Ashford Hospitality Trust, Inc. (AHT) Earnings Call Transcript & Summary

Greetings, and welcome to the Ashford Hospitality Trust Fourth Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordan Jennings Investor Relations. Thank you, Jordan, you may begin.

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 2022, and to update you on recent developments. On the call today will be Rob Hays, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Chris Nixon, Executive Vice President and Head of Asset Management. The results as well as notice of accessibility of this conference call on a listen-only basis over the internet were distributed yesterday afternoon in a press release. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to 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 21, 2023, and may also be accessed through the company's website at www.ahtreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. Also, unless otherwise stated, all reported results discussed in this call compare the fourth quarter and full year ended December 31, 2022 with the fourth quarter and full year ended December 31, 2021. I will now turn the call over to Rob Hays. Please go ahead, sir.

Good morning. Welcome to our call. After my introductory comments, Deric will review our fourth quarter and full year financial results, and Chris will provide an operational update on our portfolio. The main themes of our call today are: first, we saw ongoing RevPAR improvement in the fourth quarter versus 2019, and expect continued strength to the first quarter of 2023. Second, our liquidity and cash position continue to be strong. We ended the quarter with approximately $519 million of net working capital, which equates to approximately $14 per diluted share. With yesterday's closing stock price at $5.69, we believe, we're trading at a meaningful discount to both our net asset value per share and our net working capital per share. Additionally, to the extent there's a hiccup in the economy, we have the flexibility to access undrawn capital, if needed, via our strategic financing. Last main theme of our call is that we have commenced the offering of our non-traded preferred equity security. Importantly, we believe, this offering will provide an attractive cost of capital and allow us to clearly grow our portfolio over time subject to future market conditions. We believe the access to this growth capital is a significant competitive advantage, particularly given the fact that lodging REITs are currently trading at material discounts to their net asset values. To the extent we are successful with our non-traded preferred capital raise, our preference would be to use that capital for future growth, though we may also use some of that capital to pay down debt as needed. We continue to build a syndicate for this product and currently have 22 signed user agreements representing 4,349 representatives selling this product. We're still very early in the capital raising process, and to date, we have issued approximately $4 million of gross proceeds. We expect this fundraising momentum to accelerate, as we get further into 2023. Let me now turn to the operating performance in our hotels. The lodging industry continues to show signs of strength. RevPAR for all hotels in our portfolio increased approximately 25% for the fourth quarter compared to the prior year quarter. This RevPAR result equates to a decrease of approximately 1% compared to the fourth quarter of 2019, which is the best performing quarter versus 2019 and several years. One of our main priorities for 2023 is maximizing our operating performance, to minimize potential paydowns for any extension tests associated with our property level debt. We've already made great progress on our strength with our recent refinancing of the loan secured by the Le Pavillon Hotel, the extension modification of a loan secured by the Hotel Indigo Atlanta, and the extension and modification of the JPMorgan Chase-8 Hotel loan. Deric will talk about these in more detail. While we feel well prepared for the remaining upcoming extension tests, there may be situations where we have loan balances that exceed the current market value of the underlying hotels. If those situations arise, we may give back assets to lenders or allocate capital with a focus to maximize value for our shareholders. Looking ahead, we believe, our geographically diverse portfolio consisting of high-quality assets with best-in-class brands and management companies, is well positioned to capitalize on the strong demand we're seeing across leisure business and group segments. We also believe that our relationship with our affiliated property manager, Remington, really sets us apart. Remington has been able to consistently manage costs and optimize revenues aggressively, enabling us to outperform the industry from operations standpoint for many years. Additionally, capital recycling remains an important component of our strategy and we continue to pursue some opportunities to sell certain non-core assets. We have identified several assets that we may bring to market for sale if market conditions warrant. We expect any net proceeds from the sale to go towards paying down debt. Turning to investor relations. We continue to have a robust outreach effort to get in front of investors, communicate our strategy and explain what we believe to be an attractive investment opportunity in Ashford Trust. We have attended numerous industry and Wall Street conferences, which have led to over 600 investor meetings over the past year. We have several conferences coming up this year, and we look forward to speaking with many of you during those events. We believe we have the right plan in place to move forward and maximize value at Ashford Trust. This plan includes continue to grow liquidity across the company, optimizing the operating performance of our assets, improving the balance sheet over time, and looking for opportunities to invest and grow the portfolio. We have a track record of success when it comes to property acquisitions and joint ventures asset sales. We expect them continue to be a part of our plans moving forward. We ended the fourth quarter with a substantial amount of cash on our balance sheet. And with the launch of our non-traded preferred stock offering, we are excited about the opportunities we see in front of us. And now I'll turn the call over to Deric to review fourth quarter financial performance.

