Ashford Hospitality Trust, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unless noted otherwise, amounts below are in U.S. dollars; financial statement amounts are rounded to millions. The company is a hotel REIT with interests in 116 hotels and 24,746 rooms at quarter-end.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $43.1m | $415.1m | $324.9m | $773.9m |
| Net loss attributable to common stockholders | $215.3m | $26.9m | $310.1m | $75.6m |
| Loss per common share, basic and diluted | $20.85 | $2.73 | $30.46 | $7.67 |
| Operating cash flow | Not separately presented for the quarter | $(64.8)m | $92.3m | |
| Adjusted EBITDAre (non-GAAP) | $(56.5)m | $132.1m | $(9.1)m | $232.6m |
Q2 comparable hotel RevPAR was $16.48, down from $141.18; occupancy was 14.83%, versus 80.87%, and ADR was $111.17, versus $174.57. Hotel operating expenses declined substantially, but much less than revenue, and the company recorded $27.6m of Q2 impairment charges. Interest expense rose to $88.1m in the quarter, including $43.6m of accrued default interest and late-payment charges.
At June 30, cash and cash equivalents were $165.5m and restricted cash was $95.3m, for combined cash and restricted cash of $260.8m. The company used $106.2m of cash, cash equivalents and restricted cash during Q2. For the first half, total cash and restricted cash fell by $137.4m. Restricted cash largely consists of lender- and manager-held reserves and may not be freely available.
Debt, net of premiums and loan costs, was $4.107bn at June 30, broadly unchanged from year-end. Accrued interest payable rose to $91.0m from $10.1m. Total assets were $4.345bn and total liabilities were $4.353bn; stockholders’ equity attributable to the company was a deficit of $38.7m.
Material changes and management outlook
- COVID-19 sharply reduced hotel demand. Revenue fell 89.6% year over year in Q2 and 58.0% for the first half. Management expected significant adverse effects on results, financial position and cash flow through at least the remainder of 2020 and into 2021; the filing provides no reliable estimate of the pandemic’s full impact.
- The company suspended common dividends for Q1 and Q2 and expected no common dividends for the foreseeable future. It also suspended preferred dividends for Q2. Management cited approximate quarterly cash savings of $7m from the common dividend suspension and $10.6m from the preferred dividend suspension. Planned 2020 capital spending was reduced to $30m–$50m.
- Beginning April 1, the company stopped making principal or interest payments on nearly all loans, triggering events of default and higher default interest. Lenders accelerated approximately $145m of debt secured by Embassy Suites New York Manhattan Times Square and $24.8m secured by Hilton Scotts Valley; lenders also issued UCC-sale notices involving loans of $51.6m, $144.2m and $64.0m. As of July 31, forbearance or other agreements covered about $1.1bn of approximately $4.1bn of property-level debt. Terms vary and may increase costs, interest rates and lender protections.
- Management stated that, if cash use continued at the Q2 rate and no additional capital were raised, available cash could be exhausted within 12 months. The company concluded that substantial doubt existed about its ability to continue as a going concern within one year after issuance of the financial statements. The statements nevertheless use the going-concern basis and do not reflect possible restructuring outcomes.
- As of July 31, four hotels remained temporarily closed; 112 were open. The filing also describes efforts to cut operating and corporate costs, use lender- and manager-held reserves, pursue asset sales and raise capital. These actions are not assured to succeed. No specific earnings or recovery guidance was provided.
- After quarter-end, the company completed a 1-for-10 reverse stock split, effective July 15. It filed a preferred-stock exchange offer registration statement on July 20, offering cash or common shares at holders’ election. Completion and effects—including potential dilution—were uncertain. The NYSE notified the company on August 3 that it had cured the minimum-share-price listing deficiency.
Risks, contingencies and unusual items
- Five hotels were temporarily suspended at June 30. A $55.2m impairment charge was recorded for the first half, including write-downs associated with COVID-related cash-flow changes and hotels subject to a lender UCC-sale notice.
- The company disclosed that possible ground-lease defaults could occur within 12 months. It also reported a potential third-party guaranty exposure of up to $20m related to the accelerated Embassy Suites New York mezzanine loans, subject to the terms described in the filing.
- An SEC administrative subpoena issued in June seeks information about related-party transactions and related accounting policies, procedures and controls. The company said it was responding and could not predict the investigation’s timing or outcome.
- In a New York service-charge class action, plaintiffs’ estimated damages were $5.8m–$11.9m plus attorneys’ fees if liability is upheld; no amount was accrued and the company said an unfavorable outcome was not probable. The company had accrued approximately $0.5m for remaining legal fees in a separate Florida dispute.
- The company relies on Ashford Inc. and its affiliates for advisory and hotel-management services. The filing details related-party fees, including Lismore debt-work fees and contingent success fees, and identifies potential conflicts of interest. It also reports substantial doubt about Ashford Inc.’s own ability to continue as a going concern.
- Approximately $3.8bn of the company’s $4.1bn debt was variable-rate. Management estimated that a 25-basis-point rate change would affect annual results by about $9.4m, based on debt outstanding at quarter-end.
Most important facts for investors to verify
- Progress, coverage and conditions of lender forbearance agreements, and the status of acceleration notices, UCC-sale processes and upcoming maturities.
- Cash burn, access to restricted reserves, hotel operating cash flow and whether additional financing or asset-sale proceeds become available.
- Hotel occupancy, RevPAR and closure trends, alongside actual capital expenditures and the timing of any demand recovery.
- Outcome and dilution implications of the preferred-stock exchange offer, and the status of common and preferred dividends and preferred dividend arrears.
- Developments in the SEC investigation, related-party arrangements, litigation and any changes to the going-concern assessment.