Filing summary: quarter ended March 31, 2017
Entity mismatch: The supplied filing is for Ashford Hospitality Prime, Inc., not Braemar Hotels & Resorts Inc. Confirm that this is the intended filing before relying on the figures below. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context and reporting period
Ashford Hospitality Prime is a REIT focused on luxury and other high-RevPAR hotels. At quarter-end it owned interests in 12 hotels, with 3,892 total rooms (3,657 net rooms). The quarter’s results exclude operations of Park Hyatt Beaver Creek, acquired on March 31. The prior-year comparison includes Seattle Courtyard Downtown, sold in July 2016.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Total revenue | $97.3 | $99.8 |
| Operating income | $7.3 | $11.5 |
| Operating margin | 7.5% | 11.5% |
| Net loss attributable to common stockholders | $1.7; $0.07 per share | $1.0; $0.04 per share |
| Net cash from operating activities | $4.6 | $12.1 |
| Adjusted EBITDA | $23.7 | $24.8 |
| Adjusted FFO | $16.5 | $14.2 |
Hotel revenue fell 2.5% year over year. For the 11 comparable hotels, RevPAR rose 2.5% to $202.35, occupancy increased to 78.43% from 77.75%, and ADR rose to $258.00 from $253.95. Reported operating income declined amid $4.3 million of acquisition-related transaction costs and weaker overall revenue. Common dividends declared were $0.16 per share, up from $0.10.
Cash and cash equivalents were $161.3 million at quarter-end, plus $35.8 million of restricted cash. Total debt carrying value was $864.7 million before deferred loan costs ($856.2 million net on the balance sheet), compared with $767.0 million before costs at year-end. The company had no borrowings under its $100 million revolving facility and reported compliance with debt covenants. Operating cash flow was lower mainly due to working-capital movements.
Material changes and unusual items
- Acquired Park Hyatt Beaver Creek for $145.5 million, financed in part with a $67.5 million interest-only mortgage at LIBOR plus 2.75%. The acquisition’s operations were not included in Q1 results.
- Refinanced three loans totaling approximately $333.7 million with a $365 million interest-only mortgage, due February 2019 with extension options, at LIBOR plus 2.58%. The refinancing generated a $2.0 million write-off of loan costs and exit fees.
- Raised approximately $66.5 million net from common-stock issuance and $38.4 million net from Series B preferred issuance. The preferred stock carries a 5.5% dividend on a $25 liquidation preference.
- Fair-value movements included a $3.1 million gain on the Ashford Inc. investment and an $898,000 loss on derivatives. These items, along with the prior-year derivative gain, affected period comparisons.
- Management announced a strategy emphasizing luxury hotels, designated four properties as non-core for possible repositioning or sale, and increased the expected common dividend to $0.16 quarterly ($0.64 annualized). These are stated plans, not guarantees.
Outlook, risks, and contingencies
No specific earnings or revenue guidance was provided. Management expects liquidity needs to be met through cash, operating cash flow, borrowings and capital-market activity, while noting that access to capital may be affected by market conditions, leverage, operating performance and lender restrictions. The company targets 45% net debt to gross assets and cash equal to 10%–15% of gross debt. These are strategic targets, not reported results.
Interest-rate exposure is material: $856.6 million of debt was variable-rate. The filing estimates that a 25-basis-point rate change would affect annual results by approximately $2.1 million, before considering subsequent exposure or hedging. Interest-rate caps covered $796.5 million of notional principal. Hotel seasonality and potential lender cash-trap provisions may also affect available cash; none of the cash traps was triggered at quarter-end.
A shareholder derivative suit concerning the advisory agreement and an investment in Ashford Inc. remained pending; defendants had moved to dismiss, and the outcome was uncertain. The Sessa litigation was settled and dismissed with prejudice; the company paid $2.5 million, with $2.0 million reimbursed by insurance. The proposed amended advisory agreement, subject to stockholder approval, includes a $5 million payment, a long initial term and provisions that could constrain dividends or create termination-related payments.
Important facts for investors to verify
- Confirm the intended issuer: the filing is Ashford Hospitality Prime, not Braemar Hotels & Resorts.
- Check subsequent reporting on Park Hyatt Beaver Creek’s operating contribution and the planned Hotel Yountville acquisition.
- Review the debt maturity schedule, extension conditions, covenant headroom and sensitivity to higher LIBOR.
- Verify stockholder approval and final terms of the amended advisory agreement, including fees, minimum-net-worth and termination provisions.
- Assess whether the increased dividend is supported by recurring operating cash flow, considering REIT distribution requirements and seasonal cash needs.
- Track the pending derivative litigation and any resulting costs or rulings.