Filing summary: quarter ended March 31, 2015
Registrant identification: The supplied filing is for Ashford Hospitality Prime, Inc., not Braemar Hotels & Resorts Inc. It describes a portfolio of luxury, upper-upscale and upscale hotels and is unaudited.
Business context and reporting period
Ashford Hospitality Prime owned interests in 10 U.S. hotels with 3,707 total rooms (3,472 attributable net rooms). It was an externally advised REIT with no employees; Ashford LLC provided advisory and asset-management services. Results include the Sofitel Chicago Water Tower and Pier House Resort for the full first quarter of 2015, versus only part of the comparable 2014 quarter following their 2014 acquisitions.
Financial and operating performance
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Total revenue | $77.8 million | $61.8 million; up 25.9% |
| Operating income | $8.3 million | $4.8 million; up 73.0% |
| Operating margin | 10.6% | 7.7% |
| Net loss attributable to the Company | $0.2 million | $2.9 million |
| Loss per common share | $0.01 | $0.13 |
| Adjusted EBITDA | $18.5 million | $14.2 million |
| Adjusted FFO | $8.4 million | $5.5 million |
| Cash and cash equivalents | $109.2 million | $171.4 million at Dec. 31, 2014 |
| Marketable securities | $61.9 million | None reported at Dec. 31, 2014 |
| Indebtedness | $764.3 million | $765.2 million at Dec. 31, 2014 |
Hotel operating indicators improved year over year: occupancy was 78.54% versus 74.85%, average daily rate was $207.97 versus $194.20, and RevPAR was $163.35 versus $145.36. Rooms revenue rose 23.9%; food and beverage revenue rose 33.3%. Total expenses increased 21.9%, slower than revenue growth. Interest expense and loan-cost amortization were $9.6 million, up 6.6%. The declared common dividend was $0.05 per share, unchanged from Q1 2014.
Cash flow from operating activities was a use of $39.4 million, compared with a $4.5 million use in Q1 2014. Management attributed approximately $50 million of the 2015 operating cash outflow to purchases of marketable securities. Investing activities used $3.5 million, primarily for $4.6 million in hotel improvements. Financing activities used $19.4 million; the company borrowed $70.0 million and repaid $70.9 million of debt. Cash, cash equivalents and marketable securities totaled $171.1 million at quarter-end.
Material changes and transactions
- On March 9, the company refinanced the $69.0 million Pier House mortgage with a $70.0 million interest-only loan due March 2017, bearing floating interest at LIBOR plus 2.25%–2.50%, with three conditional one-year extension options.
- The company repurchased 471,064 shares under its authorization for approximately $8.1 million during the quarter; cumulative purchases since program inception were approximately $24.2 million against a $100 million authorization.
- Unrealized gains on marketable securities were $1.3 million. The company reported $61.9 million of marketable securities and $10.5 million of related liabilities, including a margin account balance and short options.
- Adjusted EBITDA and Adjusted FFO increased, but these are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Outlook, risks and contingencies
The filing provides no specific earnings or revenue guidance. Management expected short-term liquidity needs to be met through operating cash flow, cash balances and, if needed, the revolving credit facility; longer-term needs could require debt or equity financing. The $150 million secured revolver was undrawn at quarter-end, with an option to increase commitments to $300 million subject to conditions. The company was in material compliance with debt covenants; it reported leverage of 5.88x against a 6.5x maximum and fixed-charge coverage of 1.76x against a 1.25x minimum. Pier House was excluded from covenant calculations for the first four quarters after acquisition and was scheduled to be included beginning Q2 2015.
Risks include hotel seasonality, competition and economic conditions, access to capital, variable interest rates, debt covenant compliance, REIT qualification, and conflicts involving affiliates and the external adviser. A 25-basis-point change in rates on $347.2 million of variable-rate debt was estimated to affect annual results by approximately $868,000. Cash-trap provisions could restrict hotel cash distributions if property performance declines; none were triggered at quarter-end. Various legal proceedings remained unresolved; management did not expect them, individually or collectively, to materially harm financial position or results, but outcomes were uncertain. Management reported effective disclosure controls and no material change in internal controls during the quarter.
Important facts for investors to verify
- Confirm the issuer: this source is Ashford Hospitality Prime, Inc., not Braemar Hotels & Resorts Inc.
- Assess how much reported year-over-year growth reflects the 2014 hotel acquisitions versus comparable-property performance.
- Review the composition, investment purpose, valuation and potential liquidity or margin risks of the marketable securities and related liabilities.
- Check the impact of including Pier House in covenant calculations beginning Q2 2015 and monitor refinancing needs and floating-rate exposure.
- Reconcile the repurchase disclosures: the issuer reports 471,064 program shares, while the quarterly purchase table lists 474,364 total shares, including shares withheld for taxes.
- Consider the distinction between GAAP operating cash flow and non-GAAP Adjusted EBITDA/Adjusted FFO, and verify the seasonality and capital expenditure assumptions underlying liquidity expectations.