Ashford Hospitality Trust, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Ashford is a U.S. hotel REIT. At quarter-end, it reported 100 operating hotels and 22,316 rooms, primarily upscale and upper-upscale properties.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $343.0 million | $328.2 million | $1,047.6 million | $923.4 million |
| Operating income | $37.2 million | $33.3 million | $113.8 million | $60.8 million |
| Net loss | $64.5 million | $22.3 million | $150.9 million | $84.4 million |
| Net loss attributable to common stockholders | $68.6 million; $1.99 per share | $25.2 million; $0.73 per share | $162.4 million; $4.72 per share | $93.0 million; $2.71 per share |
| Adjusted EBITDAre (non-GAAP) | $82.5 million | $82.1 million | $262.0 million | $218.6 million |
| Adjusted FFO available to common stockholders and OP unitholders (non-GAAP) | $3.0 million | $19.0 million | $39.7 million | $62.0 million |
Q3 RevPAR was $131.44, up from $126.24; occupancy was 72.19%, versus 70.98%; and ADR was $182.09, versus $177.84. Nine-month RevPAR rose to $133.34 from $119.19. These operating gains did not translate into stronger bottom-line results: hotel operating expenses rose 7.6% in Q3, faster than revenue, while interest expense and loan-cost amortization increased 62.9% to $99.4 million.
For the first nine months, operating cash flow was $36.0 million, compared with $39.5 million. Investing cash outflow was $65.9 million, including $99.5 million of hotel improvements. Financing cash outflow was $172.2 million. Cash and cash equivalents were $184.2 million on the balance sheet; management reported $184.7 million including amounts held for sale. Restricted cash was $171.9 million on the balance sheet, or $172.2 million including amounts held for sale.
Indebtedness, net, was $3.632 billion, down from $3.839 billion at year-end 2022. The company reported a $298.0 million total equity deficit and net debt to gross assets of 69.0%. About $3.3 billion of debt was variable-rate; management estimated a 25-basis-point rate increase would add approximately $8.2 million in annual interest expense before considering interest-rate caps.
Material changes versus the prior period
- Revenue increased 4.5% in Q3 and 13.5% for the nine-month period, supported by higher comparable-hotel room rates and occupancy, as well as food-and-beverage revenue growth.
- Q3 net loss widened to $64.5 million from $22.3 million; nine-month net loss widened to $150.9 million from $84.4 million. Higher variable-rate borrowing costs were a major contributor.
- The company sold WorldQuest Resort on August 1 for $14.8 million cash, recording a gain of about $6.4 million. It classified Sheraton Bucks County as held for sale.
- Management consolidated the 815 Commerce entity developing Le Meridien Fort Worth after obtaining kick-out rights over its manager. The consolidation resulted in a $1.1 million gain and brought related debt and other finance liabilities onto the statements.
- The company issued Series J and K redeemable preferred stock. At September 30, their reported balances were $60.5 million and $3.8 million, respectively. No common-stock dividend was declared for 2023.
Outlook, risks, and unusual items
- Significant loan defaults: The company did not make required paydowns to extend KEYS Pools A, B, and F, and those loans were in default at September 30. Their balances totaled approximately $570.2 million and were secured by 19 hotels. Management was seeking modified extension tests but said a consensual transfer of the hotels to lenders appeared the most likely outcome.
- Refinancing and liquidity: Management said current cash and operating cash flow should cover anticipated requirements for the next 12 months, excluding potential final maturity payments and extension paydowns. It cautioned that refinancing upcoming maturities is not assured and that failure to obtain financing could lead to foreclosure. Thirty-one percent of hotels were in cash traps; about $4.0 million of restricted cash was subject to those traps.
- Debt and interest-rate exposure: Substantial floating-rate debt, higher SOFR, extension tests, and loan maturities create financing and liquidity risks. Management noted that some extensions may require significant principal paydowns. Oaktree’s amended facility made up to $100 million of delayed-draw term loans available through July 7, 2024, subject to terms including a 9% annual unused fee.
- Preferred securities: Series J carries an 8.0% annual dividend rate and Series K an initial 8.2% rate, with contractual redemption features. These redeemable preferred shares are classified outside permanent equity and rank behind debt.
- Contingencies: A California employment class action may result in a loss, but the company said the amount was not reasonably estimable and recorded no accrual. A Q3 cyber incident may have exposed employee personal information; no customer information exposure was identified, systems were substantially restored, and additional costs remain possible.
- Other items: The company reported a material increase in interest expense and volatile derivative results. It also noted related-party arrangements with Ashford Inc. and affiliates, including advisory services and hotel management services.
- Guidance: The filing provides no specific numeric earnings or operating guidance. Hotel seasonality and macroeconomic, inflation, interest-rate, and lodging-market uncertainties may affect results.
Key facts for investors to verify
- Progress and terms of negotiations on KEYS Pools A, B, and F, including whether the anticipated hotel transfers occur and their effect on debt and cash flow.
- Upcoming debt maturities, extension conditions, required paydowns, and the company’s ability to refinance on acceptable terms.
- Cash available for corporate needs versus lender- or manager-restricted reserves, cash traps, and hotel-manager-held balances.
- Whether operating improvement can outpace hotel-cost inflation and sharply higher interest expense; review GAAP results alongside non-GAAP measures.
- Future preferred-stock issuance, dividend obligations, redemption exposure, and any change to the no-common-dividend policy.
- Updates on the employment litigation and cyber incident, including any new accruals, claims, or costs.