AHT

Ashford Hospitality Trust Inc. - Q2 2009 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2009. Ashford Hospitality Trust, Inc. is a self-advised Real Estate Investment Trust (REIT) owning 97 hotel properties directly and six through majority-owned joint ventures (23,255 total rooms). The company also holds a portfolio of mezzanine and first-mortgage loans. The reporting period reflects the impact of a deepening U.S. recession, declining lodging demand, and significant credit market disruptions.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased 21.7% year-over-year for the quarter and 19.1% for the six-month period, driven by a drop in occupancy (68.0% vs. 76.65% in Q2 2008) and Average Daily Rate (ADR).
• Significant Impairment Charges: The company recorded $140.3 million in impairment charges for the quarter and six months ended June 30, 2009. This includes:
  • $109.4 million valuation allowance on a $164 million mezzanine loan to Extended Stay Hotels, LLC, following their Chapter 11 bankruptcy filing.
  • $10.9 million impairment on the Hyatt Regency Dearborn property due to default on its mortgage.
  • Additional allowances on other mezzanine loans totaling approximately $20.1 million.
• Derivative Gains/Losses: Unrealized losses on non-hedge derivatives decreased to $37.7 million for the quarter (from $55.4 million in Q2 2008) due to movements in the LIBOR forward curve. Conversely, "Other Income" increased significantly to $11.2 million due to gains on interest rate swaps and floors.
• Dividend Suspension: The Board suspended the common stock dividend effective Q4 2008 to preserve capital. No common dividends were declared in the current period.

Guidance, Outlook, and Risks

• Outlook: Management expects lodging demand to remain "considerably bearish" for the remainder of 2009. The company is prioritizing capital preservation, liquidity enhancement, and cost-saving measures.
• Capital Strategy: The company continues an aggressive share repurchase program. In the first six months of 2009, it repurchased 17.4 million common shares and significant preferred shares for a total of $44.6 million. A $200 million authorization remains available for repurchases or debt prepayment.
• Liquidity: Cash and cash equivalents stand at $236.6 million. Management believes current cash flows and balances are adequate for the next 12 months, though refinancing of a $75 million mortgage due in March 2010 is actively being sought.
• Risks:
  • Credit Risk: Significant exposure to the mezzanine loan portfolio; remaining loans could be written off if borrowers cannot service debt.
  • Derivative Risk: While currently generating income due to low rates, the company holds significant non-hedge derivative positions that impact earnings volatility.
  • Refinancing Risk: Failure to refinance maturing debt on favorable terms could adversely impact operations.

Investor Verification Checklist

• Mezzanine Loan Portfolio Status: Verify the collectability of the remaining $86.4 million in notes receivable, given the recent $109.4 million write-off.
• Derivative Exposure: Review the specific terms and fair value of the $3.6 billion notional "flooridor" and other interest rate swaps to understand future earnings volatility.
• Debt Maturities: Confirm the status of refinancing efforts for the $75 million mortgage maturing in March 2010 and the $29.1 million note on the Hyatt Regency Dearborn (currently in default).
• Dividend Policy: Monitor announcements regarding the resumption of common dividends, which are suspended to maintain REIT status with minimum distributions.
• Share Repurchases: Track the utilization of the remaining $200 million repurchase authorization and its impact on outstanding share count.