an accomplishment. Jeremy will have more to say later about achieving these impressive stats.

This management team has a track record of diligently seeking to maximize long-term shareholder value. Our exceptionally high-insider ownership of 19%, which is approximately 6x the peer average, establishes a strong financial alignment with our shareholders and incentivizes us to excel in achieving the highest possible returns for our investors.

Our strategy remains focused on our effort to enhance shareholder value. Here is a refresher on why we do what we do, which we think separates us from our peers. We will continue to own and acquire predominately upper upscale full-service hotels at a RevPAR of generally less than 2 times the national average or approximately $166.

We are not purposely chasing the highest RevPAR hotels because we see trade-offs in RevPAR and yield. Furthermore, we see a wide array of transaction opportunities for these types of hotels at more attractive pricing, oftentimes with the ability to add value or convert to franchised hotels.

Switching to dispositions. We believe selling hotels is an economic strategy to enhance value, not simply to achieve a stated portfolio objective. As a result, our asset sales are financially calibrated. By this, I mean we are both opportunistic and measured in our actions.

For example, if we can then sell a hotel at an exceptionally high-water mark multiple, then oftentimes, we should do that, just as we did in 2017 when we sold the Crowne Plaza Ravinia hotel with an $84 RevPAR for a 5.6% cap rate. Alternatively, when it comes to other asset sales, we need to evaluate the potential receipt of net proceeds in light of other factors such as our existing excess cash balance, deals that we may have in the pipeline to redeploy the capital and impact on our financial metrics, which I will discuss a little later. This is what I mean by financial calibration.

As for our balance sheet, we target net debt to gross assets of 55% to 60% because we believe in the benefits of an appropriate amount of nonrecourse debt to enhance equity returns. We have generally run near this leverage level consistently since our IPO 15 years ago through up and down cycles.

Recently, we've been more active refinancing our existing loans, and you should expect us to do even more in the near term to push out maturity dates and to capitalize on the recent tightening of very competitively priced spreads for CMBS loans.

We seek to maintain a cash and cash equivalents balance of between 25% to 35% of our equity market capitalization for financial flexibility. At the end of the year, this totaled $459 million in net working capital, equating to approximately $3.92 per share. We believe this excess cash balance provides a hedge in uncertain economic times as well as providing dry powder to capitalize on attractive investment opportunities as they arise.

Due to high correlation of lodging reperformance relative to the economy, we believe it is essential to be highly skilled and nimble when it comes to capital markets execution. We spent a substantial amount of effort analyzing and focusing on these decisions because they are instrumental in creating shareholder value.

I would put our team up against the best of our peers when you consider how well we have demonstrated our skill set and market timing over the years when it has come to share issuance, buybacks and refinancings.

We seek to continue to optimize these financial strategies. In fact, during the fourth quarter and subsequent to year-end, we completed several capital markets transactions that created additional value by significantly reducing our financing costs. First, we issued a new series of preferred stock during a favorable market window and used the proceeds from that raise to retire other higher coupon preferred, which will save us approximately $700,000 annually and preferred dividend payments.

Second, we completed the refinancings of the Hilton Boston Back Bay Hotel, along with a 17-hotel portfolio as well as an 8-total portfolio for a combined total of $919 million.

On The Street refinancings, we were able to significantly lower our spread by approximately 211 basis points. And in doing so, we expect to realize annual interest and principal payment savings of approximately $19 million compared to the prior loan terms. When combined with the preferred raises, redemptions and the previous refinancings we completed during the year, we expect total annual savings to be approximately $21 million.

This significant, and we hope to see more refinancing opportunities ahead in 2018. Deric will go into more detail in these transactions later, but they are yet another example of how this management team looks for every opportunity to drive value in our platform.

With regards to new hotel investment activity, we believe we have been a good manager of shareholders capital. While it was frustrating in 2017 to be sitting on so much excess cash and not be able to put it to work to grow EBITDA, the simple fact is that we did not see a good selection of hotels to buy, given a weak yield pipeline last year.

The few investment opportunities we saw in the market, in many cases, seemed overpriced to us and did not achieve various financial metrics or share price accretion goals. We do not grow for growth's sake. Instead, we seek to achieve growth that is accretive to shareholder returns.