Thanks, Rob. For the fourth quarter, we reported a net loss attributable to common stockholders of $60.2 million, or $1.75 per diluted share. For the full year, we reported a net loss attributable to common stockholders of $153.2 million or $4.46 per diluted share. For the quarter, we reported AFFO per diluted share of $0.16, compared to a loss of $0.9 per diluted share in the prior year quarter. And for the full year we reported AFFO per diluted share of $1.85 compared to a loss of $1.23 per diluted share in the prior year. Adjusted EBITDAre for the quarter was $69.1 million, which reflected a growth rate of 70% over the prior year quarter. Adjusted EBITDAre for the full year was $287.3 million, which reflected a growth rate of 153% over the prior year. At the end of the fourth quarter, we had $3.8 billion in loans, with a blended average interest rate of 7.2%, taking into account in-the-money interest rate caps. Considering the current levels of LIBOR and SOFR and the corresponding interest rate caps, 100% of our debt is now effectively fixed as all of our interest rate caps are in-the-money. These caps are typically structured to expire simultaneously with the maturity date of the underlying loans, and many of these caps will expire during 2023, as we have several loans with initial maturity dates in 2023. Both of these loans have extension options that include the requirement to purchase additional interest rate caps at the time of the extension. In anticipation of these extensions, last year we purchased forward starting interest rate caps as a hedge against these future purchases. If interest rates remain elevated, the value of these pre-purchase caps should help defray the cost of any new caps we need to purchase. On the capital markets run during the quarter, we successfully refinanced the mortgage loan secured by the 226-room Le Pavillon Hotel in New Orleans, Louisiana, which had an extension test in January, 2023. The new non-recourse loan totaled $37 million, the same loan amount as the previous loan. And as a 2-year initial term with 3 1-year extension options subject to the satisfaction of certain conditions. The loan is interest only and provides for a floating interest rate of SOFR plus 4%. Additionally, during the quarter, we modified and extended the mortgage loan secured by the 141-room Hotel Indigo Atlanta in Atlanta, Georgia, which had an extension test in December, 2022. As part of this extension, we made a small payout of the loan and the interest rate was changed from LIBOR plus 2.25% to SOFR plus 2.85%. Additionally, subsequently at the end of the quarter, we successfully modified and extended our $395 million JPMorgan Chase-8 Hotel loan. As part of this extension, we made a $50 million principal paydown and reduced the 2024 debt yield extension test from 9.25% to 8.5%, giving us significantly more flexibility for the next extension. We only have 2 loans with a combined balance of approximately $98 million with final maturities in 2023. We are currently working with lenders on these refinancings. We have additional loans that are subject to extension test this year. And with our significant cash balance and continued improvement and hotel operations, we believe, we are well prepared to meet any potential loan paydowns required to meet those tests. Our property level hotel loans are all non-recourse of the company. And currently, 79% of our hotels are in cash traps, which is down from an 85% last quarter. A cash trap means that we are currently unable to utilize property level cash for corporate related purposes. Importantly, during the quarter, the Marriott Gateway and KEYS Pool D portfolio loans came out of their respective cash traps, and approximately $9 million of cash that had been trapped. was released to corporate after quarter end. As the remaining properties recover and meet the various debt yield or coverage thresholds, any trapped cash will be released to us and we will be able to utilize that cash freely at corporate. At the end of the fourth quarter, we had approximately $34 million in these cash traps, which is reflected in restricted cash on our balance sheet. We ended the quarter with cash and cash equivalents of $417 million and restricted cash of $142 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 $22 million and due from third-party hotel managers. This primarily represents cash held by one of our property managers, which is also available to fund hotel operating costs. We also ended the quarter with net working capital of approximately $519 million. As Rob mentioned, I think it's important to point out that this net working capital amount of $519 million dollars equates to approximately $14.00 per share. This compares to our closing stock price from yesterday at $5.69, which is an approximate 60% discount to our net working capital per share. Our net working capital reflects value over and above the net 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. Rob mentioned that we have commenced the offering for our non-traded preferred stock. We are offering this product through the Ashford Securities platform, and have been pleased with the progress that's been made in building the syndicate of selling broker dealers. We currently have 22 signed dealer agreements representing 4,349 reps that are currently selling this product to their clients. We expect the momentum of this capital rate to ramp up as we progress through 2023. This is attractive capital for us. It can be used for acquisitions, debt paydowns or other corporate purposes, and we look forward to reporting back on our progress. As of December 31, 2022, our consolidated portfolio consisted of 100 hotels with 22,316 rooms. Our share count currently stands at approximately 36.2 million fully diluted shares outstanding, which is comprised of 34.5 million shares of common stock and 1.7 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 or equity market cap is approximately $206 million. While we are currently paying our preferred dividends quarterly, we do not anticipate reinstating a common dividend for some time. Over the past several months, we've taken numerous steps to strengthen our financial position and improve our liquidity, and we're pleased with the progress that we've made. Our cash balance is solid. We have an attractive maturity scheduled. Our non-traded preferred security offering is effective, 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. I would now like to turn it over to Chris to discuss our asset management activities for the quarter.

