Ashford Hospitality Trust, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Unless stated otherwise, financial amounts below are in U.S. dollars; figures are rounded. Ashford Trust is a lodging-focused REIT and reported 116 consolidated hotels with 25,579 rooms at quarter-end.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 / prior period |
|---|---|---|
| Total revenue | $250.2 million | $194.9 million |
| Operating income | $32.1 million | $26.4 million |
| Net income (loss) attributable to Ashford Trust | $321.5 million | $(2.4) million |
| Net income (loss) attributable to common stockholders | $313.0 million; $3.25 basic and $3.13 diluted per share | $(10.9) million; $(0.13) per share |
| FFO available to common stockholders | $24.6 million | $24.0 million |
| Adjusted FFO available to common stockholders | $34.0 million | $24.8 million |
| Adjusted EBITDA | $89.4 million | $79.5 million |
| Net cash provided by operating activities | $30.3 million | $11.1 million |
| Cash and cash equivalents at quarter-end | $355.7 million | $215.1 million at December 31, 2014 |
| Cash, cash equivalents and marketable securities | $428.2 million | $278.3 million at December 31, 2014 |
| Restricted cash | $143.0 million | $85.8 million at December 31, 2014 |
| Indebtedness | $3.388 billion | $1.954 billion at December 31, 2014 |
Total revenue rose 28.4% year over year, while operating income increased 21.6%. Hotel performance indicators improved: RevPAR was $112.81 versus $100.88, occupancy was 77.01% versus 74.74%, and average daily rate was $146.48 versus $134.97. Operating margin, calculated as operating income divided by revenue, was approximately 12.8% versus 13.5%.
Investing activities used $259.1 million, primarily for acquisitions and hotel improvements; financing activities provided $369.4 million, reflecting borrowings and equity issuance, partly offset by debt repayments and distributions. The company paid $26.5 million of interest in the quarter.
Material changes and unusual items
- The company acquired the remaining approximately 28.26% of PIM Highland JV on March 6 for $250.1 million in cash, taking ownership to 100% and beginning consolidation of its 28 hotels. Remeasurement of the previously held interest generated a $381.8 million gain, the principal reason reported net income was unusually high. The filing’s pro forma presentation, excluding this gain and reflecting the acquisitions as if completed at the start of each comparative period, showed net loss of $23.1 million for Q1 2015 versus $11.5 million for Q1 2014.
- Ashford acquired Lakeway Resort & Spa for $33.5 million and Memphis Marriott East for $43.5 million. It sold the Terre Haute Hampton Inn for approximately $7.9 million, recording a $1.1 million loss.
- Debt increased substantially, mainly due to consolidation and refinancing related to PIM Highland JV. The company refinanced $907.6 million of assumed loans with a $1.07 billion non-recourse mortgage due April 2017 at LIBOR plus 4.39%, and completed other property financings and refinancing during the quarter.
- A follow-on common-stock offering priced at $10.65 per share raised $101.2 million gross, with underwriters subsequently purchasing an additional 1.029 million shares.
- The Ashford Inc. spin-off changed the expense profile: the company recorded $9.6 million in advisory services fees in Q1 2015, while corporate, general and administrative expense fell to $4.8 million from $12.7 million.
Outlook, risks and contingencies
- Management stated that cash on hand and operating cash flow were expected to cover anticipated interest and principal payments, working capital and capital expenditures for the next 12 months. It also said it would proactively address 2015 and 2016 maturities; future financing availability and terms are not assured.
- The Board’s 2015 dividend policy anticipated quarterly common dividends of $0.12 per share for the remainder of 2015, but the Board reviews the policy quarterly and did not commit to future dividends.
- Approximately $2.1 billion of quarter-end debt was variable-rate. Management estimated that a 25-basis-point rate increase would raise annual interest expense by approximately $5.2 million. Interest-rate caps covered $1.5 billion of loans, with strike rates ranging from 2.50% to 3.00%.
- Debt covenants were reported in material compliance at March 31. Cash-trap provisions, refinancing needs, interest-rate movements, hotel competition, seasonality, franchise or management agreement risks, and potential conflicts involving the advisor and related-party hotel manager could affect liquidity, earnings or distributions.
- In a landlord-tenant case, a jury awarded the tenant $10.8 million; the landlord appealed. Including interest and estimated legal expenses, the company had recorded $11.9 million of expense through March 31. Management noted other proceedings but said it did not expect their resolution to materially harm results or financial position; outcomes remain uncertain.
- The planned Ashford Hospitality Select launch remained uncertain. The contemplated contribution and purchase agreements were terminated effective May 8, 2015; the company said it was uncertain whether to pursue the platform using external capital or a wholly owned subsidiary.
- Management identified general lodging-market and capital-market conditions, REIT qualification, competition, financing availability and transaction execution as risks. Hotel operating results are seasonal; Q1 results are not necessarily indicative of full-year performance.
Investor facts to verify
- Separate the $381.8 million PIM Highland remeasurement gain from recurring operating performance; compare GAAP earnings with FFO and Adjusted FFO and review their reconciliations.
- Review the composition, interest rates, maturities, extension conditions and covenants of the $3.388 billion debt balance, including variable-rate exposure and refinancing plans for 2015–2016.
- Assess whether operating cash flow, unrestricted liquidity and property-level cash availability support debt service, capital needs and the stated dividend policy.
- Track the appeal and potential exposure in the $10.8 million jury verdict case, alongside other legal and guarantee contingencies.
- Confirm the status and funding structure of Ashford Hospitality Select following termination of the agreements, and monitor related-party advisory and hotel-management costs.