Ashford Hospitality Trust, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This annual filing reports full-year results, not a standalone fourth quarter. Ashford Trust is an externally advised U.S. hotel REIT. At year-end it owned interests in 132 consolidated hotels with 27,977 rooms, plus 85 WorldQuest condominium units.
Financial and operating performance
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $1,337.0 million | $794.8 million |
| Operating income | $137.9 million | $76.7 million |
| Net income (loss) attributable to Ashford Trust | $270.9 million | $(31.4) million |
| Net income (loss) attributable to common stockholders | $237.0 million | $(65.4) million |
| Diluted earnings (loss) per common share | $2.35 | $(0.75) |
| Cash from operating activities | $209.0 million | $111.3 million |
| Cash used in investing activities | $(853.5) million | $(207.2) million |
| Cash from financing activities | $644.6 million | $182.2 million |
| Cash and cash equivalents at year-end | $215.1 million | $215.1 million |
| Net indebtedness at year-end | $3,840.6 million | $1,943.1 million |
| FFO available to common stockholders and OP unitholders | $132.9 million | $85.1 million |
| Adjusted FFO | $162.5 million | $112.3 million |
| Adjusted EBITDA | $407.1 million | $330.2 million |
Results are not directly comparable because Ashford acquired the remaining interest in the 28-hotel PIM Highland joint venture in March 2015 and consolidated its results thereafter, and made other hotel acquisitions during the year. Reported 2015 earnings also included a $381.8 million gain from remeasuring the previously held PIM Highland interest. The filing presents EBITDA and FFO measures as non-GAAP measures; they are not substitutes for GAAP earnings or operating cash flow.
Across the hotel portfolio included in continuing operations, RevPAR was $114.25 versus $102.30, occupancy was 77.27% versus 76.25%, and average daily rate (ADR) was $147.85 versus $134.16. For the 85 hotels included for both full years, RevPAR rose to $109.78 from $101.98, occupancy to 78.11% from 76.29%, and ADR to $140.55 from $133.68. Direct hotel expenses were 30.4% of hotel revenue, compared with 30.3%.
Material changes and capital structure
- Revenue increased substantially, largely reflecting PIM Highland consolidation and acquisitions. Hotel revenue also benefited from improved occupancy and room rates at remaining properties.
- Debt increased with acquisitions and refinancings. At year-end, approximately $2.8 billion of $3.9 billion in consolidated borrowings was variable-rate debt. A 25-basis-point rate increase was estimated to raise annual costs by about $7.0 million.
- Contractual principal maturities were approximately $580.0 million in 2016 and $2.64 billion in 2017, excluding extension options. Management said it would proactively address 2017 maturities.
- A new $100 million secured revolving credit facility, maturing October 2016, was undrawn at year-end. The company reported compliance with covenants; under this facility, total funded debt to EBITDA was 8.8x against a maximum of 9.0x, and fixed-charge coverage was 1.73x against a minimum of 1.25x.
- Year-end restricted cash was $153.7 million, subject to debt-service, tax, insurance, capital-reserve and other restrictions. Management said cash balances and operating cash flow were expected to cover anticipated needs for the next 12 months; this is not a guarantee of future liquidity.
- The company generated $208.9 million in operating cash flow, while investing activities used $853.5 million, including hotel acquisitions and $175.2 million of property improvements. Capital commitments of $78.5 million were expected to be paid in the next 12 months.
Outlook, risks and unusual items
- Management expected RevPAR growth to continue through 2016, but at a slower pace, and near-term hotel supply growth to remain below long-term averages. No specific company earnings or revenue guidance was provided.
- The board shifted the investment focus toward full-service upscale and upper-upscale hotels, generally with RevPAR below twice the national average. The company planned to sell select-service properties; in January 2016 it said it would pursue sales of 24 hotels in smaller groups or individually, and opportunistic sales of another 38 over time.
- The board’s 2016 dividend policy anticipated quarterly common dividends of $0.12 per share, unchanged from 2015’s $0.48 annual dividend. Future dividends remain subject to board approval and available cash; REIT distribution requirements may require borrowing if cash is insufficient.
- Key risks include high leverage and refinancing exposure, variable interest rates, lender cash-trap provisions and covenants, hotel-industry cyclicality, required capital improvements, and potential limits on access to debt or equity. Cash traps can restrict funds available to the company and its stockholders.
- The company recorded a $19.5 million impairment charge, principally for two hotels, and a $5.8 million write-off of loan costs and exit fees. An adverse jury verdict in a landlord-tenant case resulted in approximately $12.0 million of cumulative recorded expenses through year-end; the company appealed.
- Related-party and governance risks warrant attention: Remington Lodging, beneficially owned by the CEO and Chairman Emeritus, managed 89 hotels; related-party management and project fees totaled $48.0 million in 2015. Ashford Trust is externally advised by an Ashford Inc. subsidiary and recorded $43.0 million of advisory fees in 2015.
- The filing identifies REIT qualification, franchise and management agreements, environmental exposure, insurance availability, and possible legal claims as additional risks. Management reported no environmental liability believed material and no other pending legal matters expected to have a material adverse effect, while noting outcomes are uncertain.
Important facts for investors to verify
- How the company will refinance or repay the significant 2016–2017 debt maturities, and whether loan extension options and covenant headroom are available and usable.
- How much of 2015’s reported profit reflects the one-time PIM Highland remeasurement gain versus recurring hotel performance; assess results using operating cash flow and the company’s non-GAAP measures with their reconciliations.
- Progress, sale prices and timing for the planned select-service hotel dispositions, and the resulting effects on revenue, leverage and portfolio mix.
- Whether operating cash flow can support the dividend, capital commitments and property investment while managing floating-rate debt and restricted cash.
- Developments in the appealed $12.0 million landlord-tenant judgment and the terms, costs and oversight of the company’s related-party advisory and hotel-management arrangements.