Ashford Hospitality Trust, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports fourth-quarter results. Ashford is an externally advised hospitality REIT; at year-end it owned 87 consolidated U.S. hotels (17,205 rooms) and held interests in additional hotel portfolios and related investments.
Financial performance and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Total revenue | $794.8 million | $939.5 million |
| Operating income | $76.7 million | $116.9 million |
| Operating margin | 9.6% | 12.4% |
| Net loss attributable to Company | $31.4 million | $41.3 million |
| Net loss attributable to common stockholders | $65.4 million; $0.75 per share | $75.2 million; $1.00 per share |
| FFO available to common stockholders | $85.1 million | $95.5 million |
| Adjusted FFO | $112.3 million | $116.2 million |
| Cash from operating activities | $111.3 million | $145.5 million |
| Cash and cash equivalents | $215.1 million | $128.8 million |
| Debt at year-end | $1.954 billion | $1.819 billion |
Including $85.8 million of restricted cash, year-end cash and restricted cash totaled $300.9 million. Variable-rate debt was $817.9 million; the filing estimates a 25-basis-point rate increase would add approximately $2.0 million to annual interest expense. Debt principal maturities included $461.9 million in 2015 and $750.0 million in 2016. The company reported compliance with material debt covenants.
Material changes and comparison
- Revenue declined 15.4% year over year, largely reflecting the 2013 Ashford Prime spin-off and the 2014 sale of Pier House, partly offset by growth at retained hotels and new acquisitions. Comparable portfolio RevPAR was $102.30 versus $102.92; occupancy improved to 76.25% from 74.26%, while ADR declined to $134.16 from $138.60.
- Operating income fell to $76.7 million from $116.9 million. Results included an $11.9 million charge for a jury verdict and related interest and legal fees, plus $10.4 million of loan-cost write-offs and exit fees. Lower interest expense and improved equity-method results partly offset these items.
- Full-year 2014 included $120.1 million of hotel capital improvements. Cash used in investing was $207.2 million; financing provided $182.2 million, including debt borrowings and equity proceeds.
- Ashford completed the spin-off of its asset-management business as Ashford Inc. in November 2014 and retained an approximately 30.1% interest. Ashford became externally advised under a 20-year advisory agreement.
Outlook, risks, and unusual items
- Management stated that operating cash flow and existing cash were expected to meet anticipated interest and principal, working-capital, and capital-expenditure needs for the next 12 months, while noting that 2015 maturities required active refinancing work. The senior credit facility expired in September 2014; management did not plan to replace it and said it had never been drawn.
- The board approved a 2015 common dividend policy of $0.12 per share quarterly, subject to quarterly review and future declaration. The 2014 dividend was $0.48 per share; all 2014 distributions were characterized as return of capital for tax purposes.
- After year-end, Ashford refinanced $356.3 million of loans with $478 million of new loans, completed acquisitions of Lakeway Resort & Spa and Memphis Marriott East, and priced a common-stock offering for gross proceeds of approximately $101.2 million, with a partial underwriters’ option exercise also disclosed.
- Ashford agreed to sell or contribute 16 select-service hotels to newly formed Ashford Hospitality Select for approximately $321 million in aggregate consideration, primarily debt assumption, cash, and equity. The filing notes that the absence of these hotels’ operating cash flows could significantly affect liquidity.
- The company agreed to acquire the remaining 28.26% interest in PIM Highland JV; the transaction was not yet consummated at year-end. The JV held 28 hotels and had $1.167 billion of liabilities at December 31, 2014.
- A Florida landlord-tenant jury verdict awarded the tenant $10.8 million. Ashford accrued $11.9 million including interest and estimated legal fees and filed an appeal.
- Key risks include substantial leverage and refinancing needs, exposure to variable interest rates and cash-trap provisions, hotel-industry cyclicality and seasonality, capital requirements, REIT qualification, and conflicts arising from the external advisor and Remington Lodging, which is owned by the CEO and Chairman Emeritus. Remington managed 55 of the 87 consolidated hotels.
- Management and Ernst & Young reported effective disclosure controls and internal control over financial reporting; the audited financial statements received an unqualified opinion.
Important facts for investors to verify
- Debt maturity schedule, refinancing terms, covenant headroom, and liquidity after the 2015 transactions and hotel portfolio transfer.
- Whether the 16-hotel Ashford Select transaction closed on the stated terms, and its resulting effect on operating cash flow, debt, and distributions.
- Comparable-hotel RevPAR, ADR, and occupancy trends, separating underlying performance from portfolio changes and spin-offs.
- The sustainability of the $0.12 quarterly dividend relative to cash flow, capital spending, debt service, preferred dividends, and REIT distribution requirements.
- Final outcome of the appealed $10.8 million jury award and any additional exposure from guarantees, related-party arrangements, or REIT tax matters.