Looking ahead into 2018, we're beginning to see more investment opportunities with a growing pipeline of deals sitting in the market. However, it still remains a competitively bid market. Therefore, you should expect us to continue being selective and disciplined on deals as we balance expected returns, underwritten growth and our cost of capital.

At the same time as part of our strategy, we will continue to be financially calibrated in our decision to sell hotels. Factors that go into our decision are items such as RevPAR and growth, future CapEx spend and ROI, debt metrics and loan release provisions, net proceeds, redeployment opportunities and the overall impact on EBITDA.

In February of this year, we closed on the sale of the 136-room SpringHill Suites Glen Allen in Glen Allen, Virginia for approximately $10.9 million. The trailing 12-month all-in cap rate on the sale, when taking into account a sizable expected CapEx spend, was a very compelling 7.4% for an asset with a trailing 12-month RevPAR of $72. At the repayment of allocated debt, along with premium pay down release provisions on the remaining loan pool [indiscernible] netted approximately $2.8 million in excess proceeds.

Looking ahead to 2018, industry analysts STR is forecasting positive RevPAR growth of 2.7% as demand growth is forecast to once again outstrip supply growth. Recent forecast from CBRE have suggested a cyclical peak for lodging supply in late 2018, early 2019.

Furthermore, a recent survey of hotel lenders indicates a significant decrease in the percentage of lenders willing to finance hotel construction. On the other hand, we expect to see the impact of cost increases on margins going forward despite the fact we showed healthy growth this quarter.

With our high-quality, well-diversified portfolio, along with a skilled management team that is aligned with our shareholders, we believe we are well positioned to outperform our peers.

Finally, we are focused on our investor outreach efforts in 2018. To that end, we recently announced an interactive modeling section of our website that allows analysts and investors to easily download our historical financial statements to assist in the creation of financial models on the company. We are looking forward to our upcoming plans to get on, on the road more with investors to communicate our strategy and the attractiveness of investment in Ashford Trust.

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

Deric Eubanks

Thanks, Douglas. For the fourth quarter of 2017, we reported a net loss attributable to common stockholders, $47.7 million or $0.50 per diluted share. For the full year of 2017, we reported net loss attributable to common stockholders of $122.6 million or $1.30 per diluted share.

For the quarter, we reported AFFO per diluted share of $0.24 compared with $0.16 for the prior year quarter, reflecting a 50% growth rate over the prior year quarter. For the full year of 2017, we reported AFFO per diluted share of $1.37 compared with $1.51 for the full year of 2016.

Adjusted EBITDA totaled $92.4 million for the quarter compared with $84.1 million for the prior year quarter, reflecting a 10% growth rate over the prior year quarter. Adjusted EBITDA for the full year of 2017 was $419.2 million compared with $431.1 million for the full year of 2016.

When comparing our results to the prior year, it's important to remember that our prior year adjusted EBITDA included hotel EBITDA of $2.5 million and $23 million in the fourth quarter and full year period, respectively, associated with hotels that we have sold.

During the quarter, we received $600,000 in business interruption proceeds for lost profits at our Crowne Plaza Key West Hotel. At the end of the quarter, we had total assets of $4.7 billion, we had $3.7 billion of mortgage debt with a blended average interest rate of 5.7%.

At end of the quarter, our debt was approximately 10% fixed rate and 90% floating rate. All of our debt is nonrecourse property-level debt, and we have a well-laddered maturity schedule.

Including the market value of our equity investment in Ashford Inc., we ended the quarter with net working capital of $459 million. I think it's important to reinforce what Douglas mentioned earlier that this net working capital on our balance sheet currently equates to approximately $3.92 per share or approximately 70% of our current share price.

As of December 31, 2017, our portfolio consisted of 120 hotels with 25,031 net rooms. Our share count currently stands at 117 million fully diluted shares outstanding, which is comprised of 97.4 million shares of common stock and 19.6 million OP Units.

With regards to dividends, the Board of Directors declared a fourth quarter 2017 cash dividend of $0.12 per share or $0.48 on an annualized basis. Based on yesterday's stock price, this represents an 8.6% dividend yield, one of the highest in the hotel REIT space.

The board also approved the company's dividend policy for 2018. The company expects to pay a quarterly cash dividend of $0.12 per share for 2018 or $0.48 per share on an annualized basis. The board will continue to review its dividend policy on a quarter-to-quarter basis, and the adoption of a dividend policy does not commit the Board of Directors to declare future dividends or the amount thereof.

