Business Context and Reporting Period
This Form 8-K Current Report was filed by Ashford Hospitality Trust, Inc. on September 30, 2020. The filing discloses "Other Events" (Item 8.01) regarding the company's debt obligations secured by 34 hotel properties across six loan pools (Loans A through F). The report details the company's failure to make interest payments in April and May 2020 and its failure to repay principal upon the initial maturity date in June 2020, followed by the execution of forbearance agreements with lenders on September 30, 2020.
Key Financial Metrics and Debt Structure
The filing focuses on the company's debt portfolio rather than operating revenue or profit metrics. The total original principal amount of the six loans is approximately $1.214 billion, secured by specific hotel properties listed in Exhibit A.
| Loan Pool | Original Principal | Interest Rate (LIBOR +) | Properties Secured |
|---|---|---|---|
| Loan A | $180,720,000 | 3.65% | 7 |
| Loan B | $174,400,000 | 3.39% | 7 |
| Loan C | $221,040,000 | 3.75% | 5 |
| Loan D | $262,640,000 | 4.04% | 5 |
| Loan E | $160,000,000 | 2.725% | 5 |
| Loan F | $215,120,000 | 3.70% | 5 |
The filing does not provide current revenue, net income, cash flow from operations, or liquidity ratios. It notes that the loans require monthly interest-only payments.
Material Changes and Forbearance Terms
Following defaults on interest payments and the maturity date, the company entered into Forbearance Agreements on September 30, 2020. Key terms include:
- Extension: The maturity date for all loans has been extended by one year to June 9, 2021.
- Interest Deferral: Interest payments deferred from April 9, 2020, through September 9, 2020, will resume on October 9, 2020. Additional deferrals apply to specific mezzanine loans within the pools.
- Repayment of Deferred Interest: Deferred interest on mortgage loans must be repaid on a 1/9th monthly basis starting October 9, 2020. Mezzanine loan deferred interest is to be repaid on an excess cash flow basis. All deferred interest must be fully repaid by June 9, 2021.
- FF&E Reserves: Deposits into Furniture, Fixtures, and Equipment (FF&E) reserves were suspended through the end of 2020. Funds from these reserves may be utilized for budgeted operating expense shortfalls. Reserves must be replenished by June 9, 2021.
Management Commentary, Fees, and Risks
The company engaged Lismore Capital II LLC, a subsidiary of Ashford Inc., to negotiate debt modifications under an Amended Ashford Trust Agreement. Upon completion of the forbearance agreements, Lismore was paid significant fees, which are no longer subject to clawback. Total fees paid to Lismore for the six loan pools include:
- Loan A: $903,600 total ($225,900 execution + $225,900 installments + $451,800 success fee).
- Loan B: $872,000 total ($218,000 execution + $218,000 installments + $436,000 success fee).
- Loan C: $1,105,200 total ($276,300 execution + $276,300 installments + $552,600 success fee).
- Loan D: $1,313,200 total ($328,300 execution + $328,300 installments + $656,600 success fee).
- Loan E: $800,000 total ($200,000 execution + $200,000 installments + $400,000 success fee).
- Loan F: $1,075,600 total ($268,900 execution + $268,900 installments + $537,800 success fee).
Risks and Contingencies: The company faces the risk of default if it fails to meet the new repayment schedules for deferred interest or replenish FF&E reserves by June 9, 2021. The utilization of reserve funds for operating expenses indicates potential liquidity strain at the property level.
Investor Verification Checklist
- Verify the company's ability to generate sufficient cash flow to resume interest payments and repay the 1/9th monthly deferred interest installments starting October 2020.
- Confirm the status of FF&E reserve replenishment and whether operating expense shortfalls continue to impact property liquidity.
- Review the total debt service obligations post-forbearance, including the impact of the one-year extension on the company's long-term capital structure.
- Assess the impact of the approximately $6 million in fees paid to Lismore Capital II LLC on the company's cash position.
- Monitor for any further defaults or amendments to the forbearance agreements prior to the June 9, 2021, deadline.