Ashford Hospitality Trust Inc. - Q1 2009 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009. Ashford Hospitality Trust, Inc. is a self-advised Real Estate Investment Trust (REIT) owning 103 hotel properties (97 direct, 6 via joint ventures) and a portfolio of mezzanine and first-mortgage loans. The company operates in a recessionary environment characterized by declining GDP and reduced lodging demand.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenue | $239.7 million | $286.0 million |
| Net Income (Company) | $11.7 million | $6.2 million |
| Net Income (Common Shareholders) | $6.8 million | $(0.8) million |
| Operating Cash Flow | $32.4 million | $27.3 million |
| Total Debt | $2.81 billion | $2.79 billion |
| Cash & Equivalents | $239.7 million | $94.4 million |
| EBITDA | $90.1 million | $93.6 million |
| Funds From Operations (FFO) | $49.0 million | $44.2 million |
Hotel Performance: Revenue per Available Room (RevPAR) declined 17.0% to $86.69. Occupancy dropped to 62.18% (from 70.02%), and Average Daily Rate (ADR) fell to $139.43 (from $149.13).
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 16.2% primarily due to a 17.5% drop in room revenue driven by lower occupancy and rates. Hotel operating expenses decreased 14.7% in line with revenue.
- Profitability Increase: Despite lower operating income ($19.9M vs $36.6M), Net Income attributable to the Company increased 88.5%. This was driven by a significant $18.0 million unrealized gain on derivatives (vs $4.0M in 2008) and lower interest expense due to falling LIBOR rates.
- Discontinued Operations: Q1 2008 included $3.8 million of income from discontinued operations (sales of hotel properties), which was absent in Q1 2009.
- Dividend Suspension: The Board suspended the common stock dividend effective Q4 2008 to preserve capital. No common dividends were declared in Q1 2009.
Outlook, Risks, and Unusual Items
- Derivative Strategy: The company utilizes non-hedge derivatives (swaps, floors, flooridors) to capitalize on the correlation between LIBOR and RevPAR. The $18.0M gain in Q1 2009 is a non-cash, mark-to-market item dependent on interest rate curves.
- Share Repurchases: Under a $200M authorization, the company repurchased 11.7 million common shares and significant preferred shares for a total of $26.8 million in Q1 2009.
- Liquidity: Cash balances remain strong at $239.7 million. The company is in compliance with all debt covenants, including a fixed charge coverage ratio of 1.73x (required 1.25x).
- Risks: Management cites the economic recession, declining RevPAR, and potential inability to refinance debt on favorable terms as primary risks. Two mezzanine loans are currently in non-accrual status due to borrower defaults.
Investor Verification Checklist
- Derivative Gains: Verify the sustainability of the $18.0M unrealized derivative gain, as it is highly sensitive to interest rate fluctuations and not indicative of core operating performance.
- Loan Portfolio Quality: Review the status of the two non-accrual mezzanine loans (Nevis and La Jolla properties) and the potential for future impairment charges.
- Dividend Policy: Confirm the timeline for resuming common dividends, as the company currently pays only preferred dividends to maintain REIT status.
- Debt Maturities: Assess the refinancing risk for variable-rate debt and loans maturing in the near term given the tight credit market.