Ashford Hospitality Trust Inc. - Q1 2011 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011. Ashford Hospitality Trust, Inc. is a self-advised Real Estate Investment Trust (REIT) focused on the hospitality industry. As of the reporting date, the Company owned 92 hotel properties directly and five through majority-owned joint ventures, totaling 20,774 rooms. The Company operates primarily through its taxable REIT subsidiaries (TRS) and utilizes third-party management companies, with Remington Lodging & Hospitality managing 46 of its properties.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenue | $212.3 million | $199.2 million |
| Net Income (GAAP) | $43.9 million | $5.2 million |
| Net Income Attributable to Common Shareholders | $31.3 million | $0.3 million |
| Diluted EPS (Common) | $0.46 | $0.01 |
| Operating Cash Flow | $15.9 million | $25.6 million |
| Total Indebtedness | $2.44 billion | $2.52 billion |
| Cash and Cash Equivalents | $92.4 million | $217.7 million |
| EBITDA | $111.0 million | $79.3 million |
| Funds From Operations (FFO) | $65.7 million | $37.3 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 6.6% year-over-year, driven by a 7.5% increase in room revenue due to improved occupancy (69.87% vs. 67.79%) and Average Daily Rate (ADR) growth ($131.73 vs. $126.34).
- Profitability Surge: Net income attributable to common shareholders jumped significantly from $0.3 million to $31.3 million. This was primarily driven by a $30.0 million litigation settlement gain recorded as "Other Income" and a $28.1 million equity earnings gain from the PIM Highland Joint Venture (JV) acquisition.
- Derivative Impact: The Company recorded an unrealized loss of $16.8 million on derivatives in Q1 2011, compared to a gain of $13.9 million in Q1 2010, reflecting changes in the LIBOR forward curve.
- Discontinued Operations: The Company sold three hotel properties (JW Marriott San Francisco, Hilton Rye Town, Hampton Inn Houston) for a net gain of $2.8 million, resulting in a $2.1 million income from discontinued operations compared to a $4.8 million loss in the prior year.
- Debt Reduction: Total indebtedness decreased by approximately $73.5 million, largely due to the use of proceeds from asset sales to pay down the senior credit facility.
Guidance, Outlook, and Risks
- Dividend Resumption: In February 2011, the Board resumed cash dividends on common stock with an annualized target of $0.40 per share. The Q1 dividend of $0.10 was paid in April 2011.
- Strategic Acquisitions: In March 2011, the Company invested $150 million to acquire a 71.74% interest in the PIM Highland JV, which holds 28 hotel properties. This transaction generated a significant accounting gain but is expected to impact future earnings due to higher depreciation and interest costs on the acquired debt.
- Liquidity: Management believes cash flow from operations, cash balances, and the $205 million available under the senior credit facility are adequate for the next 12 months. The Company maintains compliance with all debt covenants.
- Risks:
- IRS Audit: The IRS has proposed adjustments regarding transfer pricing for a TRS subsidiary, potentially resulting in $1.1 million in additional federal taxes. The Company disputes this and has requested an Appeals conference.
- Derivative Volatility: Significant fluctuations in unrealized gains/losses on interest rate derivatives continue to impact reported earnings.
- Refinancing: The Company has a $250 million senior credit facility maturing in April 2012, with $45 million outstanding as of March 31, 2011.
Investor Verification Checklist
- Derivative Valuation: Verify the methodology and assumptions used to value the $90 million net asset position in interest rate derivatives, which caused a $16.8 million unrealized loss.
- PIM Highland JV Accounting: Review the preliminary purchase price allocation for the 28-hotel JV acquisition, as final fair value assessments could adjust the recorded $43.2 million gain and future depreciation schedules.
- IRS Dispute Status: Monitor the outcome of the IRS Appeals conference regarding the $1.1 million proposed tax adjustment for the TRS subsidiary.
- Dividend Sustainability: Assess whether the resumed $0.40 annualized dividend is sustainable given the high debt service costs and the impact of the new JV acquisition on future cash flows.
- Mezzanine Loan Resolution: Confirm the final settlement terms of the mezzanine loan secured by the 105-hotel portfolio, which was settled in April 2011 for $22.1 million against a carrying value of $17.9 million.