On the capital markets front, during the quarter, we completed an underwritten public offering of 5.4 million shares of our 7.5% Series I Cumulative Preferred Stock at $25 per share. Dividends from the preferred stock will accrue at a rate of 7.5% per year on the liquidation preference of $25 per share.

Additionally, during the quarter, we completed the redemption of 5,514,960 shares of our 8.45% Series D Cumulative Preferred Stock. Also during the quarter, we refinanced 2 mortgage loans. The first was a mortgage loan with an existing outstanding balance totaling $95 million secured by the Hilton Boston Back Bay hotel.

The new nonrecourse loan totaled $97 million and has a 5-year term. The loan is interest-only and provides for a floating interest rate of LIBOR plus 2%. This refinancing is expected to result in annual interest and principal payment savings of approximately $2.8 million.

The second was a mortgage loan with an existing outstanding balance totaling $413 million secured by 17 hotels. The new nonrecourse loan totals $427 million and has a 2-year initial term with 5 1-year extension options, subject to the satisfaction of certain conditions.

The loan is interest-only, provides for a floating interest rate of LIBOR plus 3% and contains flexible release provisions for the potential sale of assets. This refinancing is expected to result in annual interest payment savings of approximately $9.8 million.

Subsequent to the end of the quarter, we refinanced the third mortgage loan with an existing outstanding balance totaling approximately $377 million secured by 8 hotels. The new loan totals $395 million and has a 2-year initial term with 5 1-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 2.92%. When we originally closed this financing, the spread was LIBOR plus 3%. But after pricing with securitization of the loan, we benefited as our spread dropped to LIBOR plus 2.92%. This refinancing is expected to result in annual interest payment savings of approximately $6.8 million.

After these refinancings, including those subsequent to the quarter-end, our next hard debt maturity is in February of 2019.

The debt capital markets continue to be very attractive, and going forward into 2018, our goal is to continue to be opportunistic in accessing the debt markets to refinance a significant portion of our debt to improve our liquidity, extend our maturities and lower our cost of capital.

As is typical when short-term interest rates are going up, we have seen loan spreads compress considerably over the past 12 to 18 months. So while LIBOR has been increasing, the overall cost of debt has been decreasing.

This occurrence is very common in cycles, and our use of floating rate debt allows us the flexibility to capitalize on it by refinancing loans to lower our cost of debt with little to no prepayment penalties.

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. Our portfolio grew RevPAR 3.9% during the fourth quarter of 2017. Those hotels not under renovation grew RevPAR by 5.8% during the fourth quarter. These RevPAR growth rates surpassed that of the upper upscale change scale nationally by 70 and 260 basis points, respectively.

For the full year 2017, RevPAR for those hotels not under renovation grew 2.4%. Hotel EBITDA flow-through for the entire portfolio for the fourth quarter was 60%. Holidays had a positive impact this quarter with Rosh Hashanah and Yom Kippur shifting into September in 2017 compared with October in 2016.

We are continuously identifying opportunities to create value throughout the portfolio. I'd like to take this opportunity to highlight how we add value to our portfolio through capital investments, both large and small. In 2017, we completed and hopefully, stand the benefit from in 2018 the following major capital expenditure initiatives: guestroom renovations at Courtyard Basking Ridge, Courtyard Tipton Lakes, Hilton Garden Inn Wisconsin Dells, Marriott Crystal City Gateway, Marriott Suites Dallas Market Center, and Marriott Omaha; public space renovations at Hyatt Regency Savanna and Marriott DFW airport; and guestrooms and public space renovations at Hampton Inn Parsippany, Homewood Suites Pittsburgh, Le Pavillon, Residence Inn Lake Buena Vista, Residence Stillwater and Residence Inn Tampa. Currently, we have 7 full-service hotels undergoing extensive renovations. Marriott Research Triangle Park, Le Meridien Chambers Minneapolis and Sheraton Anchorage are all undergoing guestroom renovations.

The latter 2 are also undergoing public space renovations that began in 2017 and are scheduled to be completed this month. Embassy Suites Santa Clara and Westin Princeton are undergoing guestroom renovations, while Embassy Suites Walnut Creek has a public space renovation, all of which are set to be completed during the second quarter.

