Ashford Hospitality Trust, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Ashford is a hotel-focused REIT; at quarter-end it owned interests in 127 consolidated hotels with 27,180 rooms. Results are not directly comparable with 2014 because of substantial acquisitions and the consolidation of PIM Highland JV from March 6, 2015.
Financial performance
- Revenue: Q2 revenue was $369.3 million, up 77% from $208.2 million; six-month revenue was $619.6 million, up 54% from $403.0 million. Growth primarily reflects PIM Highland JV and other hotel acquisitions. Advisory-services revenue recorded in 2014 did not recur after the Ashford Inc. spin-off.
- Hotel performance: Reported portfolio RevPAR was $123.05 in Q2 versus $108.45, with occupancy of 80.84% versus 80.04% and ADR of $152.22 versus $135.49. Six-month RevPAR was $118.53 versus $105.33. These figures include changes in the hotel portfolio.
- Profit and margins: Q2 operating income was $35.2 million versus $17.5 million; operating margin was approximately 9.5% versus 8.4%. Net loss attributable to the company was $12.2 million, and net loss attributable to common stockholders was $20.7 million, or $0.21 per share, versus a $10.1 million common-stockholder loss, or $0.11 per share. For the six months, net income attributable to the company was $309.3 million and common-stockholder income was $292.3 million, or $2.96 per share; results included a $381.8 million non-cash gain from remeasuring the previously held PIM Highland JV interest.
- REIT operating measures: Q2 FFO was $31.0 million versus $27.8 million; Adjusted FFO was $58.4 million versus $42.3 million. Six-month FFO was $55.6 million versus $51.8 million, and Adjusted FFO was $92.4 million versus $67.1 million. These non-GAAP measures are not substitutes for GAAP earnings or operating cash flow.
- Cash flow and liquidity: Six-month operating cash flow was $80.3 million versus $62.4 million. Investing used $617.6 million, primarily for acquisitions and hotel improvements; financing provided $604.4 million. Cash and cash equivalents were $282.1 million at June 30, up from $215.1 million at year-end; restricted cash was a further $149.9 million.
- Debt: Debt was $3.65 billion, compared with $1.95 billion at December 31, 2014. Approximately $2.4 billion was variable-rate debt and $1.3 billion fixed-rate. Management estimated that a 25-basis-point rate increase would raise annual expense by about $5.9 million. The company reported material compliance with debt covenants.
- Dividends: Common dividends declared were $0.12 per share per quarter, or $0.24 for the first half. The stated 2015 policy anticipated $0.12 quarterly for the remainder of the year, subject to Board review and declaration.
Material changes and transactions
- Ashford acquired the remaining 28.26% of PIM Highland JV for $250.1 million cash, obtained full ownership of its 28 hotels, and recognized the $381.8 million remeasurement gain. JV debt was refinanced, including a $1.07 billion non-recourse floating-rate loan.
- Other 2015 acquisitions included Lakeway Resort, Memphis Marriott East, Hampton Inn Gainesville, Le Pavillon, and the nine-hotel Rockbridge portfolio. The acquisitions expanded hotel assets and debt and materially affect year-over-year comparisons.
- In June, the Board refocused investment strategy on upscale and upper-upscale full-service hotels and announced plans to market approximately 23 select-service hotels. They were not classified as held for sale at quarter-end. Two hotels were impaired by a total of $19.9 million.
- After quarter-end, Ashford completed the W Atlanta acquisition, completed the Le Meridien Minneapolis acquisition, acquired a Wisconsin Dells hotel, distributed its remaining Ashford Prime interest, and repurchased approximately 5.8 million common shares for $51.8 million.
Outlook, risks, and unusual items
- Management said cash on hand and operating cash flow should be adequate for anticipated interest and principal, working capital, and capital expenditures over the next 12 months, while noting it would proactively address 2015 and 2016 maturities. No specific earnings or operating guidance was provided.
- Key risks include refinancing availability and terms, floating-rate exposure, hotel demand and competition, seasonal fluctuations, cash-trap provisions, and the possibility that covenant breaches could accelerate repayment. Management noted no assurance that future financing would be available on favorable terms.
- A Florida landlord-tenant jury verdict against a subsidiary was on appeal. Including the judgment, interest, and estimated legal expenses, related expense totaled $12.0 million through June 30, 2015; additional first-half interest expense was $48,000.
- The amended Ashford LLC advisory agreement sets fees tied to market capitalization and includes termination provisions and potential termination fees. Ashford LLC is affiliated with the company’s leadership; Remington Lodging, also affiliated with the Chairman and CEO, managed 87 of 127 hotels.
- Interest-rate derivatives generated a $3.7 million six-month unrealized loss. Hotel impairment measurements and acquisition valuations rely on significant estimates and unobservable inputs.
Important facts for investors to verify
- How much of reported revenue and operating growth reflects acquired hotels versus comparable-property performance.
- The recurring earnings and cash-flow picture excluding the $381.8 million PIM Highland remeasurement gain and other adjustments; reconcile GAAP results with FFO and Adjusted FFO.
- Debt maturity and refinancing plans, floating-rate exposure, hedging effectiveness, covenant headroom, and available unrestricted liquidity.
- Progress and proceeds, if any, from the planned sale of approximately 23 select-service hotels, and the effect on portfolio strategy and distributions.
- Potential outcomes of the Florida litigation and the economic terms and conflicts associated with the Ashford LLC advisory relationship.