SEC Filing Summary
Entity and period: The request metadata names Braemar Hotels & Resorts Inc., but the supplied Form 10-K is for Ashford Hospitality Prime, Inc. It reports the fiscal year ended December 31, 2015; it is not a standalone fourth-quarter filing. The filing was signed March 15, 2016.
Business context
Ashford Prime is an externally advised hotel REIT focused on luxury, upper-upscale and upscale hotels in gateway and resort markets. At year-end it held interests in 12 hotels with 3,952 rooms (3,717 net of its joint-venture partner’s share). The portfolio included two 2015 acquisitions: Bardessono Hotel, acquired in July for $85 million, and Ritz-Carlton St. Thomas, acquired in December for $64 million. The company had no employees and relied on Ashford LLC for advisory and asset-management services.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $349.5 million | $307.3 million |
| Operating income | $46.0 million | $43.8 million |
| Net income (loss) attributable to the Company | $(6.7) million | $1.9 million |
| Net income (loss) attributable to common stockholders | $(8.7) million | $1.9 million |
| EBITDA | $70.4 million | $78.2 million |
| Adjusted EBITDA | $90.8 million | $82.3 million |
| FFO available to common stockholders and OP unitholders | $31.9 million | $39.9 million |
| Adjusted FFO | $50.6 million | $42.5 million |
| Cash from operating activities | $9.4 million | $54.9 million |
Revenue rose 13.7%; hotel revenue increased 13.7%. Portfolio occupancy was 82.32% versus 81.62%, ADR was $226.87 versus $209.96, and RevPAR was $186.76 versus $171.37. Comparable eight-hotel RevPAR increased to $174.21 from $162.80. Operating expenses grew 15.2%, faster than revenue. The company attributed its net loss in part to a $7.6 million unrealized loss on Ashford Inc. shares, a $2.9 million equity-method loss on the REHE Fund, and $3.3 million in unrealized derivative losses. Preferred dividends were $2.0 million.
Fourth-quarter revenue was $88.2 million versus $76.8 million in Q4 2014; operating income was $5.4 million versus $9.5 million, and net loss attributable to the Company was $6.4 million versus $2.1 million. These are quarterly figures reported in the annual filing.
At December 31, cash and cash equivalents were $105.0 million, restricted cash was $33.1 million, and total assets were $1.35 billion. Gross property-level debt was $840.2 million (net carrying amount $835.6 million), with a 4.71% weighted-average rate; approximately 50.9% was variable-rate. A 25-basis-point increase in rates was estimated to add about $1.1 million of annual interest expense. The $150 million secured revolver was undrawn. The company reported compliance with its debt covenants; its revolver leverage ratio was 5.87x, with a temporary 6.25x limit following the St. Thomas acquisition, and fixed-charge coverage was 1.80x. Scheduled debt maturities, before extension options, included $88.6 million in 2016 and $564.5 million in 2017.
Material changes and capital allocation
- 2015 acquisitions expanded the portfolio from 10 to 12 hotels; acquisition results are included only from the respective closing dates.
- Operating cash flow fell sharply year over year. Management said 2015 operating cash flow was negatively affected by $50.2 million of net purchases of marketable securities; investing cash outflows also included acquisitions, capital improvements and a $16.6 million Ashford Inc. share purchase.
- Debt increased from $765.2 million at year-end 2014 to $840.2 million at year-end 2015. The company refinanced the Pier House loan and added mortgages for Bardessono and Ritz-Carlton St. Thomas.
- Common dividends declared rose to $0.35 per share from $0.20. The board expected to pay $0.10 per share quarterly in 2016, subject to future board decisions. The stated long-term objective was net debt to EBITDA of 5.0x or less.
- The company issued $62.3 million net proceeds of convertible preferred stock and $3.1 million from a private common-stock placement. It repurchased approximately $8.1 million of common shares in 2015.
Outlook, risks and unusual items
On August 28, 2015, independent directors began reviewing strategic alternatives, including a possible sale, with Deutsche Bank as financial adviser. The filing gives no assurance that a transaction will occur and provides no transaction timetable or operating forecast. Management described lodging fundamentals as continuing to improve, but expected growth at a slower pace and noted market-specific supply risk.
Key risks include substantial 2017 debt maturities and refinancing needs; variable-rate exposure and lender cash-trap provisions; dependence on an external adviser and third-party hotel managers; related-party conflicts involving Ashford LLC and Remington Lodging; hotel-industry cyclicality, competition and required capital spending; and the requirement to maintain REIT status. The advisory agreement includes a potentially substantial termination fee, which the company estimated could reach hundreds of millions of dollars under specified termination or change-of-control circumstances.
A proxy contest and litigation involving activist investor Sessa Capital were pending after year-end. The company said the dispute and related costs could distract management and delay the strategic review. Sessa’s counterclaims sought, among other relief, to bar Series C preferred issuance and certain advisory termination fees. The filing also disclosed a $27.0 million valuation allowance against deferred tax assets and no hotel-property impairment charges in 2015. The auditor issued an unqualified opinion on the 2015 financial statements; management concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Confirm that Ashford Hospitality Prime, rather than Braemar Hotels & Resorts, is the intended issuer; the supplied filing is Ashford Prime’s 2015 Form 10-K.
- Review the $9.4 million operating cash flow, its security-purchase effects, and the sustainability of cash available for dividends and capital expenditures.
- Assess refinancing, extension-option and covenant risks around the substantial 2017 maturities, along with variable-rate debt exposure and the undrawn revolver.
- Reconcile the filing’s non-GAAP EBITDA and Hotel EBITDA presentations and compare those measures with GAAP results; the filing cautions that non-GAAP measures are not substitutes for cash flow or net income.
- Track the strategic-alternatives review, Sessa litigation and proxy contest, and any effect on governance, advisory-agreement termination costs or a potential transaction.
- Evaluate related-party advisory and management fees, the 2016 dividend expectation, and whether property-level performance and planned capital spending support distributions.