Ashford Hospitality Trust, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results. Ashford is a hotel REIT; at quarter-end it owned interests in 100 consolidated U.S. hotels with 22,313 rooms, plus 82 WorldQuest condominium units.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $247.1 million | $115.8 million |
| Operating loss | $14.6 million | $70.0 million |
| Net loss | $55.8 million | $105.4 million |
| Net loss attributable to common stockholders | $58.5 million; $1.71 per share | $91.6 million; $11.01 per share |
| Adjusted EBITDAre | $40.2 million | $(5.2) million |
| Adjusted FFO available to common stockholders and OP unitholders | $(1.5) million | $(29.7) million |
| Net cash used in operating activities | $14.5 million | $91.9 million |
| Capital improvements to hotels | $22.7 million | $9.1 million |
Hotel revenue grew as travel and hotel operations recovered from pandemic-related weakness. RevPAR was $96.46, up from $47.40; occupancy was 58.33%, versus 42.22%; and average daily rate was $165.36, versus $112.25. Revenue increased 113%, while hotel operating expenses rose 93% to $176.8 million. Interest expense and amortization rose 31% to $43.6 million, primarily reflecting the Oaktree term loan being outstanding throughout the quarter and lower amortization credits related to previously defaulted mortgage debt.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $548.6 million and restricted cash was $102.3 million at March 31, 2022. The filing says most restricted cash is held in lender- and manager-controlled reserves.
- Indebtedness, net, was $3.883 billion, compared with $3.888 billion at year-end 2021. Total liabilities were $4.075 billion; shareholders’ equity was a $60.4 million deficit, versus a $2.7 million deficit at year-end.
- Operating cash outflow was $14.5 million; investing cash outflow was $17.3 million and financing cash outflow was $8.9 million. Cash, cash equivalents and restricted cash together declined $40.7 million to $650.9 million.
- Approximately $3.6 billion of $3.9 billion in total debt was variable-rate. Management estimated that a 25-basis-point rate increase would add approximately $8.9 million to annual interest expense, absent changes in debt or hedging.
- Several large mortgage loans mature in June 2022, with further maturities in July and later in 2022. Extension options are conditional, including on debt-yield targets, and extensions may require significant principal paydowns. One $50.1 million mortgage loan was in default at quarter-end; the company reported compliance with covenants on its forbearance loans and Oaktree facility.
- Cash-trap provisions had been triggered at nearly all mortgage loans containing them. As of March 31, 90% of hotels were in cash traps, with approximately $10.3 million of restricted cash subject to those traps.
Changes, outlook and risks
- The $47.6 million improvement in net loss attributable to the company reflected substantially higher hotel revenue and lower corporate G&A and depreciation, partly offset by higher hotel operating costs and interest expense. Q1 2021 also included a preferred-stock extinguishment gain that did not recur.
- Management said it expected to achieve pre-pandemic RevPAR by 2023 and hotel operating levels by 2024. It stated that current operating cash flow and cash balances should cover anticipated interest and principal payments, working capital and capital expenditures over the next 12 months, excluding potential final maturity payments. It gave no assurance that upcoming debt maturities could be refinanced.
- The board did not declare common dividends, and management did not anticipate common dividends in the foreseeable future. The company said it planned to continue preferred dividends; Q1 preferred dividends were $3.1 million.
- After quarter-end, the company approved a stock repurchase authorization of up to $200 million and an at-the-market common-stock program of up to $100 million. It also registered non-traded Series J and K preferred offerings; no shares had been issued as of May 4, 2022. These capital-raising and repurchase plans may affect liquidity and dilution.
- Material risks include refinancing and conditional loan extensions, rising interest rates, cash traps, possible lender foreclosure, continuing pandemic-related operating uncertainty, and related-party arrangements with Ashford Inc. and its affiliates. The company reported accrued litigation estimates of approximately $4.2 million for a New York class-action settlement subject to court approval and $504,000 for a separate legal-fee dispute; another employment class action had no accrual because the potential loss was not reasonably estimable.
- Management reported disclosure controls were effective as of March 31, 2022. No material changes to the risk factors in the 2021 Form 10-K were reported.
Investor verification points
- Confirm the status, extension conditions, required paydowns and refinancing plans for the large 2022 mortgage maturities, and the status of the loan in default.
- Assess how cash traps and manager- or lender-held reserves affect the availability of reported cash for corporate needs and hotel operations.
- Reconcile recovery in RevPAR and occupancy with hotel expense growth, negative operating cash flow and the company’s recovery targets.
- Review variable-rate exposure, hedging coverage and the effect of interest-rate changes on debt service and liquidity.
- Monitor preferred-dividend capacity, potential equity issuance under the ATM and other offering programs, and any execution of the repurchase authorization.
- Review related-party fees and incentive compensation, as well as developments in the disclosed litigation and other contingencies.