Ashford Hospitality Trust, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unless stated otherwise, amounts are U.S. dollars; financial statement amounts are in millions. Ashford is a lodging REIT that owned interests in 100 U.S. hotels with 22,313 rooms, plus WorldQuest condominium units.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $348.1 | $193.4 | $595.2 | $309.2 |
| Operating income (loss) | $42.1 | $(35.6) | $27.5 | $(105.7) |
| Net income (loss) | $(6.2) | $(65.3) | $(62.0) | $(170.7) |
| Net loss attributable to common stockholders | $(9.3) | $(69.5) | $(67.8) | $(161.1) |
| Loss per common share | $(0.27) | $(4.35) | $(1.98) | $(13.21) |
| Adjusted EBITDAre (non-GAAP) | $96.4 | $31.4 | $136.6 | $26.1 |
| FFO available to common stockholders and OP unitholders (non-GAAP) | $41.4 | $(15.2) | $34.5 | $(51.4) |
| Adjusted FFO (non-GAAP) | $44.6 | $0.8 | $43.0 | $(29.0) |
Hotel operating indicators: Q2 RevPAR was $134.54, up from $77.86; occupancy was 73.34%, versus 57.06%; and average daily rate was $183.45, versus $136.46. For the six-month period, RevPAR was $115.61, occupancy 65.88%, and average daily rate $175.49, all higher than the prior-year period.
Cash flow and liquidity: For the first six months, operating cash flow was $35.7 million, compared with cash used of $114.6 million in 2021. Investing activities used $37.0 million, including $42.8 million of hotel improvements; financing activities used $25.4 million. Cash and cash equivalents were $537.8 million and restricted cash was $126.0 million at June 30. The company reported $24.7 million due from third-party hotel managers, much of it available for hotel operating costs.
Debt and balance sheet: Net indebtedness was $3.84 billion; total liabilities were $4.07 billion against total assets of $4.03 billion, leaving a $65.7 million stockholders’ deficit. Approximately $3.5 billion of $3.9 billion total debt was variable-rate. Management estimated a 25-basis-point rate increase would raise annual interest expense by about $8.9 million. Interest expense was $48.4 million in Q2 and $92.0 million for the half year, up 35% and 33%, respectively, year over year.
Material changes versus prior periods
- Revenue recovery drove substantial improvement in operating results: Q2 revenue rose 80%, and six-month revenue rose 92%. Management attributed comparable-hotel growth to recovery from the pandemic, including higher rates and occupancy.
- Improved hotel earnings were partly offset by higher operating costs and interest expense. Q2 hotel operating expenses increased 65%; for the half year they increased 76%.
- The company remained loss-making under GAAP, although net losses narrowed markedly. Prior-year comparisons included a $10.6 million gain on extinguishment of debt in 2021; there was no such gain in 2022.
- Cash and cash equivalents declined from $592.1 million at year-end 2021 to $537.8 million. Restricted cash increased to $126.0 million.
- A purchase agreement for the Sheraton Ann Arbor was signed June 7; the hotel was classified as held for sale, with $36.5 million of related assets and $30.7 million of liabilities. Its mortgage was amended with a $3.2 million principal payment and maturity extended to December 2022.
Outlook, risks, and unusual items
- Management expected to achieve pre-pandemic RevPAR by 2023 and pre-pandemic hotel operating levels by 2024. It stated that existing cash and operating cash flow should cover anticipated interest and principal payments, working capital, capital expenditures, and required REIT distributions for the next 12 months, excluding potential final maturity payments. Refinancing upcoming maturities is not assured.
- About 85% of hotels were in cash traps at June 30, restricting access to hotel cash; approximately $6.1 million of restricted cash was subject to these traps. Management cautioned that cash traps could constrain flexibility.
- Debt maturities and extension conditions are significant risks. Extensions may require meeting debt-yield tests or substantial principal prepayments. One mortgage loan was in default at June 30; it was brought current July 1, 2022. The filing also reports compliance with covenants for specified mortgage loans and the Oaktree term loan.
- The board did not anticipate common dividends in 2022 or the foreseeable future; preferred dividends were reinstated and management planned to continue them, subject to board determinations and financial considerations.
- The company authorized up to $200 million of stock repurchases but reported no program repurchases. It also established a $100 million at-the-market common-stock program; no shares had been sold under it as of August 3, 2022. No Series J or K preferred shares had been issued by that date.
- Interest-rate exposure, possible COVID-19-related travel weakness, refinancing availability, lender remedies, hotel competition, and related-party conflicts are prominent risks. The filing describes a $4.1 million accrual for a settled New York class action and an unaccrued California employment class action whose potential loss was not reasonably estimable.
Important facts for investors to verify
- Near-term debt maturities, extension requirements, refinancing plans, and any subsequent debt amendments or repayments.
- Whether hotel recovery meets management’s stated 2023 RevPAR and 2024 operating-level expectations, and how rising labor and other hotel costs affect margins.
- Availability of cash held by lenders and hotel managers, the duration of cash traps, and liquidity after required debt service and capital expenditures.
- Interest-rate sensitivity and the effectiveness, cost, and expiration dates of interest-rate caps and other derivatives.
- Actual preferred-dividend payments, common-stock or preferred-stock issuance, and dilution from equity programs and incentive awards.