Thank you, Deric. I'm proud of the work that our asset management team accomplished during the fourth quarter to drive operating results and close out a remarkable year for performance at our hotels. Comparable RevPAR for our portfolio increased by 25% in the fourth quarter compared to the prior year quarter. For the quarter, our portfolio recovered 99% of its RevPAR relative to the fourth quarter of 2019. Our team has strategically positioned and enhanced our assets to effectively capitalize on the markets recovery. We continue to be encouraged by the acceleration we are seeing in our urban assets. During the fourth quarter, 38% of our urban assets exceeded their 2019 RevPAR. For comparison, only 10% of our urban assets exceeded 2019 RevPAR levels during the first quarter of 2022. The improvement in our urban hotels continued through the quarter, with December seeing 48% of our urban hotels achieve a RevPAR above 2019. Our team has been laser focused on identifying additional opportunities to maximize value. Our other department revenue which includes valet, spa services, corner pantries and more, increased 19% on a per occupied room basis to 2019. Within our urban hotels, other department revenues per occupied room in the fourth quarter increased 24% relative to 2019. An example of the success was demonstrated at W Atlanta Hotel where we utilized services such as parking, spa and in-room entertainment to propel fourth quarter other revenues 34% above comparable 2019 levels. During the fourth quarter, our portfolio exceeded group room revenue relative to the same time period in 2019 by 2%, and we continue to see acceleration from this segment. Group revenue booked in the fourth quarter for the quarter exceeded comparable 2019 by 24%. Our long-term group momentum shows encouraging signs with group 4-bookings during the fourth quarter exceeding the previous 3 quarters. In fact, December was the best month of 2022 in terms of 4-bookings for group. Our lead volume has also improved every quarter this year relative to 2019. We are excited about this momentum heading into 2023 and what the favorable group volume will mean for our portfolio. Well, actually, I would like to comment on the record performances within our portfolio. The portfolio had 31 Hotels at all time high fourth quarter records in RevPAR and 20 hotels at all time high fourth quarter records and comparable hotel EBITDA. Collectively, these 20 record breaking hotels exceeded their previous comparable hotel EBITDA records by 17%. We are starting to see this expand beyond the leisure dominated markets into large urban areas. During the fourth quarter we have assets in Atlanta, Philadelphia, Baltimore, Las Vegas, Washington DC, Denver and New York exceed historical highs in addition to various leisure markets. Moving on to capital expenditures. We've noted in previous calls, and we've taken a proactive approach to renovating and repositioning our hotels. That commitment has now resulted in the competitive and strategic advantage, as demand continues to accelerate. We spent approximately $104 million in capital expenditures in 2022 and currently anticipate spending between $100 million and $120 million in 2023. We recently completed a guestroom renovation at the Marriott Fremont as well as public space renovations at the Residence Inn Fairfax Merrifield, the Residence Inn Salt Lake City and the Courtyard Newark Silicon Valley, as well as the meeting space at Hyatt Regency Coral Gables. Before moving on to Q&A, I would like to reiterate how encouraged we are about the recovery of our portfolio and industry as a whole. Each quarter of this year has shown improvement with many of our hotels already outpacing their 2019 performance. During the fourth quarter, 41% of our hotels exceeded their comparable hotel EBITDA for 2019, which is an increase over 11% achieved during the first quarter. After meeting with our various partners throughout the budgeting process, we are optimistic about our portfolios position to capitalize on the industry revitalization. This concludes our prepared remarks. We will now open up the call for Q&A.

