Business context and reporting period
The supplied filing is Ashford Hospitality Prime, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2014—not a filing identified as Braemar Hotels & Resorts Inc. Investors should verify the issuer before relying on this summary.
Ashford Prime is an externally advised hotel REIT focused on luxury, upper-upscale and upscale properties. At quarter-end it owned interests in 10 U.S. hotels with 3,703 total rooms (3,469 attributable rooms). Its results include the Sofitel Chicago from February 24 and the Pier House Resort from March 1. The 2013 comparison is a carve-out of properties previously held by Ashford Trust and is not fully comparable to a stand-alone company’s results.
Financial and operating results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenue | $61.8 million | $54.1 million |
| Operating income | $4.8 million | $5.2 million |
| Operating margin | 7.7% | 9.6% |
| Net loss | $4.5 million | $5.3 million |
| Net loss attributable to the Company | $2.9 million | $4.6 million |
| Loss per share, basic and diluted | $0.13 | $0.29 |
| Adjusted EBITDA | $14.2 million | $12.1 million |
| FFO / AFFO | $3.9 million / $5.5 million | $2.0 million / $4.1 million |
| Net cash from operating activities | $(4.5) million | $9.3 million |
Hotel revenue rose 14.2%; occupancy was 74.85% versus 73.39%, ADR was $194.20 versus $181.60, and RevPAR was $145.36 versus $133.27. Growth includes the two acquisitions and higher comparable-property room rates and occupancy. Reported expenses rose 16.6%, including new advisory and transaction costs; higher interest expense also weighed on results.
At March 31, cash and cash equivalents were $176.4 million and restricted cash was $5.6 million. Indebtedness was $769.1 million, up from $621.9 million at year-end; the filing reports $346.4 million of variable-rate debt. The company had no borrowings under its $150 million revolving facility and reported compliance with debt covenants. Operating cash flow was negative, while cash increased by $32.6 million, primarily reflecting equity issuance and debt financing.
Cash used in investing activities was $179.2 million, mainly for acquisitions and $9.5 million of property improvements. Financing activities provided $216.3 million, including approximately $144.0 million net proceeds from a 9.2-million-share offering and $80.0 million of new borrowings. Dividends declared were $0.05 per common share.
Material changes, outlook and risks
- Q1 acquisitions added the Sofitel Chicago Water Tower, bought for $153.0 million, and the Pier House Resort, acquired for $92.7 million, including assumption of its $69.0 million mortgage. Purchase accounting remained preliminary.
- Management reported no formal earnings or operating guidance. It expected to meet short-term liquidity needs with operating cash, cash balances and, if needed, revolving-facility borrowings; long-term needs may require debt or equity financing. Management cautioned that seasonal results make the quarter an unreliable predictor of full-year performance.
- Interest-rate exposure is material: management estimated that a 25-basis-point rate increase on variable-rate debt outstanding at quarter-end would add about $866,000 of annual interest expense. Interest-rate caps were in place for certain loans.
- Risks include access to capital, refinancing and covenant requirements, hotel operating volatility, required property investment, REIT qualification, dependence on the external advisor, and potential conflicts involving Ashford Trust and related parties. Management said no cash-trap provisions were triggered and all material debt covenants were met.
- The filing describes ongoing legal matters that management did not expect to have a material adverse effect, while noting outcomes cannot be predicted. A tax audit concerning 2008 tax matters remained under appeal; Ashford Trust agreed to indemnify the company and a subsidiary for related expenses and potential liabilities, subject to Ashford Trust’s ability to pay.
- Ashford Trust announced plans to spin off Ashford Advisor, expected in Q3 2014; Ashford Prime expected the successor to continue advising it.
Important facts to verify
- Confirm that this Ashford Hospitality Prime filing, rather than a Braemar Hotels & Resorts filing, is the intended source.
- Assess the comparability of the carved-out 2013 results and separate acquisition effects from same-property performance.
- Review acquisition valuations, property-level operating trends, debt maturities and variable-rate exposure.
- Check liquidity and operating cash generation, including the effects of working capital, capital spending and distributions.
- Review the status and terms of the tax indemnity, legal contingencies, advisor arrangements and announced advisor spin-off.