Ashford Hospitality Trust, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing was signed March 12, 2020. The 10-K also reports fourth-quarter results. Ashford is an externally advised U.S. lodging REIT. At year-end it owned interests in 117 hotels with 24,943 rooms, 90 WorldQuest condominium units, and a 17.0% interest in OpenKey.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $1.503 billion | $1.431 billion |
| Operating income | $114.7 million | $90.4 million |
| Net loss | $142.7 million | $156.3 million |
| Net loss attributable to common stockholders | $156.2 million; $1.58 per diluted share | $169.5 million; $1.75 per diluted share |
| Cash from operating activities | $177.2 million | $181.6 million |
| EBITDAre (non-GAAP) | $403.3 million | $366.6 million |
| Adjusted EBITDAre (non-GAAP) | $425.0 million | $411.5 million |
| FFO available to common stockholders and OP unitholders (non-GAAP) | $89.0 million | $82.4 million |
| Adjusted FFO (non-GAAP) | $145.5 million | $145.3 million |
- Revenue increased 5.0%. Hotel rooms revenue rose 4.4% to $1.185 billion, including contributions from acquisitions. Comparable-property rooms revenue increased $12.8 million; comparable room rates rose 1.7%, while occupancy declined 39 basis points.
- For the full-year hotel portfolio, occupancy was 76.34%, ADR was $168.06, and RevPAR was $128.29. For the 113 hotels and WorldQuest included for both full years, RevPAR was $125.70 versus $124.26, occupancy was 75.93% versus 76.32%, and ADR was $165.55 versus $162.82.
- Operating margin, calculated as operating income divided by revenue, was approximately 7.6% versus 6.3%. Net losses narrowed, but the company remained loss-making.
- Fourth-quarter 2019 revenue was $354.7 million and net loss was $35.6 million; loss attributable to common stockholders was $38.8 million, or $0.39 per diluted share. Fourth-quarter 2018 revenue was $343.5 million and net loss was $66.0 million.
- Interest expense and loan-cost amortization rose 10.6% to $262.0 million. The filing attributes the increase mainly to higher LIBOR rates, refinancing-related amortization, and acquired debt. Impairment charges rose to $33.6 million from $23.4 million.
- Year-end cash and cash equivalents were $262.6 million, with another $135.6 million in restricted cash. Total assets were $4.691 billion; indebtedness, net, was $4.107 billion; total liabilities were $4.352 billion; and company stockholders’ equity was $268.8 million, down from $452.5 million.
- Approximately $3.8 billion of the $4.1 billion debt was variable-rate. Management estimated that a 25-basis-point rate change would affect annual results by approximately $9.4 million. Operating cash flow was below the $253.2 million net cash used in investing activities; financing activities provided $34.4 million.
Material changes and notable items
- Revenue growth reflected two 2019 acquisitions—Embassy Suites New York Manhattan Times Square and Hilton Santa Cruz/Scotts Valley—partly offset by hotel dispositions. The company also sold four hotels and a St. Petersburg parking parcel during 2019.
- The St. Petersburg parking-parcel sale generated a reported $19.4 million gain. Total gain on sales of assets and hotel properties was $26.1 million, compared with $0.5 million in 2018. Ashford also recorded an $11.8 million realized gain on selling Ashford Inc. shares and distributed its remaining Ashford Inc. shares to stockholders and unitholders.
- Capital improvements were $159.2 million, down from $207.3 million in 2018. The company reported $50.5 million of capital commitments expected to be paid within 12 months at year-end.
- At year-end, scheduled debt principal obligations showed $3.279 billion due within one year and $503.9 million in 2022, excluding extension options. Many loans had extension options subject to conditions. The revolving credit facility expired in September 2019 without being drawn.
- The 2020 common dividend policy announced in December 2019 anticipated $0.06 per share quarterly, but the board expected to reconsider it in light of COVID-19 and could eliminate or significantly reduce dividends. Common dividends declared for 2019 totaled $0.30 per share. The filing’s tax characterization table differs because the fourth-quarter 2019 distribution, paid in January 2020, is treated as a 2020 distribution for tax purposes.
Outlook, risks, contingencies, and unusual items
- COVID-19: The filing describes a significant, rapidly accelerating decline in hotel demand, cancellations, and new reservations beginning in February 2020. Management expected substantial erosion in hotel cash flow, could not estimate how much cost savings would offset lost revenue, and said capital expenditures would likely be reduced below the previously announced $125–$145 million range.
- Debt and liquidity: On March 10, 2020, the company told lenders on an eight-hotel Morgan Stanley portfolio that cash flow would be insufficient for debt service and other required payments, warned of substantial risk of imminent payment default, and requested restructuring. It stated it might stop payments if lenders did not restructure, potentially leading to foreclosure. This development makes the year-end liquidity assessment—then that cash and operating flows should cover anticipated needs for the next 12 months, excluding potential final maturity payments—particularly important to reassess.
- Other principal risks: High leverage and refinancing needs; variable-rate exposure; possible cash traps and foreclosure; hotel-sector concentration and travel demand; rising operating and capital costs; competition; and dependence on external advisor Ashford LLC and affiliated hotel manager Remington. The company disclosed related-party arrangements and potential conflicts of interest. Remington managed 80 of the 117 hotels at year-end.
- Contingencies: A New York class action concerning hotel service charges had a pending appeal. If liability is upheld and further appeals fail, estimated damages were $5.8–$11.9 million plus attorneys’ fees; no amount was accrued because management did not consider an unfavorable outcome probable. A separate older landlord-tenant matter had approximately $504,000 accrued for potential remaining legal fees. The company also indemnified Remington for a potential unfunded pension liability under a settlement arrangement.
- Accounting and audit: Adoption of lease accounting in 2019 resulted in recognition of operating lease right-of-use assets and liabilities. Management identified an omitted lease of approximately $8.8 million in the initial adoption entry and recorded it as an immaterial out-of-period balance-sheet adjustment, with no effect on prior-period earnings or cash flows. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- COVID-19’s subsequent effects on occupancy, RevPAR, hotel closures or operations, cash burn, cost reductions, and the timing of recovery.
- Outcomes of the requested Morgan Stanley portfolio restructuring, payment status, covenant compliance, and refinancing of near-term maturities, including whether loan extensions are available and their conditions.
- Unrestricted cash availability versus restricted or lender-controlled cash, and the adequacy of liquidity under stressed operating assumptions.
- Any changes to common and preferred dividends, and the ability to meet preferred distributions and REIT distribution requirements.
- Progress on the service-charge litigation appeal and any changes to the estimated damages or accrual assessment.
- The effects of related-party fees, Remington management arrangements, Ashford Securities funding commitments, and associated conflicts of interest.
- Reconciliation of reported common dividends declared with cash paid and tax characterization, and the precise treatment of extension options in debt maturity disclosures.