ASHFORD HOSPITALITY TRUST INC quarterly report, Q1 FY2021

Ashford Hospitality Trust, Inc. — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021. Ashford is a U.S. hotel REIT; at quarter-end it owned interests in 102 consolidated hotels with 22,569 rooms, plus 90 WorldQuest condominium units. Results remained heavily affected by the COVID-19 travel downturn.

Key financial results

Metric	Q1 2021	Q1 2020
Total revenue	$115.8 million	$281.9 million
Operating loss	$70.0 million	$49.4 million
Net loss	$105.4 million	$101.9 million
Net loss attributable to common stockholders; diluted loss per share	$91.6 million; $1.10	$94.8 million; $9.40
Adjusted EBITDAre	$(5.2) million	$47.4 million
FFO available to common stockholders and OP unitholders	$(36.2) million	$(22.2) million
Adjusted FFO available to common stockholders and OP unitholders	$(29.7) million	$(14.1) million
Net cash used in operating activities	$(91.9) million	$11.9 million provided

All financial amounts are in U.S. dollars. Hotel revenue fell 59% year over year. Comparable-property RevPAR declined about 50% to $47.42, as occupancy fell to 42.25% from 58.54% and ADR fell to $112.25 from $162.04. Hotel operating expenses declined 55% to $91.5 million, but did not offset the revenue drop. No impairment charge was recorded in Q1 2021, compared with $27.6 million in Q1 2020. Interest expense and loan-cost amortization was $33.3 million, down from $57.1 million, partly reflecting lower LIBOR and a $16.8 million credit from amortization of previously capitalized default interest and late charges. Q1 2021 also included $3.7 million of Lismore-related fees in write-offs of premiums, loan costs and exit fees.

Balance sheet, debt and liquidity

At March 31, 2021, cash and cash equivalents were $225.4 million and restricted cash was $67.7 million; total cash, cash equivalents and restricted cash were $293.1 million. The filing says most restricted cash is lender- or manager-held, although reserves and $11.8 million due from third-party managers were being used to support hotel operations.
Reported indebtedness, net was $3.94 billion, versus $3.73 billion at December 31, 2020. Total liabilities were $4.13 billion, and total equity was a deficit of $341.9 million.
Operating cash outflow of $91.9 million was offset by $218.8 million of financing inflows, including $195.5 million of net borrowings and $45.5 million of common-stock proceeds. Cash and restricted cash together increased by $125.8 million during the quarter.
The January Oaktree senior secured facility provided an initial $200 million draw, with up to $250 million of delayed-draw capacity, for a total commitment of $450 million. Interest is 16% on the initial and initial delayed-draw loans for the first two years, then 14%; additional delayed-draw loans carry 18.5%, then 16.5%. Interest may be paid in kind during the first two years. The agreement also includes an exit fee or a warrant alternative.
Approximately $3.6 billion of roughly $3.7 billion of property-level principal was covered by forbearance or other agreements as of the filing’s disclosures. The Company had stopped principal and interest payments on nearly all loans beginning April 1, 2020, creating defaults under loan documents; lenders may accelerate debt or foreclose. One hotel loan secured by SpringHill Suites Durham and Charlotte was foreclosed on April 29, 2021.
The Company warned that operating cash and existing balances might not cover upcoming interest and principal, working capital and capital spending, and said refinancing 2021 and 2022 maturities was uncertain. Management nevertheless concluded its plans alleviated substantial doubt about continuing as a going concern for the next 12 months, citing Oaktree financing, lender forbearances, cash and cost/liquidity actions.

Material changes, outlook and risks

The pandemic continued to depress hotel demand; management expected a significant negative effect on results, financial position and cash flow throughout 2021 and for the foreseeable future. One hotel remained temporarily closed at March 31; as of May 6, 101 of 102 hotels were open.
Common dividends were suspended beginning in Q1 2020 and preferred dividends beginning in Q2 2020; no Q1 2021 dividends were declared. Accumulated preferred dividends in arrears totaled $20.7 million at March 31.
Common shares issued and outstanding rose from 64.4 million at December 31 to 110.1 million at March 31, in part through preferred-stock exchanges and equity issuance. Subsequent to quarter-end through May 6, the Company reported further stock sales and exchanges; common shares outstanding were 145.3 million at May 6. These transactions raise dilution considerations.
The Company sold Le Meridien Minneapolis for approximately $7.9 million in January, recording a loss of about $124,000. It also disclosed continuing defaults on certain mortgage loans and the completed April foreclosure noted above.
Other risks include triggered cash-trap provisions on nearly all mortgage loans containing them, variable-rate debt exposure (about $3.5 billion; a 25-basis-point rate change would affect annual results by approximately $8.7 million), and reliance on affiliated advisor Ashford LLC and manager Remington, which operated 68 of the hotels.
The SEC had issued administrative subpoenas to the Company, related Ashford entities and its chairman concerning related-party transactions and related accounting and controls; the Company said it was responding. The filing also describes employment litigation, including a certified California class action with no estimable loss, and a New York service-charge case with estimated potential damages of $5.8 million to $11.9 million plus interest and attorneys’ fees if plaintiffs prevail; no accrual was recorded for either matter.
No numerical operating guidance was provided. Management emphasized cost reductions, reduced capital spending, asset sales, lender negotiations and potential capital raising. It also disclosed that an April 2021 ownership change could limit use of tax attributes under Section 382, though management did not expect a material current-year tax impact.

Important facts for investors to verify

Progress and conditions of lender forbearance, remaining defaults, foreclosure exposure and the ability to refinance near-term maturities.
Cash burn, access to restricted reserves, availability and cost of remaining Oaktree delayed draws, and the assumptions supporting management’s going-concern conclusion.
Hotel demand recovery, comparable RevPAR, occupancy and ADR trends, and whether operating-cost reductions can keep pace with revenue.
Further share issuance, preferred-stock exchanges, dilution, preferred dividend arrears and the terms or costs of future financing.
Developments in the SEC inquiry, litigation and related-party arrangements, including advisory and Lismore fees and obligations following expiration of the ERFP agreement.