[Operator Instructions] Our first question is from Tyler Batory with Oppenheimer.

There's been a lot of discussion so far this earnings season about your margins, cost structure. So just kind of a general question on that topic. What are you seeing in terms of wages, incremental costs? And I know as we look, 2023 versus 2022 is certainly pretty favorable comp earlier in the year, but on the margin performance you put up kind of Q3, Q4 compared with 2019, and would you think that's sustainable next year?

Yes. So we're experiencing the similar challenges to what others are feeling. Hourly wages are continuing to increase. The labor market while improving, is still not quite where we need it to be. There's inflationary pressures that are driving cost increases. We're seeing increases in utilities. I think when we look at that, the thing we're encouraged most about this portfolio is it still has quite a bit of runway ahead of it in terms of its recovery. And we're seeing strong sequential improvement each quarter and revenue gains and ADR gains and occupancy gains. And so, when we look at our margin performance for Q4, we had even a margin that was over 400 bps higher than Q4 of 2021. And I think we expect margin growth to continue as we get further along in the recovery and realize some real RevPAR and real ADR growth relative to 2018. The biggest thing that we can control really is our staffing models. And we've done a great job partnering with our hotels to kind of revamp and zero base our staffing models. From a labor standpoint, right now we're at about a 45% of pre-COVID staffing levels. And that does include some contract labor, that we're optimistic, will transition back to in-house labor throughout this year. And so, there should be some savings associated with that. But from a wage standpoint, we're seeing increases still. We saw mid to high single digit increases in Q4. We're seeing signs that is cooling, and we expect that to continue to cool as we kind of get through the year.

And one other point I'd say, Tyler, is, we historically speaking, typically talked about EBITDA flows and always try to target kind of 50% EBITDA flows across our asset management team and our property managers that we work with. For the fourth quarter, I think our EBITDA flows were around just over 40%, 41%, 42%, which is, I thought, a pretty strong result given the headwinds that they're facing. And so, I think that's probably more consistent with what we're going to continue to try to achieve, is can we keep it in that 40% or higher range, but we'll see. It definitely is tough going out there right now.

And then in terms of the extension test this year, how are you feeling about those? Anything you can say about perhaps your early conversations you're having? I'm kind of interested any high-level thoughts on the refinancing environment broadly, too?

Yes, absolutely. We've got 2 significant ones really left this year. We have our Highland portfolio that is in April and our KEYS pools, which are in June. And so, we've been having discussions with both those groups. And we feel like we're in good shape that we still have some work to do, particularly on the KEYS pools, just because it's bigger, it's little more complicated, it's got different tranches. There's different people, most players in each tranche. So it's a little more of a complicated situation. But we do feel good about making progress. Fortunately, for both of those loans, they will be on the back side of the first quarter. So we'll obviously lap the weak first quarter of 2022 as most of these extension tests are TTM tests. So getting rid of the first quarter last year is very, very helpful and sizing up any potential paydowns on those tests. And as we continue to see numbers improve, I think the -- it's likely the -- I think the Highland paydowns are probably fairly small, hopefully less substantial than what we saw with our JPMorgan 8 pool. The KEYS pool is -- gets a little bit more complicated, and we're still kind of just now beginning substantive discussions with the servicers on that one.

