Ashford Hospitality Trust, Inc. - Q1 2010 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010. Ashford Hospitality Trust, Inc. is a self-advised Real Estate Investment Trust (REIT) owning 102 hotel properties (96 direct, 6 via joint ventures) totaling 22,483 rooms. The company also holds a portfolio of mezzanine and first-mortgage loan receivables. As of the reporting date, the company owned $35.6 million in notes receivable and maintained a significant portfolio of interest rate derivatives to hedge against interest rate fluctuations.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenue | $217.0 million | $234.9 million |
| Net Income (GAAP) | $5.2 million | $13.5 million |
| Net Income Attributable to Common Shareholders | $0.3 million ($0.01/share) | $6.8 million ($0.08/share) |
| EBITDA | $79.3 million | $90.1 million |
| Funds From Operations (FFO) | $37.3 million | $48.9 million |
| Cash and Cash Equivalents | $172.2 million | $239.7 million |
| Total Indebtedness | $2.77 billion | $2.77 billion |
| Operating Cash Flow | $25.6 million | $32.4 million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 7.6% to $217.0 million, driven by a 4.1% drop in room revenue. While occupancy improved to 66.87% (from 63.08%), the Average Daily Rate (ADR) fell to $126.90 (from $140.31) due to economic pressure.
- Profitability: Net income attributable to the Company dropped 55.9% to $5.1 million. This was primarily due to lower hotel operating revenues and a decrease in unrealized gains on derivatives ($13.9 million vs. $18.0 million in 2009).
- Loan Portfolio: Interest income from notes receivable plummeted $5.9 million due to the impairment and restructuring of several mezzanine loans in the prior year and current period. The company restructured a $23.0 million loan for a $20.2 million cash payment and a new $4.0 million note.
- Share Repurchases: The company repurchased 5.1 million common shares for $29.1 million during the quarter. Preferred stock repurchases were ceased indefinitely.
Outlook, Risks, and Contingencies
- Debt Maturities and Modifications: The company modified a $156.2 million mortgage loan (Washington D.C. and La Jolla) to extend maturity to August 2013 without extension tests, paying a $5.0 million fee. Conversely, the company ceased payments on a $5.8 million mortgage note (Manchester, CT) and a $101.0 million note (Westin O'Hare) due to insufficient operating cash flows, entering negotiations for restructuring or deed-in-lieu of foreclosure.
- Liquidity Strategy: Management is focused on preserving capital and enhancing liquidity. A Standby Equity Distribution Agreement (SEDA) allows for the sale of up to $50.0 million of common stock if needed. The company believes cash flow from operations and existing balances are sufficient for the next 12 months.
- Dividend Policy: The common stock dividend remains suspended for 2010, except as required to maintain REIT status. Preferred dividends continue to be paid.
- Derivatives: The company holds significant interest rate derivatives (swaps, floors, caps) with a net fair value asset of $108.4 million. These are used to capitalize on the correlation between LIBOR and RevPAR.
- Legal Proceedings: The company is subject to normal litigation but does not anticipate material adverse effects. A federal income tax examination of a TRS subsidiary is ongoing.
Investor Verification Checklist
- Debt Covenant Compliance: Verify the status of the $250 million senior credit facility (maturing April 2011) and the specific covenants related to the modified $156.2 million loan.
- Non-Performing Loans: Review the progress of restructuring negotiations for the Manchester, CT ($5.8M) and Westin O'Hare ($101M) properties where payments have ceased.
- Derivative Valuation: Assess the sensitivity of the $108.4 million derivative asset value to changes in the LIBOR forward curve and credit spreads.
- Occupancy vs. Rate Trends: Monitor if the trend of rising occupancy can eventually support an increase in ADR to offset the current revenue decline.
- Capital Expenditures: Confirm that capital improvements ($18.2 million in Q1) are yielding expected returns given the current economic environment.