Currently, one of our largest projects is the guestrooms, suites and concierge lounge renovation taking place at the Ritz-Carlton Atlanta. We expect this renovation to complete in early fourth quarter 2018. We look forward to completed work at these properties and the positive impact we expect this will have on the portfolio going forward.

I also wanted to provide a quick update on progress on the Renaissance Nashville renovation in conjunction with the Nashville Convention Center redevelopment. The first phase of the redevelopment is winding down, which will return the grand ballroom, junior ballroom and a stunning new conference center lobby back to the hotel in early April.

Upon completion of that new meeting space, we will continue to have approximately 13,000 square feet of meeting space in the Nashville Convention Center under renovation until early 2019 as well as 14,000 square feet of meeting space in the main hotel tower under renovation for May through November of 2018 in conjunction with the upcoming lobby renovation.

Despite the disruption from the meeting space transformation, the properties continue to achieve positive results, which we attribute to our strong partnership with Marriott.

During the fourth quarter, RevPAR grew 4.8% and hotel EBITDA flow-through was 69%, We look forward to the completion of this transformational change to Nashville's downtown with the addition of a new office tower, residential, retail and museum, all adjacent demand generators and sharing the same city block with our Renaissance Nashville.

During 2018, we will continue to invest in our portfolio to maintain competitiveness. In total, we estimate spending approximately $165 million to $185 million in capital expenditures during the year, which is lower than our 2017 spend of approximately $222 million.

CapEx will primarily be comprised of guestroom renovations at the Hyatt Regency Coral Gables, Westin Princeton, Ritz-Carlton Atlanta and the Hotel Indigo Atlanta. In addition to these guestroom renovations, we will complete a comprehensive lobby and restaurant repositioning at the Renaissance Nashville. As you can see, we have been very active recently in refreshing our high-quality hotels.

In addition to major renovations and repositionings, we also focus on finding opportunities and projects where smaller expenditures can quickly add value to our portfolio and have a significant effect on growing hotel EBITDA. For instance, we constantly strive to reduce energy consumption and our portfolios' carbon footprint.

One example of this is reducing water consumption through more efficient showerheads and sink faucet aerators. In 2017, across 25 hotels, we spent $300,000 on aerators and showerheads, which are estimated to save us $280,000 each year or essentially a 1-year payback.

Additionally - another way in which we have added value to our portfolio is through our energy-hedging strategies. We take an active approach analyzing data by market and by hotel to determine the appropriate service provider as well as contract length.

For energy contract signed in 2017, which represented only a portion of all energy contracts in the portfolio, we expect to realize an estimated annual savings of at least $700,000, which flows almost entirely to hotel EBITDA.

Another important topic is the wage pressures facing our industry. Recently, we have seen significant impact with minimum wage increases in California and Portland. These increases not only impact associates who receive the minimum wage increase but also may impact wages for more experienced workers and supervisors by necessitating increases in order to maintain the appropriate spreads between entry-level and experienced rates.

In addition to minimum wage increases, 2 of our New Jersey hotels, Marriott Bridgewater and Courtyard Basking Ridge, have had to make wage and service charge distribution changes this year in order to stay competitive. These hotels also increased medical benefits at the beginning of the fourth quarter in 2017.

Despite the wage pressures, we have had success maintaining margins. Hotel EBITDA flow-through at the Courtyard Basking Ridge was 60% during the fourth quarter. All rooms expenses, of which labor makes up a significant portion, increased 14.1%.

Rooms department profit managed to increase by $72,000 or 3.2%. A similar story played out at the Marriott Bridgewater. Hotel EBITDA flow-through for the quarter was 68%, and rooms department profit actually increased by $176,000 or 5%.

Overall, with respect to our asset management opportunities, we remain diligent in continuing to mine for value in our existing assets on the revenue and cost side. We are tenacious in this effort and look forward to providing future updates.

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

Question-and-Answer Session

Operator

[Operator Instructions] First up from Deutsche Bank, we have Chris Woronka.

Chris Woronka

Hey. Good morning, guys. I want ask you - I appreciate the commentary about seeing a little bit more in the potential acquisition pipeline. But to the extent that if that doesn't come through for you, how are you may be thinking about share repurchase at your current stock level?

