Ashford Hospitality Trust, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Ashford is a lodging REIT that owned interests in 116 hotels with 24,746 rooms, plus 90 WorldQuest condominium units. The results reflect the initial, severe effects of COVID-19 on hotel demand, particularly from late February.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $281.9 million | $358.7 million |
| Operating income (loss) | $(49.4) million | $24.0 million |
| Net income (loss) | $(101.9) million | $(46.6) million |
| Net loss attributable to the Company | $(84.2) million | $(38.0) million |
| Net loss attributable to common stockholders; diluted loss per share | $(94.8) million; $(0.94) | $(48.7) million; $(0.49) |
| Operating cash flow | $11.9 million | $26.8 million |
| Adjusted EBITDAre | $47.4 million | $100.5 million |
| FFO available to common stockholders and OP unitholders | $(22.2) million | $10.0 million |
| Adjusted FFO available to common stockholders and OP unitholders | $(14.1) million | $30.4 million |
- Hotel revenue was $281.1 million. Hotel operating expenses were $201.7 million, or approximately 71.8% of hotel revenue, compared with 63.9% a year earlier; lower revenue outpaced expense reductions.
- Comparable-property and WorldQuest RevPAR fell 22.7% to $94.86, as occupancy declined to 58.54% from 72.99% and ADR fell to $162.04 from $168.11.
- Interest expense and loan-cost amortization was $57.1 million, down from $66.2 million, primarily reflecting lower LIBOR. A $27.6 million impairment charge was recorded on three hotels due to reduced expected cash flows and changed holding periods amid COVID-19.
- At March 31, cash and cash equivalents were $240.3 million and restricted cash was $126.6 million. Total assets were $4.57 billion; indebtedness, net, was $4.10 billion; total liabilities were $4.33 billion; and total equity was $197.7 million. Cash, cash equivalents and restricted cash combined were $367.0 million.
- Cash used in investing activities was $15.6 million, including $20.4 million of hotel improvements. Cash used in financing activities was $27.5 million; the company borrowed $37.0 million and repaid $45.3 million of debt.
- Approximately $3.8 billion of $4.1 billion total debt was variable-rate. Management estimated that a 25-basis-point rate change would affect annual results by approximately $9.4 million.
Material changes and management response
- Revenue declined 21.4% year over year, and the Company’s net loss attributable to the Company more than doubled. The filing attributes the deterioration chiefly to falling hotel demand; comparable hotels experienced lower room rates and a 14.45-percentage-point decline in occupancy.
- The Company sold the Crowne Plaza in Annapolis on March 9 for approximately $5.1 million, recording a $3.6 million gain. It refinanced the Le Pavillon mortgage, reducing the loan from $43.8 million to $37.0 million.
- Management suspended the common dividend, expected the suspension likely to continue through the remainder of 2020, cut planned 2020 capital expenditures from $125–$145 million to $30–$50 million, reduced hotel staffing and operating expenses, and cut corporate costs. The filing says suspending the common dividend conserves approximately $7 million per quarter. Preferred dividends were declared for Q1, but future preferred dividends are not assured.
- The filing gives differing estimates of monthly hotel cash utilization: approximately $20 million in one disclosure and approximately $15 million in another. It also estimates monthly debt interest of approximately $13 million and corporate G&A and advisory fees of approximately $4 million. The filing text does not provide a single clear hotel cash-utilization estimate.
- Hotel operations were suspended at 23 of 116 hotels in the filing’s principal COVID-19 discussion; a subsequent-event disclosure says 21 hotels were suspended as of May 26, with the remaining 95 operating at reduced levels. The filing also reports approximately 90% lower property-level staffing.
Outlook, liquidity, risks and contingencies
- Going concern: Management concluded substantial doubt existed about the Company’s ability to continue as a going concern for one year after issuance of the financial statements. The statements nevertheless use the going-concern basis and include no adjustments for the outcome of this uncertainty.
- Debt defaults and foreclosure risk: The Company was in material compliance with debt covenants at March 31. Beginning April 1, however, it did not make principal or interest payments under nearly all mortgage loans, triggering events of default and automatic interest-rate increases under applicable loan documents. Lenders may accelerate debt and foreclose on collateral. Lenders for the Embassy Suites New York Manhattan Times Square and Hilton Scotts Valley issued acceleration notices. The Company was negotiating forbearance or waivers; success was uncertain and could involve higher costs, rates and restrictive covenants.
- Nearly all hotel properties secure property-level, generally non-recourse debt. Management warned it could not assure that cash and operating cash flow would meet upcoming needs, or that 2020 maturities could be refinanced. Some properties are subject to ground leases, and the Company said it might default on some or all within the next 12 months.
- Management reduced capital spending and was working with lenders and property managers to access restricted reserves and manager-held funds. Cash due from third-party hotel managers was $19.2 million at quarter end. Subsidiaries received Paycheck Protection Program loans after quarter end but returned all funds by May 7, 2020.
- The NYSE notified the Company that its common-stock price was below the $1.00 minimum average closing-price requirement. The Company intended to pursue a one-for-ten reverse stock split; failure to regain compliance could lead to suspension and delisting. The cure period was extended to December 26, 2020.
- CEO Douglas A. Kessler resigned effective May 13, 2020, and the board appointed J. Robison Hays III CEO the following day. A New York class action involving alleged retention of hotel service charges had no accrual; estimated damages, if liability is upheld and appeals fail, were $5.8–$11.9 million plus attorneys’ fees. Approximately $504,000 was accrued for remaining legal fees in a separate landlord-tenant matter.
- Key risks include the duration and severity of COVID-19 and travel restrictions, continued low occupancy and RevPAR, lender remedies, refinancing needs, possible ground-lease defaults, the ability to meet obligations and maintain NYSE listing, and related-party management and advisory arrangements.
Important facts for investors to verify
- Progress and final terms of lender forbearance or waivers, treatment of accelerated loans, and any foreclosure or hotel-property transfers.
- Current unrestricted liquidity and actual cash burn; reconcile the filing’s differing $15 million and $20 million monthly hotel cash-utilization estimates.
- Hotel reopening status, demand recovery, occupancy, ADR and RevPAR, and whether management’s reduced capital-spending plan remains sufficient.
- 2020 debt maturities, variable-rate exposure, ground-lease obligations, and any covenant or payment-default developments.
- Whether the Company regains NYSE price compliance, completes any reverse split, and continues paying preferred dividends.
- Updates to the going-concern assessment, material litigation exposures and related-party fees or obligations.