Ashford Hospitality Trust, Inc. — 2020 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2020, filed March 15, 2021. Ashford is an externally advised U.S. hotel REIT. At year-end it reported interests in 103 consolidated hotels with 22,621 rooms, 90 WorldQuest condominium units, and a 17.5% interest in OpenKey. Its hotel portfolio was severely affected by COVID-19; two hotels were temporarily closed at year-end.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $508.2 million | $1,502.8 million |
| Operating income (loss) | $(465.4) million | $114.7 million |
| Net income (loss) | $(633.2) million | $(142.7) million |
| Net loss attributable to common stockholders | $(520.5) million; $(33.00) per diluted share | $(156.2) million; $(15.77) per diluted share |
| Cash from operating activities | $(149.5) million | $177.2 million |
| EBITDAre / Adjusted EBITDAre | $(6.0) million / $(54.9) million | $403.3 million / $425.0 million |
| Debt, net | $3,728.9 million | $4,106.5 million |
| Cash and cash equivalents; restricted cash | $92.9 million; $74.4 million | $262.6 million; $135.6 million |
| Company stockholders’ equity (deficit) | $(283.6) million | $268.8 million |
Operating measures: For comparable hotels and WorldQuest, 2020 RevPAR was $48.48 versus $142.40 in 2019; occupancy was 34.15% versus 76.64%, and ADR was $141.96 versus $185.80.
Fourth quarter: Revenue was $90.3 million, operating loss was $99.7 million, net loss was $137.6 million, and loss attributable to common stockholders was $70.5 million, or $2.29 per diluted share. The comparable 2019 quarter had revenue of $354.7 million, net loss of $35.6 million, and common-stockholder loss of $38.8 million, or $3.90 per share.
Material changes and unusual items
- Annual revenue fell 66% year over year, primarily because of the pandemic; comparable-property rooms revenue declined 65.6%. Hotel expenses fell 54.4%, but not enough to offset lost revenue and fixed costs.
- The company recorded $91.7 million of hotel impairment charges and a $36.7 million net loss on dispositions. It also recorded $90.3 million of gains on extinguishment of debt, principally in connection with property transfers and foreclosures; these gains did not represent equivalent operating cash generation.
- Interest expense was $247.4 million. Lower LIBOR reduced interest expense, but default interest and late charges increased it by $68.3 million. Approximately $47.5 million of default interest and late charges was capitalized into loan balances.
- Property-level debt declined from approximately $4.1 billion to $3.7 billion. During 2020, the company transferred or lost several hotels through consensual assignments or foreclosure and sold the Embassy Suites New York Manhattan Times Square, recognizing a $40.4 million loss on that sale.
- The company issued approximately 38.4 million common shares in exchange for 6.9 million preferred shares, alongside further privately negotiated exchanges. Common shares outstanding rose to 64.4 million at year-end from 10.2 million a year earlier; a 1-for-10 reverse split occurred in July 2020, and per-share data are adjusted for it.
Liquidity, outlook, risks, and contingencies
- Defaults and forbearance: Beginning April 1, 2020, Ashford stopped principal and interest payments on nearly all loans, triggering defaults and increased default interest. As of March 11, 2021, agreements conditionally waived or deferred defaults on about $3.6 billion of approximately $3.7 billion in property-level debt; not all loans were covered. Lenders retain rights to accelerate debt and foreclose.
- Liquidity and new financing: The company used $43.1 million of cash, cash equivalents, and restricted cash in the fourth quarter. A January 2021 Oaktree senior secured facility provided $200 million initially, with up to $250 million in delayed-draw capacity. Interest is 16% initially on the initial loans and 18.5% on additional delayed-draw loans, with options to pay interest in kind for the first two years. The facility is secured by substantially all assets and includes potential dilution or a substantial exit fee.
- Near-term obligations: The year-end contractual-obligations table lists $2.9 billion of debt principal due within one year, excluding extension options, and $150.1 million of estimated interest obligations in total. Management stated that refinancing 2021 maturities was uncertain. In February 2021, a lender initiated foreclosure proceedings on two hotels securing a $19.4 million loan.
- Management outlook: Management expected COVID-19 to materially affect results, financial position, and cash flow throughout 2021 and beyond, and said it could not reliably forecast the recovery. Cost reductions, lower capital spending, use of reserves, financing, asset sales, and lender agreements were central to its liquidity plan. Management concluded that these measures alleviated substantial doubt about the company’s ability to continue as a going concern, while acknowledging that conditions could change.
- Dividends and capital raising: No common dividends were paid in 2020; preferred dividends were suspended for the second through fourth quarters. The company announced it did not anticipate paying common or preferred dividends in 2021. Preferred dividends in arrears totaled $21.5 million at year-end; the filing reports approximately $16.6 million as of March 11, 2021 after exchanges. Equity sales and exchanges increased common shares and may dilute holders. The company also disclosed restrictions on using Form S-3 for capital raising.
- Other risks: Substantial variable-rate debt (approximately $3.5 billion at year-end); potential ground-lease defaults; related-party arrangements with Ashford Inc. and its affiliates; and an ongoing SEC investigation into related-party transactions, accounting, and controls. A material weakness in controls over troubled-debt accounting identified in the third quarter was reported as remediated by year-end; the auditor gave unqualified opinions on the financial statements and internal controls.
- Legal contingencies: The Hyatt Regency Long Island service-charge class action could result in estimated damages of $5.8 million to $11.9 million plus interest and attorneys’ fees if liability is upheld; no amount was accrued. A California employee-break class action also had no accrual because potential loss was not estimable. Approximately $504,000 was accrued for remaining legal fees in the Nantucket matter.
Important facts for investors to verify
- Current status and conditions of all property-level forbearance agreements, defaults, accelerations, and foreclosure proceedings, including the hotels not covered by agreements.
- Availability, draws, covenants, collateral, cash-pay versus in-kind interest, and exit-fee or warrant terms of the Oaktree facility; also the company’s actual unrestricted liquidity and cash burn.
- Timing and ability to refinance the large 2021 maturity schedule, and whether reported extensions or contractual-obligation estimates materially change amounts due.
- Hotel demand and operating trends after 2020, particularly occupancy, ADR, RevPAR, and the costs of restoring operations and maintaining properties.
- Share-count impact of preferred-stock exchanges and equity facilities, accumulated preferred dividends, and any future dividend decisions.
- Progress and potential consequences of the SEC investigation, related-party arrangements, and sustained effectiveness of the remediated accounting controls.