Ashford Hospitality Trust, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unless stated otherwise, amounts are in U.S. dollars; financial figures are in millions. Ashford is a lodging REIT that owned 99 consolidated U.S. hotels with 22,116 rooms at quarter-end.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | First 9 months 2022 | First 9 months 2021 |
|---|---|---|---|---|
| Total revenue | $328.2 | $247.4 | $923.4 | $556.7 |
| Operating income (loss) | $33.3 | $(4.9) | $60.8 | $(110.6) |
| Net loss | $(22.3) | $(44.0) | $(84.4) | $(214.7) |
| Net loss attributable to common stockholders | $(25.2); $(0.73) per share | $(47.5); $(1.70) per share | $(93.0); $(2.71) per share | $(208.6); $(11.89) per share |
| Adjusted EBITDAre (non-GAAP) | $82.1 | $46.8 | $218.6 | $73.0 |
| Adjusted FFO (non-GAAP), available to common stockholders and OP unitholders | $19.0 | $3.2 | $62.0 | $(25.8) |
Q3 operating income was about 10.1% of revenue, compared with an operating loss in the prior-year quarter. Despite improved hotel operations, net losses continued, reflecting substantial interest expense, preferred dividends and other costs. Derivative remeasurement gains helped reported results: $9.8 million in Q3 and $19.1 million for the nine-month period; these gains were unrealized.
Hotel performance improved year over year. Q3 comparable-property RevPAR was $126.16 versus $97.59, occupancy was 71.00% versus 62.84%, and ADR was $177.70 versus $155.30. For the first nine months, comparable RevPAR was $119.40 versus $74.77, occupancy 67.70% versus 54.23%, and ADR $176.37 versus $137.88. Management attributed the increases to recovery from pandemic effects.
| Balance-sheet / cash metric | September 30, 2022 | December 31, 2021 |
|---|---|---|
| Cash and cash equivalents | $505.5 | $592.1 |
| Restricted cash | $132.1 | $99.5 |
| Indebtedness, net | $3,838.7 | $3,887.8 |
| Total assets | $3,971.7 | $4,098.1 |
| Total equity (deficit) | $(90.7) | $(2.7) |
For the first nine months, operating cash flow was $39.5 million, versus cash use of $113.5 million in 2021. Investing used $28.3 million, including $68.1 million of hotel capital improvements; financing used $65.2 million, including $49.3 million of debt repayments and $9.3 million of dividend payments. Cash, cash equivalents and restricted cash together declined from $691.6 million at year-end 2021 to $637.6 million.
Material changes and notable items
- Revenue rose 32.6% in Q3 and 65.9% for the first nine months year over year, driven by higher rooms, food-and-beverage and other hotel revenue. Hotel operating expenses also increased as operations recovered.
- Interest expense and amortization of discounts and loan costs increased to $61.0 million in Q3 from $43.0 million, and to $153.0 million for the first nine months from $112.0 million. The filing cites higher LIBOR and Oaktree loan-related amortization. Average LIBOR was 2.47% in Q3 2022 versus 0.09% in Q3 2021.
- On September 1, Ashford sold the Sheraton Ann Arbor for approximately $35.7 million of total consideration, including $34.5 million cash and a deferred, interest-free receivable; it repaid the associated $30.0 million mortgage.
- Capital improvements were $68.1 million for the first nine months, versus $19.0 million in the prior-year period. The company reported no impairment charges in either period.
- The board declared preferred dividends; it did not declare common dividends. Management said it did not anticipate common dividends in the foreseeable future and expected to pay preferred dividends, subject to board determinations.
Liquidity, outlook and risks
- Management said existing cash and operating cash flows should cover anticipated interest and principal payments (excluding potential final maturity payments), working capital, capital expenditures and required REIT distributions for the next 12 months. It gave no assurance that upcoming maturities can be refinanced or that additional financing will be available on favorable terms.
- Debt was approximately $3.8 billion, including $3.5 billion of variable-rate debt. The filing estimates that a 25-basis-point rate change would affect annual results by about $8.8 million before considering interest-rate caps. Most debt is variable-rate; maturities and extension options require close attention, including maturities in late 2022 and 2023.
- Cash traps applied to 85% of hotels; approximately $18.6 million of restricted cash was subject to those traps. Lender controls may limit use of hotel cash. Extension options may require meeting debt-yield conditions or making significant principal prepayments.
- Management identified inflation, rising rates and borrowing costs, recession risk, capital-market volatility, travel demand, COVID-19 effects, competition, and potential lender foreclosure as risks. The filing reported covenant compliance for specified forbearance loans and the Oaktree facility; it also said the Bank of America Pool 3 loan was brought current in July.
- Contingencies include an approximately $4.1 million accrual for a settled New York service-charge class action, approximately $504,000 for potential legal fees in another matter, and an unquantified reasonably possible loss in a California employment class action. The company said the California exposure was not reasonably estimable.
- Related-party matters warrant attention: Ashford Inc. subsidiaries advise and provide services to the REIT, and Remington manages 67 hotels. The company also approved an arrangement for its advisor to invest excess cash in short-term U.S. Treasuries for a 0.20% annual fee; the strategy began in October 2022.
- No specific earnings or operating guidance was provided. Management noted hotel seasonality and said reported interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Upcoming loan maturities, extension requirements, refinancing progress, and whether debt-yield tests could require substantial paydowns.
- How much cash is unrestricted and practically available given lender cash traps, restricted reserves, and amounts due from hotel managers.
- Effects of further rate increases on interest expense, derivative protection, and cash flows as interest-rate caps expire.
- Whether hotel revenue recovery can sustain margins as operating costs rise, and the level and return of planned capital expenditure.
- Preferred dividend capacity, the absence of common dividends, and any future issuance under registered equity or preferred-stock programs.
- Final costs and developments in disclosed litigation, and the terms and oversight of related-party advisory and cash-management arrangements.