In terms of the refinancing market, it continues to be a difficult time to get hotel financing. Thankfully, we don't have a lot of final maturities this year, so we don't need to be in the market seeking much debt financing. And the financing that we have in place is pretty attractive from a spread perspective. So we'd like to keep the debt that we have in place as long as we can, by exercising these extension options. Hopefully, as we progress through the year and the market gets some visibility on what the Fed is going to do with interest rates, we'll start to see spreads come down to where it can be a little bit more attractive to get debt financing. And – because obviously, we've got a lot of maturities that we will have to address in the outer years, and we want to get in front of those. And so, as soon as we can access attractive debt capital to push out maturities, we will be doing that.

Our next question is from Chris Woronka with Deutsche Bank.

Just to kind of revisit the 2023 maturities you're talking about. Rob, I know you mentioned handing KEYS back is always an option. What -- when you think about that, is it always purely a financial decision? Or is there more of a strategic decision in terms of, not just what a hotel can generate in EBITDA, but your assessment of, I guess, current market value or NAV?

Well, I mean, there's, I guess, a subjective aspect as you're trying to distill things down into a quantitative decision. I mean, you're trying to figure out where are those pockets of value that maybe something can become something else. But at the end of the day, it's still going to come down to financial decisions. I mean, we -- we've been through situations in our past, whether it's through the financial crisis or the early stages of COVID, where we work with lenders and try to come up with solutions in order to try to keep assets alive and going. Sometimes you just can't come to those agreements and you end up giving back assets. And those are just financial decisions. And we -- I think we gave back 15 assets during the early stages of pandemic, and I don't think we regret any one of those from a economic standpoint, as we sit here today. So I think that's what we look at. We get -- we'll typically get BOVs from some of the big national valuation firms or brokers to see where the market is. We kind of look through the strategic plan of where do we think this asset is, what's the CapEx required in it, right? Because we have some assets that -- you're right, they're willing to keep only because you see some longer-term upside after an effective CapEx program or something. And you have others that -- maybe you have a big CapEx numbers coming up and it just doesn't make any sense in terms of keeping the asset. So you kind of wade through all of that. And I think what we try to do is do a rebuy analysis, where we just pretend like we were going to -- this capital that we're putting in is what it would cost to take down the asset, and would we do that today given what we see and how we underwrite it. So we keep it fairly straightforward and to know where we think value is. And then all you can do is go in with good faith with the lenders, and lay out here is the situation where we are. And do they have ideas and do we have some ideas on ways to -- that makes sense for everybody. And you hope that those work because you're working in good faith. But sometimes the math is what it is, and the situation is what it is, and you have to give it back. So we're hopeful that, that doesn't have to happen. But we definitely -- it's possible. So we just try to make the best decisions we can for our shareholders.

And then on the KEYS portfolio on the different pools, given that the dates are all the same, is there any thought or any possibility to essentially restructuring the composition of those pools at all?

I mean, I guess, there always is. I mean, we'll be talking with the servicers and -- with that loan. Given the way it was securitized, is that effectively, the senior pieces are kind of all securitized together, so the controlling holder of one is the controlling older of each. So it's a little bit more of a complicated structure, even though each pool in its own right is still treated as a separate pool. So there's just some, I guess, complexity around that where something like that, I think, is technically possible, but I would find breaking up maturity dates -- change in maturity date is probably less likely as an outcome. I think it's more of -- we'll look at each of those 6 pools, what to see where we see value, look where the CapEx is over the next few years. We have the ability in the documents to paydown the loans in order obviously to hit these extension tests. So we'll -- we've got views around what we think those are, given different variations of forecasts, and we'll talk to the lenders about those and see if we can come to a situation that works for everybody.

Just a quick follow-up for Deric. I probably -- Deric, I think you mentioned that the cash trap was released on the Pool D. And it looks like the net income yield on that is the highest, but the EBITDA yield is actually higher in the E pools. Is the net income yield the determining factor over EBITDA?

Correct. For the cash trap, it's typically an NOI, which -- the EBITDA that we show in our earnings release is before deducting an FF&E reserve. And so, the NOI debt yield is calculated after deducting an FF&E reserve, and that's what's determinative when calculating the cash traps.

