Filing summary
Registrant and period: The supplied filing is Ashford Hospitality Prime, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. This does not match the requested company, Braemar Hotels & Resorts Inc.; verify the issuer before relying on this summary.
Business context
Ashford Prime was an externally advised hotel REIT focused on luxury, upper-upscale and upscale hotels in gateway and resort locations. At September 30, 2015, it owned interests in 11 hotels, with 3,772 total rooms (3,537 net rooms). Ashford Trust completed distribution of its remaining Ashford Prime shares and operating partnership units in July 2015 and no longer had an ownership interest.
Financial performance
| Metric | Three months ended September 30, 2015 | Nine months ended September 30, 2015 |
|---|---|---|
| Total revenue | $90.8 million, up 7.0% year over year | $261.4 million, up 13.4% |
| Operating income | $13.3 million, down from $14.7 million | $40.6 million, up from $34.3 million |
| Net income (loss) attributable to the Company | $(6.8) million | $(0.3) million |
| Net income (loss) attributable to common stockholders | $(7.7) million; $(0.29) per share | $(1.4) million; $(0.06) per share |
| Operating cash flow | Not reported as a quarterly figure in the supplied statements | $(7.2) million, versus $40.3 million provided in 2014 |
| Adjusted EBITDA | $24.4 million, versus $24.7 million | $72.0 million, versus $64.9 million |
| Adjusted FFO | $14.2 million, versus $14.4 million | $42.5 million, versus $35.4 million |
Hotel operating indicators improved overall: third-quarter occupancy was 85.75% versus 86.61%, ADR was $237.53 versus $220.93, and RevPAR was $203.69 versus $191.33. For the nine-month period, occupancy was 83.61% versus 82.53%, ADR was $226.68 versus $211.90, and RevPAR was $189.52 versus $174.87. Reported revenue growth included the Bardessono acquisition and, for the nine-month comparison, a fuller period of results from hotels acquired in 2014.
Operating margin was approximately 14.6% for the quarter, compared with 17.3% in the prior-year quarter; for nine months it was approximately 15.5%, compared with 14.9%. These are calculated as operating income divided by total revenue.
Balance sheet, debt and liquidity
- At September 30, 2015, cash and cash equivalents were $85.7 million, down from $171.4 million at December 31, 2014; restricted cash was $32.0 million.
- Indebtedness was $760.3 million, compared with $765.2 million at year-end. The filing reports $346.0 million of variable-rate debt and $414.3 million of fixed-rate debt. A 25-basis-point rate increase on variable-rate borrowings would add approximately $865,000 of annual interest expense, before considering changes in capital structure.
- The $150 million secured revolving credit facility was undrawn. The company reported compliance with debt covenants. Its debt-to-EBITDA covenant ratio was 5.65x against a 6.5x limit; the limit was scheduled to tighten to 5.75x beginning December 1, 2015. Fixed-charge coverage was 1.84x against a 1.25x minimum, scheduled to rise to 1.35x.
- Cash used in investing activities was $112.8 million, including $81.8 million for the Bardessono acquisition, $16.6 million invested in Ashford Inc. and $13.9 million of hotel improvements. Cash provided by financing activities was $34.2 million. Management attributed $50 million of pressure on operating cash flow to net purchases of marketable securities.
- The company issued $62.3 million net proceeds of 5.5% Series A cumulative convertible preferred stock and $3.1 million from a common-stock private placement. It raised its quarterly common dividend from $0.05 to $0.10 per share in 2015; declared common dividends were $0.10 per share for the third quarter.
Material changes and unusual items
- The July acquisition of the Bardessono Hotel and Spa in California cost $85.0 million. From acquisition through September 30, it contributed $4.9 million of revenue and $897,000 of net income; purchase-price allocations were preliminary.
- The third-quarter loss included a $5.6 million unrealized loss on Ashford Inc. shares, a $2.1 million unrealized derivative loss and a $3.4 million equity-method loss on the AIM Real Estate Hedged Equity Fund. These items weighed on GAAP earnings; adjusted measures exclude specified items and are not substitutes for GAAP results or cash flow.
- The company reported $255,000 of Bardessono transaction costs in the quarter. Corporate general and administrative expense rose to $1.5 million from $458,000, principally reflecting higher professional and other costs.
- In August, independent directors began a review of strategic alternatives, including a possible sale of the company, and retained Deutsche Bank Securities as financial adviser. The review was at an early stage; no transaction was assured.
- The company remained externally advised by Ashford LLC, an Ashford Inc. subsidiary, and disclosed related-party arrangements and potential conflicts. Litigation was described as not expected to have a material adverse effect, though outcomes could not be predicted with certainty.
Outlook, risks and contingencies
The filing provides no specific earnings or operating guidance. Management expected to fund near-term needs through operating cash flow, cash balances and, if needed, the revolving facility; longer-term needs could require debt or equity financing. Management cautioned that access to capital could be affected by market conditions, leverage, operating results and covenant restrictions. Hotel seasonality, variable interest rates, refinancing needs, REIT qualification requirements, possible cash traps under certain loans, and the ability to fund renovations and acquisitions were identified as relevant considerations. None of the loan cash-trap provisions was triggered at September 30, 2015.
Important facts for investors to verify
- Confirm the issuer: the provided 10-Q is for Ashford Hospitality Prime, not Braemar Hotels & Resorts.
- Review whether the strategic-alternatives process resulted in a sale, merger or other transaction after the filing date.
- Assess the company’s ability to generate operating cash and fund capital improvements, dividends and debt obligations, given the reported nine-month operating cash outflow and reduced cash balance.
- Check covenant headroom against the December 2015 tightening of the leverage and fixed-charge coverage thresholds, along with upcoming loan maturities and extension conditions.
- Examine the valuation and subsequent performance of the Ashford Inc. investment and REHE Fund, and the implications of related-party advisory and management arrangements.