Ashford Hospitality Trust, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Ashford Trust is a U.S. hotel REIT with interests in 100 consolidated hotels totaling 22,316 rooms, plus hotel condominium units and minority investments. Results are unaudited and seasonality means the quarter may not indicate full-year performance.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $328.9 million | $247.1 million |
| Operating income (loss) | $23.8 million | $(14.6) million |
| Net loss | $(61.5) million | $(55.8) million |
| Net loss attributable to common stockholders | $(64.6) million; $(1.88) per share | $(58.5) million; $(1.71) per share |
| Net cash from (used in) operating activities | $4.6 million | $(14.5) million |
| Adjusted EBITDAre | $75.6 million | $40.2 million |
| Adjusted FFO | $6.8 million | $(1.5) million |
- Hotel performance: Reported RevPAR was $124.95, up from $96.46; occupancy was 68.36% versus 58.33%; and ADR was $182.79 versus $165.36. Management attributed revenue growth primarily to post-pandemic recovery at comparable hotels.
- Costs and earnings: Hotel expenses rose 27.3% to $225.1 million as activity increased. Operating income improved, but higher financing costs and derivative losses contributed to a larger net loss. Interest expense and loan-cost amortization increased 87.1% to $81.5 million.
- Margins: The filing does not provide a single headline operating-margin measure. Operating income was $23.8 million on $328.9 million of revenue in Q1 2023, compared with an operating loss of $14.6 million on $247.1 million in Q1 2022.
- Balance sheet and liquidity, March 31, 2023: Cash and cash equivalents were $344.9 million; restricted cash was $143.8 million. Net indebtedness was $3.786 billion, total liabilities were $4.010 billion, and shareholders’ equity was a deficit of $214.4 million. Net debt to gross assets was 69.7%.
- Cash movement: Cash, cash equivalents and restricted cash declined $70.3 million during the quarter to $488.8 million. Investing activities used $29.4 million, mainly for hotel improvements; financing activities used $45.5 million, including $50.8 million of debt repayments.
Material changes and notable items
- Revenue increased 33.1% year over year, while operating results moved from a loss to income. The company-attributable net loss nevertheless widened by $5.5 million.
- Average LIBOR and SOFR rates rose substantially from Q1 2022. The company reported $3.5 billion of variable-rate debt; a 25-basis-point rate change would affect annual results by approximately $8.7 million before considering interest-rate caps.
- During February, the company amended an eight-hotel mortgage, repaid $50 million of principal, and extended the loan; it also reduced a future debt-yield extension test. After quarter-end, on April 6, it extended a separate mortgage to April 2024 after a $45 million principal repayment, with the loan spread increasing.
- The company issued Series J and Series K redeemable preferred stock, raising $9.9 million net in Q1. These securities carry cumulative dividends and are classified outside permanent equity because of holder redemption features.
- No common-stock dividend was declared in Q1. Management said it did not anticipate common dividends for 2023 and expected preferred dividends, subject to board determinations, including a positive fair-value-equity consideration.
Outlook, risks and contingencies
- Management stated that current cash balances and operating cash flow should cover anticipated interest and principal payments, working capital, capital expenditures and REIT-required dividends over the next 12 months, excluding potential final maturities and extension-test paydowns. It gave no assurance that upcoming maturities can be refinanced or that additional financing will be available on acceptable terms.
- Debt maturities and extension tests are a central risk. Several property loans mature in 2023 and 2024; extensions may require significant principal paydowns or achievement of debt-yield conditions. Management reported compliance with mortgage-loan and Oaktree facility covenants at quarter-end.
- Forty percent of hotels were in cash traps at March 31, with approximately $9.9 million of restricted cash subject to those traps. Lender controls over property cash could constrain operating flexibility.
- Interest-rate exposure, inflation, economic and lodging-market conditions, capital-market volatility, banking-sector instability, competition, and potential foreclosure under the Oaktree facility are identified risks. The company reported no direct exposure to Silicon Valley Bank, Signature Bank or First Republic Bank, but warned that future financial-institution failures could affect access to cash.
- A California employment class action involving a hotel manager remains unresolved. The company considers a loss reasonably possible but not reasonably estimable and recorded no accrual as of March 31, 2023.
- The company entered into waivers permitting up to $13.1 million of cash incentive compensation for advisor personnel during the first half of 2023; related credit-agreement provisions also address specified deferred cash grants. Related-party advisory and management relationships are significant and merit investor review.
Most important facts for investors to verify
- Near-term maturities, extension-test requirements, principal paydowns and refinancing progress, including subsequent developments after March 31, 2023.
- Availability and restrictions on cash, including lender reserves, hotel-manager-held funds and cash-trap exposure.
- Variable-rate debt exposure, hedge coverage, derivative settlements and the effect of continued rate changes on interest expense.
- Hotel operating recovery and cost trends, and whether stronger RevPAR and Adjusted EBITDAre translate into sustainable cash generation.
- Preferred-stock redemption and dividend obligations, the company’s deficit equity position, and the board’s conditions for preferred dividends.
- Potential financial impact of the class action and other contingencies, and the terms and costs of related-party advisory, incentive-compensation and hotel-management arrangements.