Douglas Kessler

Thanks, Chris. Look, I think that we are seeing, first of all, in the pipeline more deals coming to the market. The flow of deals currently is much greater than it was at the end of the year, and I think that we will continue to bid. We'll continue to show the discipline. And we're focused on, I think, the right metrics that create value for our shareholders, which is why based upon what we've seen recently, we haven't been that active. But with more transactions, we think that it'll create more opportunities to be selective.

So as to your question whether or not if we're not successful and what do we do with the excess cash, and specifically with respect to buybacks, I think that I believe this board and this management team have a very clear understanding of the potential benefits, and the timing of share buybacks is unquestionably evidenced by what we've done in the past with our track record. I mean, just look back to what we did during the global financial crisis. So I think we appreciate and understand what those benefits can bring.

And recently, our board reauthorized an existing buyback subject to implementation. So we're constantly evaluating use of our cash. Buybacks can be meaningful if done at the right time and the right amounts.

We also have to evaluate the impact on our liquidity given that our equity market cap is also small. So we are looking always at opportunities to make the best use of our capital.

Chris Woronka

Okay. Great. Probably a question for Jeremy. Can you maybe directionally tell us if there's going to be more - fewer or more hotels under renovation in '19 versus your '18 schedule?

And then kind of a second part of it, are you - how are you kind of viewing the - some of the CapEx and the PIP plans from the brands these days? Are they becoming more or less onerous? And how does that kind of fit into your overall CapEx schedule?

Jeremy Welter

Okay. Stay on for a second. I just want to clarify. You want '19 clarity versus 2018 on CapEx, right?

Chris Woronka

Just kind of directionally whether there's fewer or greater hotels that you expect to renovate, '19 versus '18.

Jeremy Welter

Yes, it's early days on that. We go through - we actually spread out our approvals with our board throughout the year just so we can space out the capital of works we're not renovating all at the same time. But we haven't done any - we've done some approvals for as early as 2019.

But if I were to guess now, I would estimate that it would be slightly down from our 2018 capital spend, but it's early days. But specifically to 2018, which I can give you, we've given you the guidance, it's mostly front-loaded in the first half and primarily in the first quarter.

I do think when you get to Q3 and Q4, we have less CapEx, less hotels under renovation, and the severity of the capital expenditures should be less invasive than what we had in 2017 versus that second half of 2017.

As it relates to the brands, yes, I think that - I definitely think that they're going to be a little bit more onerous across the board on our PIP requirements. We're - fortunately for us, we're pretty active. I mean, we're actually very active in extending our franchise agreements.

And so we extend them - no - we try no later than 5 years out, so we have some optionality on when we want to enter into that agreement. And when we do it, we do it on extension that comes with a PIP, but we negotiate pretty heavily.

And what I would say is that, specifically Marriott we're seeing that they're taking advantage of their larger platform and especially with some of the Starwood Hotels that probably have been undercapitalized, historically.

And so I would expect them to be a little more difficult going forward, but we haven't really had any issues because we've maintained those assets pretty well. I would say that what we're seeing is probably more requirements on select service, more invasive requirements.

I mean, there's some select service hotels that you're seeing in PIPs now, they're full shower conversions. I mean that - just I would never have guessed that a few years ago. As well as complete reenhancements of the facade just to modernize the building. So that's something we don't have in our full service hotels. So fortunately for us, we're predominantly still a full-service REIT.

Chris Woronka

Okay. Very good. Thanks, guys.

Operator

Our next question will come from Bryan Maher with B. Riley.

Bryan Maher

Good morning, guys. Just - can you - I know you touched upon this in your prepared comments on the calibrating your dispositions. But can you give us an update on what you're seeing with the select service hotels that you have for sale? Are there bidders? Is the gap just too wide? What are you seeing there? How should we be thinking about that?

Douglas Kessler

Thanks, Bryan. We haven't commented on any select service assets that we have for sale. I think as evidenced here, we're just being selective and opportunistic in making sure that the analysis is, basically, one that is 360 degrees.

I don't want to be repetitive with all the data points that we're looking at. But I think that's pretty clear in our comments that we have to weigh, for example, the fact that we have EBITDA that we would want to replace.

