Ashford Hospitality Trust, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Ashford is a U.S. hotel REIT; at quarter-end it owned interests in 100 consolidated hotels with 22,313 rooms, plus 88 WorldQuest condominium units. Amounts below are in millions unless otherwise stated.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $247.4 | $93.0 | $556.7 | $418.0 |
| Operating income (loss) | $(4.9) | $(164.5) | $(110.6) | $(365.7) |
| Net income (loss) | $(44.0) | $(151.6) | $(214.7) | $(495.6) |
| Net loss attributable to common stockholders | $(47.5) | $(139.9) | $(208.6) | $(450.0) |
| Adjusted EBITDAre (non-GAAP) | $46.8 | $(22.7) | $73.0 | $(31.9) |
- Q3 hotel recovery lifted revenue: comparable-property occupancy was 62.8% versus 31.2%, and RevPAR was $97.59 versus $36.59. Nine-month comparable occupancy was 54.1% versus 34.9%; RevPAR was $74.57 versus $49.89. Nine-month ADR declined to $137.91 from $142.79.
- Q3 2021 GAAP net loss included $6.0 million of unrealized derivative gains; Q3 2020 included $29.9 million of impairment charges, a $40.4 million disposition loss and a $90.3 million debt-extinguishment gain. Nine-month 2021 results included a $10.6 million gain tied to foreclosure of two hotels; 2020 included $85.1 million of impairments and $90.3 million of debt-extinguishment gains.
- Operating cash flow was negative $113.5 million for the first nine months, compared with negative $98.9 million in 2020. Investing cash flow was negative $9.7 million. Financing provided $713.9 million, including $548.4 million from common-stock offerings and $293.5 million in net borrowings.
- At September 30, cash and cash equivalents were $673.0 million, restricted cash was $85.0 million, and another $24.1 million was due from third-party hotel managers. Indebtedness, net, was $3.919 billion; total equity was $58.1 million, versus a $283.5 million deficit at year-end 2020.
- About $3.5 billion of debt was variable-rate. The filing estimates that a 25-basis-point rate increase would raise annual interest costs by approximately $8.7 million. Interest expense for the first nine months was $112.0 million, down from $212.2 million, partly because default interest and late charges declined and related amortization produced credits.
Material changes and capital structure
- Common shares issued and outstanding increased from 6.4 million at December 31, 2020 to 32.6 million at September 30, 2021, after a 1-for-10 reverse split effective July 16 and substantial common-stock issuance. The company reported 33.9 million shares outstanding on November 4.
- The company raised capital through multiple equity purchase and distribution agreements. As of September 30, the reported programs had generated approximately $548 million in gross proceeds in aggregate; further issuance can dilute existing shareholders. It also exchanged preferred shares for common stock.
- Oaktree provided a senior secured term loan with an initial $200 million draw and commitments for up to $250 million of delayed-draw loans. Initial and initial delayed-draw loans carry 16% interest for the first two years, then 14%; additional delayed-draw loans carry 18.5%, then 16.5%. Interest may be paid in kind during the first two years. The recorded balance included a $39.0 million embedded derivative liability.
- Preferred dividends remained suspended. Accumulated unpaid preferred dividends were approximately $20.0 million at September 30. The company also suspended common dividends.
- During the first nine months, the company disposed of Le Meridien Minneapolis and lost SpringHill Suites Durham and Charlotte through foreclosure. It refinanced the Hilton Boston Back Bay loan in August. After quarter-end, it refinanced the Marriott Gateway Crystal City loan and amended the Oaktree agreement.
Outlook, risks and unusual items
- Management provided no quantified operating forecast and said COVID-19, travel restrictions and possible renewed outbreaks make future performance uncertain. It expected occupancy and RevPAR effects to continue, while prioritizing cash preservation, cost control, selective capital spending, asset sales, lender negotiations and refinancing.
- Management concluded that conditions that had raised substantial doubt about the company’s ability to continue as a going concern within one year had been resolved, citing cash, the Oaktree facility, lender forbearance agreements and its cash-flow forecast. This conclusion remains dependent on assumptions and circumstances outside management’s control.
- As of November 4, forbearance or other agreements covered loans with approximately $3.6 billion of principal out of about $3.7 billion in property-level debt. The company continued discussions with two lenders; it disclosed defaults on loans secured by the Overland Park portfolio and Manchester Courtyard. Refinancing, extension conditions, cash traps, covenant compliance and potential foreclosure remain material risks.
- Two lawsuits have accrued losses: approximately $4.2 million for a New York service-charge class action, with potential additional loss of up to approximately $8 million plus interest and attorneys’ fees; and approximately $504,000 for remaining legal fees in the Nantucket matter. A California employment class action had no accrual because the potential loss was not reasonably estimable.
- The company and related Ashford entities were responding to SEC administrative subpoenas concerning related-party transactions and related accounting policies, procedures and controls. Management reported disclosure controls were effective as of September 30.
- Related-party exposure is significant: Ashford LLC advises the company, and its affiliate Remington managed 68 of the 100 hotels. The filing also describes advisory, management, financing and other arrangements with Ashford Inc. affiliates.
Investor verification priorities
- Confirm current hotel operating trends, including occupancy, ADR and RevPAR, and distinguish comparable-property improvement from effects of hotel dispositions.
- Review debt maturities, defaults, lender forbearance conditions, extension tests, cash traps and the availability and cost of remaining Oaktree delayed-draw commitments.
- Assess whether operating cash generation can cover debt service and capital needs; reported cash is substantial, but operating cash flow remained negative and restricted cash is largely held in reserves.
- Track further equity issuance, share dilution, preferred-stock exchanges and the unpaid preferred-dividend arrears.
- Monitor COVID-19 and travel demand, refinancing outcomes, litigation developments and the SEC inquiry into related-party matters.