Ashford Hospitality Trust, Inc. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. Unless noted, amounts are in U.S. dollars.
Business context
Ashford Trust is a REIT focused primarily on owning upscale and upper-upscale U.S. hotels. At year-end, it held 100 consolidated hotels with 22,316 rooms, plus 79 WorldQuest condominium units and minority investments in hospitality-related ventures. It has no employees of its own: Ashford LLC provides advisory and asset-management services, and affiliated Remington Hotels managed 68 hotels.
Financial and operating performance
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Total revenue | $1,240.9 million | $805.4 million | Up 54.1% |
| Operating income (loss) | $76.3 million | $(125.2) million | Improved $201.4 million; 2022 operating margin was about 6.1% |
| Net loss attributable to Ashford Trust | $(139.8) million | $(267.0) million | Loss narrowed by $127.2 million |
| Net loss attributable to common stockholders | $(153.2) million | $(267.9) million | 2022 diluted loss per share was $(4.46) |
| Interest expense and loan-cost amortization | $227.0 million | $156.1 million | Up 45.4%, mainly reflecting higher rates |
| Cash from operating activities | $39.2 million | $(144.2) million | Improved $183.4 million |
| Adjusted EBITDAre | $287.3 million | $113.6 million | Non-GAAP measure |
| FFO available to common stockholders and OP unitholders | $47.1 million | $(53.6) million | Non-GAAP measure |
| Adjusted FFO available to common stockholders and OP unitholders | $67.3 million | $(28.9) million | Non-GAAP measure |
Hotel recovery drove results: portfolio RevPAR increased to $118.89 from $79.44, occupancy to 67.56% from 55.62%, and average daily rate (ADR) to $175.98 from $142.82. Rooms revenue rose 48.7% to $974.0 million; food-and-beverage revenue more than doubled to $196.7 million. Hotel operating expenses also rose 44.9% to $836.0 million. No impairment charges were recorded in 2022 or 2021, compared with $91.7 million in 2020.
Liquidity, debt and capital
- Year-end cash and cash equivalents were $417.1 million; restricted cash was $142.0 million, mostly lender- and manager-held reserves. The company also reported $22.5 million due from third-party hotel managers.
- Indebtedness, net, was $3.839 billion. Management reported $3.5 billion of variable-rate debt and $321.1 million of fixed-rate debt; net debt to gross assets was 68.7%.
- A 25-basis-point rate increase on year-end variable-rate debt was estimated to increase annual costs by about $8.8 million, before considering interest-rate caps. The company had caps covering most variable-rate debt.
- The debt maturity schedule lists $3.288 billion for 2023. The filing also says $98.5 million had final maturities in 2023 and that many loans had extension options, subject to conditions. These disclosures make the timing and amount of required refinancing or repayment important to verify.
- As of year-end, 79% of hotels were in cash traps; approximately $33.7 million of restricted cash was subject to them. Lenders may control hotel cash flows while performance conditions remain unmet.
- Cash flows were $39.2 million from operations, $(70.3) million from investing and $(101.5) million from financing. Hotel improvements and additions used $103.8 million. Capital commitments were $49.6 million, largely expected within 12 months.
- Stockholders’ equity was a deficit of $150.4 million. Management said existing cash and operating cash flow should cover anticipated needs over the next 12 months, excluding potential final maturity payments, but gave no assurance of refinancing or future financing availability.
Material changes, outlook and notable items
- Management attributed the improvement in hotel operations to continued recovery from COVID-19 effects. It provided no numerical earnings or operating forecast in the text provided.
- The board continued the suspension of common dividends into 2023 and did not anticipate common dividends during that year. It expected preferred dividends, subject to board decisions and applicable constraints.
- In December 2022, the company acquired the Hilton Marietta leasehold from Ashford LLC in exchange for cancelling an approximately $11.4 million outstanding Enhanced Return Funding Program balance. The 2054 lease was recorded as a finance lease; the auditor identified the acquisition and lease-rate estimate as a critical audit matter.
- The company sold the Sheraton Ann Arbor in September 2022 for approximately $35.7 million in consideration and repaid its $30.0 million mortgage. It also amended or refinanced several loans and replaced LIBOR pricing with SOFR on certain debt.
- The company raised approximately $1.1 million net from Series J and K preferred offerings in 2022; as of March 8, 2023, it reported approximately $4.5 million net proceeds from Series J and $131,000 from Series K. It also had a $300 million universal shelf and a common-stock ATM agreement, with no shares issued under the ATM as of March 8, 2023.
- Related-party arrangements are significant: Ashford LLC is the advisor, Remington is an affiliate manager, and the filing identifies potential conflicts of interest and minimum advisory and management fees. Advisory fees were $49.9 million in 2022.
- A New York service-charge class action settled for approximately $7.0 million; the company paid $6.9 million net of a prior deposit and recorded approximately $2.8 million additional expense. A separate California employment class action remained unresolved and unaccrued because the potential loss was not reasonably estimable. Approximately $504,000 was accrued for a separate legal-fee dispute.
- Key risks include refinancing and interest-rate exposure, cash traps and covenant compliance, possible Oaktree enforcement against pledged assets, hotel-industry cyclicality, inflation, and related-party conflicts. The company reported compliance with debt covenants at December 31, 2022. BDO issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Current status, extension tests, paydowns and financing plans for the large 2023 debt maturities, including the portions subject to extension.
- How much cash is unrestricted and accessible, and whether cash-trap conditions have been cured or expanded since year-end.
- Interest expense and hedging coverage as variable rates and the transition from LIBOR to SOFR affect debt costs.
- Whether hotel recovery and operating margins can offset labor, insurance, property and other cost inflation.
- Preferred dividend obligations, Series J/K redemption terms and potential capital-raising dilution; common dividends remain suspended.
- Updates on the California employment litigation and other contingencies, as well as the financial and governance implications of related-party agreements.