And clearly, we have a track record of asset sales. We've been selling whether it's select. Or even last year and the year before we've sold, I think, over the past couple of years 3 full-service hotels. So we're looking at selling assets when we do so on a brokered basis as well as on a one-off unsolicited basis.

And so I think we're just being opportunistic. And again, I think our strategy to sell assets is left dictated by fulfilling any sort of strategic objective and really just focused on the economic benefits of doing it. So that's really all I can say about selling, whether it's select or full service hotels in our portfolio.

Bryan Maher

Well, I guess to clarify, I don't know if it was a year or 2 ago, I mean, there was a goal to sell a chunk, if not all, eventually your select service hotels. Is that still a goal whether it's this year or within the next 5 years?

Douglas Kessler

I think that was a comment that we made 3 years ago about monetizing, and obviously market conditions have changed quite a bit over time, and opportunities and cash positions, and redeployment situations. All that, I think, obviously has changed. That was a while ago.

So when we say that our strategic focus is to be predominantly in the upper upscale full service segment, that again doesn't mean that we will pursue a strategy just for the sake of strategy implementation unless we feel that at that time and for the right dollar proceeds and the right value that we receive for the assets it will implement anything related to directional shifts or ownership changes in assets. We're pretty pleased with the performance of these assets.

Although recently in the past quarter, the full service hotel RevPAR growth was stronger than select service, but that hasn't necessarily always been the case through 2017. And so we benefit from having these assets in the portfolio. We're not necessarily, in our opinion, losing value by having the assets.

And I think as you've seen by the trade that we announced on this earnings call, when we sell, if we sell anything, we're going to try to do it at values that are attractive to our shareholders.

Bryan Maher

Thanks.

Operator

And next from Janney Capital Markets, we have Tyler Batory.

Tyler Batory

Yeah, thanks. Good morning. Thanks for taking my questions. So going back to some of the comments on the margins side of things, Jeremy, wondering if you can make some comments on what you're seeing on the OTA side of things, maybe with distribution costs. I'm not sure if anything has really changed on that front over the past year or so.

Jeremy Welter

Sure. Yes, so it continues to change. I mean, as the contracts come up, the pricing as a percentage of revenue continues to come down. And so one of the things that we're benefiting is owning some Starwood hotels.

They can get the benefit of Marriott's contract, which is more favorable. But what we are seeing from a distribution standpoint is that OTA volume is still outpacing brand.com volume. And so we're seeing more growth in the OTA channels. But again, that's on a much smaller overall percentage of revenue.

So just to give you just kind of a ballpark, we're about maybe 11%, 12% of our volume is through OTAs on our entire portfolio, and that includes our independent hotels, and then our direct website contribution is about 30%. Total direct channel would be quite bigger than that. There's still some other direct channel subways and other lower cost direct channels.

But we are seeing more growth in the OTA volume relative to other channels. I'd say in the fourth quarter, what was interesting is that every segment in our portfolio grew with the exception of just straight retail demand, and so it was nice to see an increase in business transient demand in the fourth quarter.

Tyler Batory

Got it. That's helpful. And then a question for you on the group business. I mean, can you talk about what you saw maybe in the fourth quarter? And I don't know if there's any general comments you can make on how group business talks next year?

Jeremy Welter

Sure, yes. So our group pace for 2018 is up about 4% for the portfolio, so it's relatively strong. In the fourth quarter, it's a little bit - we are actually positive in group, but it's a little bit skewed because we had to mix a lot of group out of our national Renaissance hotel when the meeting space has been taken out. And so that's - in spite of that, we still have positive group contribution in the fourth quarter even though we had mixed out to transient.

Tyler Batory

Okay, great. That's all from me. Thank you.

Operator

[Operator Instructions] Next, we'll move to Michael Bellisario with Robert W. Baird.

Michael Bellisario

Good morning.

Jeremy Welter

Good morning.

Michael Bellisario

Just kind of back on that the small disposition. Maybe what portion of your remaining select service hotels are kind of like this one, where it has CapEx needs and you kind of think about the multiple on the cash flow plus kind of expected CapEx needs thought process?

Douglas Kessler

We have about 60 select service hotels, and we're constantly evaluating not just the CapEx but also just what's our expected RevPAR growth on those assets, as well as when we look at the spend. And I think your question is probably directed to: Because of that situation, would we trigger more sales? Remember, some of these assets are also in debt pools that are, at times, difficult to release assets.

