Ashford Hospitality Trust, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Figures are unaudited; dollar amounts are in millions except per-share data. Ashford Trust is a lodging REIT focused primarily on upscale and upper-upscale hotels. At quarter-end it owned interests in 121 consolidated hotels with 25,579 rooms, plus 90 WorldQuest condominium units.
Key financial results
- Revenue: $358.7, up 4.8% from $342.2. Hotel revenue was $357.6. Comparable-property RevPAR rose 1.4% to $121.37 as ADR increased 3.2% to $166.73 while occupancy declined 176 basis points to 72.80%.
- Profit and margins: Operating income was $24.0, versus $23.3; operating margin was approximately 6.7%, compared with 6.8%. Net loss attributable to the company was $38.0, versus $26.3; net loss attributable to common stockholders was $48.7, or $0.49 per share, versus $36.9, or $0.39 per share.
- Interest and adjusted measures: Interest expense and loan-cost amortization rose 20.9% to $66.2. Adjusted EBITDAre was $100.5, up from $96.7; FFO available to common stockholders and OP unitholders was $10.0, versus $20.2, and Adjusted FFO was $30.4, versus $34.0. These are non-GAAP measures.
- Cash flow: Operating activities provided $26.8, versus $16.7. Investing used $242.1, principally for hotel acquisitions and $38.0 of property improvements; financing provided $170.2. Cash, cash equivalents and restricted cash totaled $394.7 at quarter-end, down from $439.8 at year-end 2018.
- Debt and liquidity: Net indebtedness was $4,157.8 (gross debt approximately $4,197.0), up from $3,927.3 net at December 31, 2018. Cash and cash equivalents were $242.6 and restricted cash was $152.2. The $100 million revolving credit facility was undrawn. Management reported covenant compliance; the facility’s leverage ratio was 9.39 against a maximum of 9.75, and fixed-charge coverage was 1.50 against a minimum of 1.25.
- Dividends: Common dividends were declared at $0.12 per share for the quarter. The board’s stated 2019 policy anticipated quarterly dividends of $0.12, subject to quarterly review and future board decisions.
Changes, transactions and unusual items
- Revenue growth reflected acquisitions and higher comparable-property room and food-and-beverage revenue. Comparable occupancy declined, and hotel operating expenses rose 5.5% to $228.5.
- The company acquired the 310-room Embassy Suites New York Midtown Manhattan for $195.0 and the 178-room Hilton Santa Cruz/Scotts Valley for $47.5. It also refinanced a $178.1 mortgage with a $240.0 interest-only loan at LIBOR plus 2.75%.
- Interest costs increased partly because average LIBOR rose to 2.50% from 1.65%, as well as from acquisitions and refinancing-related costs. A $3.0 unrealized derivative loss, including CMBX and interest-rate instruments, also weighed on results. No hotel impairment charge was recorded in Q1 2019, compared with $1.7 in Q1 2018.
- Adoption of the new lease standard resulted in recognition of $43.3 of operating lease liabilities and a corresponding $38.8 right-of-use asset at January 1, 2019; management said the adoption did not materially affect operations or cash flows. Future minimum operating-lease payments totaled $180.2, largely due thereafter.
Outlook, risks and contingencies
- Management said existing cash and operating cash flow should cover anticipated interest and principal payments, working capital and capital expenditures for the next 12 months, excluding potential final-maturity principal payments. It planned to address 2019 and 2020 maturities proactively; future refinancing terms and availability are not assured.
- Approximately $3.8 billion of debt was variable-rate. The filing estimates a 25-basis-point rate change would affect annual results by approximately $9.6. Rate increases, refinancing access, hotel demand, competition, seasonal performance, capital needs and possible lender cash-trap provisions are material risks.
- Potential conflicts arise from related-party arrangements: Ashford Inc. and its subsidiaries provide advisory and other services, while Remington Lodging—beneficially owned by the Trust chairman and his father—managed 83 of 121 hotels. Q1 advisory fees were $16.3.
- The company accrued approximately $0.5 for remaining legal fees in the Nantucket litigation; other legal proceedings remain subject to uncertain outcomes. Management reported no material changes to the risk factors in its 2018 Form 10-K.
- No numerical earnings or operating guidance was provided. Results are seasonal and Q1 performance is not necessarily indicative of the full year.
Investor verification priorities
- Review near-term debt maturities, extension conditions and refinancing progress, especially given the high debt balance and floating-rate exposure.
- Assess whether RevPAR and occupancy trends, expense growth and acquisition contributions support sustainable operating cash flow and dividends.
- Verify covenant headroom, cash-trap exposure and how much reported cash is restricted or otherwise unavailable for general use.
- Evaluate related-party service fees, ERFP transactions and governance safeguards, along with the status of legal contingencies.