[Operator Instructions] Our next question is from Bryan Maher with B. Riley Securities.

A couple of questions. First, maybe, Deric, can you give us an update on the Oaktree Financing, the thoughts with respect to repaying that? And if you were to repay, what's currently outstanding there? Could you recap that? Or could you only recap or cap the -- that's available now?

Yes. So we've currently got about $196 million outstanding on it, that's been paid down some from an asset -- proceeds from an asset sale. It really -- that portion of it became freely prepayable in January of this year. There was a prepayment penalty prior to that, so it's now open for prepayment. If we were to pay that down, we would still have access to the additional $250 million that's available. It's obviously expensive capital, and we'd rather not draw that if we don't need it, but it's there and we ultimately do need it. And look, in terms of plans for paying that down, I think we'll just have to see how the year progresses. We're sitting on a lot of cash. It's one of the reasons why we raised capital in 2021 in anticipation of wanting to pay off this debt. But then also, we knew we would be facing these extension tests, and there was some uncertainty and there still is some uncertainty in terms of the cash that will be needed to meet those extension tests. So I think once we get past this round of extension tests, we'll probably have some more clarity. We also would like to see how this capital raise ramps up from our nontraded preferred, which we're still very early days on. And so, I don't know if Rob wants to add anything to that.

I would just say, in my mind, it's really just dependent upon 3 different things. What happens on the trajectory of this recovery? Do we have a recession that hits us in a significant way? Right now, we're not seeing that, but that's always a little bit of a risk. And then just the trajectory of the recovery of the debt markets to the extent that the debt markets can heal up a little bit. Then it's -- we've also -- either have the ability to potentially refinance them out at a lower spread, or had some alternatives around maybe another structure that's materially cheaper. And 3, just kind of the pacing as Deric mentioned, of this nontraded preferred, if this capital continues to accelerate, as we're hopeful it might be able to, then there could be also some proceeds that give us some cushion to be able to deploy cash to pay it off. So there's just a few of these moving pieces that we'll see over the next months to come, that will kind of determine I think, how quickly paid off. We'd like to, and we've got the cash to do it right now, but we just think it's prudent to pull a lot of that cash until we have some more clarity on these items.

And then as we think about your positioning with assets and potentially assets for sale and assets that you might hand back to lenders, why wouldn't you be in the marketplace now with assets that -- you're kind of on the fence. You might end up handing back and just see if you can achieve a price above the loan value. I'm just curious as to why you wouldn't be in the market with more assets right now in that regard.

We are, Bryan. You're exactly right. I mean, there's the -- we've got a significant – significant is maybe too strong a word. We've got a handful of assets that we've identified internally as for sale -- or potential for sale assets that are maybe not long-term core assets, and are working with a variety of the brokers to figure out what's the best timing. Some of those are in the market right now and some were maybe at some size and scale where we think it's hard to maybe achieve an effective sales price. But on some of these where we think it's questionable whether it's value or not, then yes, they're out in the market right now. So we've got a lot of different irons in the fire with that. So I think our thinking is aligned with you.

And then just last from me and maybe for Deric, is there any way to quantify what caps or hedges might cost as for this year? I know that you guys did some stuff last year that kind of spills over benefit you this year. But is it $10 million? Is it $20 million? Is it $100 million? Can you quantify what we should be thinking about there?

Yes, it's really difficult to quantify because there's a lot of factors that go into that pricing. A, it's a strike price or whatever the cap -- the strike of the cap needs to be. It's what's the market's forward expectation for where rates are going, and then it's the duration of how long that cap needs to be in place for. So it is very difficult to ballpark for you. And like I said, we try to get ahead of it by pre-purchasing of a good chunk of those last year. And my hope is that -- well, look, I guess, the real hope is that those expire worthless, so we didn't need them and the rates have come down, but if rates stay high, then we would hope that those pre-purchased caps offset the value of any new cap that we would divide. So from our perspective, we wouldn't really be having to come out of pocket much. So that's really all I can say in terms of giving any sort of guidance in terms of what those costs will be going forward.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for any closing comments.

Thank you for joining us for the fourth quarter call, and we look forward to speaking to you on our next call.

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