But Deric and his team are doing a great job of refinancing many of our existing loan pools in order to give us added flexibility. So it's fairly fluid analysis. I mean, obviously, the lower the RevPAR, the higher the CapEx spend to the extent that we can achieve an appropriate valuation, the more motivated we might be from a pecking-order standpoint to sell that asset over, let's say, one of our more urban select service hotels like in Boston or in Austin, as another example.

So we - I think you've hit it right on the head in terms of if you were to prioritize, what sort of would be more on our pecking list if we were to consider selling more assets. And so we're thinking about those types of things, Mike.

Michael Bellisario

Got it. That's helpful. That's where I was going with the question. And then just sticking to the transaction front, maybe on the buy-side, what are you seeing on the full service side? Any portfolios or opportunities out there that would maybe give you competitive advantage when bidding, maybe pairing up with Prime?

Douglas Kessler

We haven't seen very many large portfolios. We've seen a few deals out there and obviously - Hyatt traded on one that was announced with Host. But most of the portfolios we've seen today so far have been 3 to 5 assets and with not much overlap with any sort of opportunity to join forces with Ashford Prime. But we do see, as I said earlier, a healthier flow of assets at prices that seem to make a little bit more sense.

Again, it gives us really - our footprint gives us the opportunity to have a wider look, if you will, at investment opportunities just because of the types of assets that we're pursuing and the markets we're willing to engage in.

And we really are trying to find a healthy balance between the accretion, the internal rates of return, the RevPAR of the asset; factors, all of which we think lead to a better share price performance. So for that reason, I think we feel at least better looking at the pipeline today than we did a quarter ago.

Michael Bellisario

And then maybe as you think about the sources and uses of capital for those acquisitions, let's say you completed 1 or 2 or 3 deals, will that maybe trigger an increased focus on the select service sales? Or will that still also remain opportunistic?

Douglas Kessler

We're sitting on a fair amount of excess cash, and so we feel like we've got capacity, given sort of the size of the pipeline right now if we find something of interest to utilize some of that excess cash. And you're right, we do also have the optionality of looking at possible future sales of whether it's select service or we'd also have some full service hotels that we might put on the radar to consider selling as well.

And we have a good history throughout our past of recycling capital and redeploying that into a better yielding investment opportunities for shareholders. And so I think that, that's been a consistent theme with our platform, and certainly, could see that in the future.

Michael Bellisario

Thanks. That's all from me.

Operator

Moving on, we have Robin Farley with UBS.

Unidentified] Analyst

Hi, thanks. This is actually Arpine for Robin. So industry-wide RevPAR saw some support from hurricane aftermath activity in Q4. Could you perhaps go through how much of that impact is RevPAR for the fourth quarter and perhaps some spillover effect of that in Q1 as well?

And then it sounds like the industry-wide cost inflation is in sort of the 2% to 3% range or more. But perhaps, you could identify some offsetting factors to that. What I'm trying to understand is how much RevPAR growth you need to keep EBITDA margins flat for 2018.

Jeremy Welter

Sure. This is Jeremy. So specifically for the fourth quarter - I can't comment on the first quarter to back out any hurricane-related business. But for the fourth quarter, if you take out our Houston, Georgia and Florida hotels, it impacted our portfolio by positively about 150 basis points. So excluding those markets, RevPAR would have been up 2.4%.

But I do think in some cases, they would have been - those markets would have performed well anyway. As it relates to margins, there's all sorts of initiatives not pertaining as we have that we do to maintain our margins. I think we've got a great track record of doing that over a long period of time, and our expectation is to continue to do that.

I know that if you ask that same question, a lot of peers will say that it's maybe about 2% to 3% of revenue growth to keep the same margins. If you look at 2017 for Trust, our revenues were only up 28%, and we're able to grow our margin 7 basis points. So I think we've got a great track record of maintaining margins in tepid growth environments.

Unidentified] Analyst

Thank you very much.

Operator

All right, and ladies and gentlemen, that concludes today's question-and-answer session. I'd like to now turn the conference over to management for any additional or closing remarks.

Douglas Kessler

Thanks for joining today's call, and we look forward to speaking with you again next quarter.

Operator

All right, and ladies and gentlemen, that does conclude today's call. Thank you for joining us. You may now disconnect.