Business Context and Reporting Period
Company: Ashford Hospitality Trust, Inc. (AHT)
Filing Type: Form 8-K (Current Report)
Date of Report: June 19, 2013
Reporting Period: Financial data presented is as of March 31, 2013, and for the three months ended March 31, 2013, and the year ended December 31, 2012.
AHT announced the commencement of a public offering of 11,000,000 shares of common stock (with a 30-day option for an additional 1,650,000 shares). Concurrently, the Board of Directors approved a spin-off of certain hotel properties into a new entity, Ashford Hospitality Prime, Inc. ("Ashford Prime"), which will be distributed pro rata to AHT stockholders. Ashford Prime will operate as a REIT focusing on luxury, upper-upscale, and upscale hotels.
Key Financial Metrics
The following metrics reflect the "Ashford Prime Hotels" (the eight properties being spun off) and the pro forma combined entity including two additional properties (Pier House Resort and Crystal Gateway Marriott) subject to option agreements.
Pro Forma Combined Consolidated (Ashford Prime + Options)
| Metric | Three Months Ended March 31, 2013 |
Year Ended December 31, 2012 |
|---|---|---|
| Total Hotel Revenue | $72.4 million | $291.5 million |
| Operating Income | $7.7 million | $39.7 million |
| Net Income (Loss) Attributable to Company | $(3.4) million | $(4.6) million |
| Adjusted EBITDA | $18.2 million | $75.8 million |
| Hotel EBITDA | $23.5 million | $95.8 million |
| Total Indebtedness | $627.7 million | $570.8 million |
| Cash and Cash Equivalents | $13.7 million | $20.3 million |
Historical Combined Consolidated (Eight Spin-Off Properties Only)
| Metric | Three Months Ended March 31, 2013 |
Year Ended December 31, 2012 |
|---|---|---|
| Total Hotel Revenue | $54.1 million | $221.2 million |
| Operating Income | $5.2 million | $31.8 million |
| Net Loss Attributable to Company | $(4.6) million | $(4.5) million |
| Hotel EBITDA | $16.5 million | $73.0 million |
| Total Indebtedness | $627.7 million | $570.8 million |
Material Changes and Portfolio Details
- Spin-Off Portfolio: The spin-off includes eight hotel properties with a total of 3,146 rooms. As of March 31, 2013, the portfolio had a weighted average occupancy of 73%, an Average Daily Rate (ADR) of $181.60, and a RevPAR of $133.27.
- Option Agreements: AHT will enter into option agreements allowing Ashford Prime to acquire two additional properties:
- Pier House Resort (Key West, FL): 18-month option. Initial purchase price of $90.6 million (cash or units).
- Crystal Gateway Marriott (Arlington, VA): Option exercisable 6-18 months post-spin-off. Purchase price based on fair market value appraisal (payable in units).
- Debt Refinancing: Subsequent to December 31, 2012, AHT refinanced a $141.7 million loan due August 2013 with a new $199.9 million loan due February 2018. The new loan carries an interest rate of LIBOR + 3.50%.
- Ownership Structure: Upon completion, AHT will retain a 20% interest in Ashford Prime's operating partnership. The remaining 80% will be distributed to AHT stockholders.
Guidance, Outlook, and Risks
- Transaction Timeline: The distribution of Ashford Prime shares is anticipated to occur during the third quarter of 2013, subject to SEC approval of the Form 10 registration statement and NYSE listing approval.
- Investment Strategy: Ashford Prime will focus on hotels generating RevPAR of at least twice the U.S. average (approx. $130 as of Dec 31, 2012). AHT will continue to focus on other segments outside this criteria.
- Tax Implications: The distribution is taxable to stockholders. Stockholders will not receive cash for fractional shares and must use other funds to pay associated income taxes.
- Risks and Contingencies:
- IRS Audit: AHT is under audit by the IRS for tax years 2007 and 2008 regarding transfer pricing and excise taxes. Potential liabilities range from $1.1 million to $4.6 million depending on the outcome. AHT intends to contest these adjustments.
- Transaction Completion: The spin-off is subject to various conditions, including lender consents. If the transaction fails or is delayed, costs incurred could negatively impact AHT's financial condition.
- Forward-Looking Statements: Actual results may differ materially from projections due to market conditions, interest rate fluctuations, and the ability to complete the offering and spin-off.
Key Facts for Investor Verification
- Offering Details: Verify the final terms and pricing of the 11 million share public offering and the exercise of the 1.65 million share over-allotment option.
- Spin-Off Completion: Confirm the record date for the distribution and the actual date Ashford Prime shares begin trading on the NYSE.
- IRS Audit Resolution: Monitor the status of the IRS Appeals Office reviews for the 2007 and 2008 tax years, as a loss could result in significant excise tax liabilities.
- Option Exercise: Track whether Ashford Prime exercises its options to acquire the Pier House Resort and Crystal Gateway Marriott within the specified timeframes.
- Debt Covenants: Verify continued compliance with debt covenants, particularly following the recent refinancing of the $199.9 million loan.