Ashford Hospitality Trust, Inc. — 2021 Form 10-K
Reporting period: Year ended December 31, 2021; the filing also reports fourth-quarter results. Amounts below are in U.S. dollars.
Business context
Ashford Trust is a lodging REIT focused on U.S. upscale and upper-upscale hotels. At year-end it owned interests in 100 consolidated hotels with 22,313 rooms, plus 85 WorldQuest condominium units. Remington Hotels, an Ashford Inc. subsidiary, managed 68 of the hotels. The business remained affected by COVID-19 and the recovery in travel demand.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $805.4 million | $508.2 million |
| Net loss | $271.0 million | $633.2 million |
| Net loss attributable to the Company | $267.0 million | $543.9 million |
| Operating loss | $125.2 million | $465.4 million |
| Cash flow from operating activities | $(144.2) million | $(149.5) million |
| Adjusted EBITDAre (non-GAAP) | $113.6 million | $(54.9) million |
| FFO available to common stockholders and OP unitholders (non-GAAP) | $(53.6) million | $(228.5) million |
- Revenue increased 58.5%, reflecting recovery at comparable hotels: rooms revenue rose 60.8% to $655.1 million. Comparable occupancy increased 21.24 percentage points and ADR rose 6.2%.
- Portfolio RevPAR was $79.44 versus $45.87; occupancy was 55.62% versus 34.31%, and ADR was $142.82 versus $133.70.
- The net loss narrowed, but results included material non-operating and financing items. Interest expense fell to $156.1 million from $247.4 million, while the 2021 result included a $14.5 million unrealized derivative gain and a $11.9 million gain on debt extinguishment. The 2020 comparison included $91.7 million of impairment charges and a $90.3 million debt-extinguishment gain. No hotel impairment charge was recorded in 2021.
- Fourth-quarter 2021 revenue was $248.7 million and net loss was $56.3 million, compared with revenue of $90.3 million and net loss of $137.6 million in fourth-quarter 2020.
- At December 31, 2021, total assets were $4.10 billion, indebtedness net was $3.89 billion, cash and cash equivalents were $592.1 million, and restricted cash was $99.5 million. Stockholders’ equity was in deficit by $2.7 million.
- Operating cash flow remained negative. Financing activities provided $702.6 million, including $562.8 million of net common-stock proceeds; cash and restricted cash together increased to $691.6 million.
Debt, liquidity and capital allocation
- Debt comprised approximately $3.7 billion of property-level borrowings and a $200 million Oaktree senior secured term loan; approximately $3.6 billion was variable-rate debt. The loan facility also had up to $250 million of delayed-draw commitments, subject to its terms.
- Oaktree interest is 16% for the initial term loan for the first two years, then 14%; additional delayed-draw loans carry higher stated rates. The agreement permits payment-in-kind interest in specified circumstances and gives Oaktree an option to take an exit fee in warrants representing 19.9% of common stock outstanding at the facility’s closing, subject to adjustments.
- The maturity schedule listed $3.26 billion due in 2022. The Company said it had extension options on loans due within 12 months, but extension conditions apply and it gave no assurance it could refinance upcoming maturities. Management said available cash and operating cash flow should cover anticipated near-term needs for the next 12 months, excluding potential final maturity payments.
- Most property-level loans were subject to forbearance or other agreements after payment defaults beginning in April 2020. Such agreements covered approximately $3.6 billion of property-level principal at year-end. The filing reports 93% of hotels in cash traps, restricting access to hotel cash; approximately $4.9 million of restricted cash was subject to those traps.
- A 25-basis-point interest-rate increase on year-end variable-rate debt was estimated to add approximately $8.9 million of annual interest cost. Management also identified the transition from LIBOR as a risk.
- The common-stock dividend was suspended in 2021 and was not expected to resume in 2022. The board declared preferred dividends, including previously accrued amounts; common dividends remain subordinate to accrued preferred dividends.
Changes, outlook and material risks
- The 2021 hotel recovery improved revenue and operating indicators compared with 2020, but revenue remained well below 2019’s $1.50 billion and the Company continued to report substantial losses and negative operating cash flow.
- The Company refinanced the Hilton Boston Back Bay and Marriott Gateway Crystal City loans, and completed the sale of Le Meridien Minneapolis. SpringHill Suites Durham and Charlotte were foreclosed in April 2021. It also invested $8.5 million in 815 Commerce MM, which is developing the Le Meridien Fort Worth.
- Management gave no specific earnings or operating guidance. It said it could not predict when hotel operations would normalize and warned that further COVID-19 waves, travel restrictions or related disruptions could materially affect results and liquidity.
- Key risks include large near-term debt maturities and refinancing, lender enforcement or foreclosure, cash traps and covenants, floating-rate exposure, and dependence on access to capital. The Company also disclosed risks from hotel-market competition, operating costs, franchise requirements, and related-party arrangements with Ashford Inc. affiliates.
- Common-stock issuance raised substantial capital but diluted shareholders. The Oaktree warrant feature presents additional potential dilution. Two 1-for-10 reverse stock splits occurred in 2020 and 2021; per-share figures in the filing reflect the splits.
- The Company accrued approximately $4.2 million for a New York service-charge class action; it said the ultimate loss could be up to approximately $8 million above the accrual, plus interest and attorneys’ fees. It had not accrued a loss for a California employment class action because the amount was not reasonably estimable. The SEC notified the Company in January 2022 that its investigation was concluded and staff did not intend to recommend action against the Company.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. Accounting for the Oaktree agreement and its embedded derivative was identified as a critical audit matter.
Important facts for investors to verify
- How the Company will address the $3.26 billion scheduled 2022 debt maturities, including extension eligibility, refinancing terms and potential lender remedies.
- Whether cash reported as unrestricted is accessible for corporate needs, given cash traps, lender reserves and cash-management restrictions.
- Whether operating cash flow and hotel recovery can support debt service, capital commitments and preferred dividends without further financing or equity issuance.
- The potential dilution and economic cost of past common-stock sales and the Oaktree exit-fee warrant provisions.
- The outcome and possible additional exposure from the New York and California litigation and any other contingencies.
- How much of the reported improvement in losses and non-GAAP performance reflects durable hotel operations rather than debt, derivative, disposition or other unusual items.