Ashford Hospitality Trust, Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and six months ended June 30, 2021. Ashford Trust is a U.S. hotel REIT; at quarter-end it owned interests in 100 consolidated hotels with 22,313 rooms, plus 90 WorldQuest condominium units. Its portfolio was severely affected by COVID-19, though hotel demand rebounded from the exceptionally weak second quarter of 2020.
Financial performance and liquidity
Dollar amounts below are in millions except per-share data and operating statistics.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $193.4 | $43.1 | $309.2 | $324.9 |
| Operating loss | $(35.6) | $(151.7) | $(105.7) | $(201.2) |
| Net loss | $(65.3) | $(242.1) | $(170.7) | $(344.0) |
| Net loss attributable to common stockholders | $(69.5) | $(215.3) | $(161.1) | $(310.1) |
| Adjusted EBITDAre | $31.4 | $(56.5) | $26.1 | $(9.1) |
| Adjusted FFO available to common stockholders and OP unitholders | $0.8 | $(149.5) | $(29.0) | $(163.6) |
- Q2 comparable-hotel RevPAR was $77.98, occupancy 57.05%, and ADR $136.68, versus $16.42, 14.59%, and $112.50, respectively, a year earlier. For the six-month period, comparable RevPAR was $62.87 versus $56.62.
- Operating loss margin was approximately (18%) in Q2 versus (352%) in Q2 2020; the comparison reflects the prior-year collapse in hotel activity. Six-month operating loss margin was approximately (34%) versus (62%).
- Cash used in operating activities was $114.6 million in the first half, compared with $64.8 million used in the prior-year period. Investing activities used $4.4 million; financing activities provided $542.2 million, including $371.5 million of common-stock offering proceeds.
- At June 30, cash and cash equivalents were $520.4 million and restricted cash was $70.1 million. Indebtedness, net, was $3.923 billion, up from $3.729 billion at year-end 2020; total liabilities exceeded total assets, leaving a stockholders’ deficit of $83.2 million.
Material changes versus comparable periods
- Q2 revenue rose $150.3 million year over year as hotel operations recovered. For the first half, revenue declined $15.7 million, partly reflecting food-and-beverage weakness and hotel dispositions.
- Net loss improved in both comparisons, helped by the revenue recovery, lower interest expense and the absence of 2020 impairment charges. Q2 2021 also included a $10.6 million debt-extinguishment gain from foreclosure of two SpringHill Suites hotels.
- The company recorded no impairment charges in the first half of 2021, compared with $55.2 million in the first half of 2020. The 2021 results also included substantial noncash interest and loan-related accounting items.
- Common shares outstanding increased substantially through equity sales and exchanges of preferred stock for common stock. A 1-for-10 reverse split became effective July 16, 2021; share and per-share data in the financial statements reflect the split.
Outlook, risks, contingencies and unusual items
- Management expected COVID-19 to continue materially harming results, financial position and cash flow through 2021 and for the foreseeable future. It said future financial performance could not be estimated with certainty. No quantified earnings or revenue guidance was provided.
- Management concluded that its plan alleviated substantial doubt about the company’s ability to continue as a going concern, citing cash, the Oaktree facility, lender agreements and liquidity actions. It also warned that cash from operations and existing balances might not cover anticipated obligations over the next 12 months and that refinancing 2021 and 2022 maturities was uncertain.
- Forbearance and other agreements conditionally waived or deferred defaults on approximately $3.6 billion of approximately $3.7 billion in property-level debt. The company had not made principal or interest payments on nearly all loans since April 2020; lenders may accelerate debt or foreclose. Two hotel foreclosures were completed in April 2021. Certain loans remained in default.
- The January 2021 Oaktree senior secured facility had a $200 million initial draw and up to $250 million of delayed-draw commitments. Initial and initial delayed-draw loans bear 16% interest for two years, then 14%; additional delayed draws bear 18.5%, then 16.5%. Interest could be paid in kind during the first two years. A substantial exit fee may be payable in cash or warrants.
- Common and preferred dividends remained suspended. Preferred dividends in arrears totaled approximately $17.9 million at June 30. The company also reported cash-trap provisions on nearly all mortgage loans containing them.
- Related-party advisory fees were $19.6 million in Q2, including a $6.5 million incentive fee. Ashford Inc. affiliates advise the company and manage many hotels. An SEC investigation concerning related-party transactions and related accounting controls remained ongoing.
- In a New York service-charge class action, the company accrued approximately $1.8 million and said additional losses could reach approximately $10 million, plus interest and attorneys’ fees. A California employment class action had no accrual because the potential loss was not reasonably estimable.
- After quarter-end, additional common-stock sales generated reported proceeds, including approximately $30.3 million from YA, $81.3 million from Seven Knots and $9.4 million from B. Riley through August 4. These financings and preferred-stock exchanges may further dilute common shareholders.
Important facts for investors to verify
- Progress and terms of remaining lender forbearances, defaults, extensions, and refinancing needs for 2021–2022 maturities.
- Cash burn, availability and restrictions on cash and reserves, and the assumptions supporting management’s going-concern conclusion.
- Actual interest accrual and principal growth under the high-cost Oaktree facility, including its exit-fee or warrant consequences.
- Post-quarter share issuance, preferred-stock exchanges, and resulting dilution; reconcile share counts across the reverse split and subsequent offerings.
- Developments in the SEC inquiry and litigation, including potential exposure beyond recorded accruals.
- Hotel demand recovery, including occupancy, ADR, RevPAR, and the status of any temporarily suspended hotel.