Filing summary
Registrant and period: The supplied filing is Ashford Hospitality Prime, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2014, not a filing under the Braemar Hotels & Resorts name shown in the request metadata. The company owned interests in 10 hotels with 3,707 total rooms (3,472 net rooms). Prior-year figures are combined, carved-out results from before the company’s November 2013 spin-off; 2014 results include two hotel acquisitions, so comparisons are not fully like-for-like.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $84.8 million | $61.0 million | $230.6 million | $178.4 million |
| Operating income | $14.7 million | $9.4 million | $34.3 million | $27.8 million |
| Net income (loss) | $4.4 million | $0.03 million | $4.5 million | $(1.0) million |
| Net income (loss) attributable to company | $3.4 million | $0.4 million | $4.0 million | $(0.4) million |
| Adjusted EBITDA | $24.7 million | $16.7 million | $64.9 million | $48.2 million |
| FFO / AFFO available to company | $14.4 / $14.4 million | $7.4 / $7.9 million | $32.9 / $35.4 million | $20.1 / $22.8 million |
Hotel indicators: Q3 occupancy was 86.61% versus 84.97%; ADR was $220.93 versus $201.62; and RevPAR was $191.33 versus $171.32. For the nine-month period, occupancy was 82.53% versus 80.77%, ADR $211.90 versus $201.33, and RevPAR $174.87 versus $162.61. The company reported rooms margin of 78.5% for Q3 (78.1% prior year) and 77.5% for the nine-month period (77.3% prior year).
Cash flow and liquidity: Nine-month operating cash flow was $40.3 million, compared with $30.5 million. Investing activities used $208.2 million, primarily for acquisitions, hotel improvements and restricted cash deposits; financing activities provided $206.9 million, including $143.9 million net equity proceeds and $80.0 million of borrowings. Cash and cash equivalents were $182.8 million at September 30, 2014, with a further $29.4 million of restricted cash. No borrowings were outstanding on the $150 million revolving credit facility.
Debt: Indebtedness was $765.2 million, up from $621.9 million at year-end 2013, largely reflecting acquired-property debt. Variable-rate debt was $345.1 million and fixed-rate debt $420.1 million. Management estimated that a 25-basis-point rate increase would raise annual interest expense by approximately $863,000. The company reported compliance with debt covenants; its leverage ratio under the revolver covenant was 5.85x and fixed-charge coverage was 1.55x.
Material changes and management commentary
- Revenue increased 39.1% in Q3 and 29.2% for the nine-month period. The Sofitel Chicago Water Tower and Pier House Resort contributed $11.8 million and $4.3 million of Q3 revenue, respectively; management also cited higher occupancy and room rates across several existing hotels.
- Q3 operating income rose 56.9%, while interest expense and loan-cost amortization rose 21.0% to $10.1 million, partly reflecting acquisition-related debt. Nine-month company-attributable earnings turned positive; the prior-year period included a $2.0 million write-off of loan costs and exit fees.
- The company raised approximately $143.9 million net through a January 2014 common-stock offering. It acquired Sofitel Chicago for $153.0 million and Pier House Resort for $92.7 million, assuming $69.0 million of Pier House debt.
- Advisory services fees to Ashford Advisor were $3.1 million in Q3 and $9.3 million for the nine-month period. The company is externally advised, has no employees, and disclosed that Remington, beneficially owned by its CEO and the Ashford Trust chairman emeritus, managed one hotel.
- After quarter-end, the board authorized a discretionary share repurchase program of up to $100 million, beginning November 4, 2014. The company said it believed its shares traded below private-market value; it may also sell the Philadelphia Courtyard Downtown and could use sale proceeds for repurchases. No repurchase obligation or specific execution amount was stated.
Outlook, risks and contingencies
The filing gives no quantified earnings or operating guidance. Management said hotel seasonality can cause quarterly fluctuations and that reported interim results are not necessarily indicative of full-year results. It expects to meet liquidity needs through operating cash flow, cash balances, borrowings and capital-market activity, but notes that access to financing may be affected by market conditions, leverage and covenant compliance. REIT distribution requirements limit retained cash for investment and capital needs.
- Variable interest rates, hotel performance, debt maturities, renovation and capital requirements, and potential lender cash-trap provisions are key financial risks. No cash-trap provisions were triggered at quarter-end.
- Management cited potential conflicts involving Ashford Trust, Ashford Advisor, Remington and company insiders. Ashford Trust’s planned spin-off of Ashford Advisor was expected in Q4 2014; management expected the successor advisor to continue serving the company.
- Various legal proceedings were pending. Management did not expect them, individually or collectively, to materially adversely affect financial position or results, but acknowledged outcomes cannot be predicted with certainty.
- An IRS examination settlement concerning 2008 tax matters produced no-change letters; the assessment statute was extended to December 31, 2014. Ashford Trust agreed to indemnify the company for specified audit-related costs and liabilities, but the company could bear exposure if Ashford Trust cannot satisfy the indemnity.
- The company reported no hotel impairment charges in the periods presented and stated that disclosure controls were effective as of September 30, 2014.
Important facts for investors to verify
- Confirm the registrant identity: this filing is for Ashford Hospitality Prime, Inc., despite the Braemar company name in the request.
- Assess how much of revenue and earnings growth reflects the two acquisitions versus comparable-hotel performance, and review the limited comparability of pre-spin-off carved-out results.
- Review debt maturities, floating-rate exposure, covenant headroom and the availability and terms of the unused revolving facility.
- Evaluate the $100 million repurchase authorization against cash needs, hotel capital spending, potential asset sales and the company’s leverage.
- Review advisory fees, related-party arrangements, the advisor transition and the disclosed potential conflicts of interest.
- Consider seasonality, litigation and tax-related contingencies, including the stated Ashford Trust indemnity and its collectability.
FFO, AFFO and Adjusted EBITDA are non-GAAP measures; the company cautions that they are not substitutes for GAAP results or operating cash flow.