Ashford Hospitality Trust, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Unless noted otherwise, financial amounts below are in millions of dollars. Ashford Trust is a hotel REIT; it owned interests in 118 consolidated hotels, with 24,930 rooms, at quarter-end.
Financial performance and key metrics
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $355.9 | $353.3 | $1,087.3 | $1,097.7 |
| Operating income | $29.3 | $29.6 | $95.6 | $116.4 |
| Net loss | $(34.3) | $(28.7) | $(90.3) | $(50.2) |
| Net loss attributable to common stockholders | $(38.2) | $(37.8) | $(104.1) | $(74.9) |
| Loss per common share, diluted | $(0.40) | $(0.40) | $(1.09) | $(0.80) |
| Operating cash flow | Not presented by quarter | $137.3 | $178.5 | |
| Capital improvements | Not presented by quarter | $164.7 | $164.1 | |
| Adjusted FFO available to common stockholders and OP unitholders | $34.3 | $37.0 | $123.8 | $139.5 |
Quarterly revenue rose 0.7%; nine-month revenue fell 0.9%. At comparable hotels and WorldQuest, Q3 RevPAR was $124.35, down from $125.00, as occupancy declined to 77.85% from 79.69% while ADR increased to $159.73 from $156.85. For the nine-month period, comparable RevPAR edged up to $126.76 from $126.42. The company reported nine-month Adjusted EBITDAre of $321.3 million, down from $328.6 million.
At September 30, total assets were $4,733.3 million and total liabilities were $4,114.7 million. Indebtedness, net, was $3,894.4 million, compared with $3,696.3 million at December 31, 2017. Cash and cash equivalents were $325.8 million; restricted cash was $141.1 million. Cash, cash equivalents and restricted cash totaled $466.9 million. The filing reports $3.6 billion of variable-rate debt and $349.2 million of fixed-rate debt; a 25-basis-point rate change would affect annual results by approximately $9.0 million, before considering hedges or changes in capital structure.
Material changes and unusual items
- Q3 net loss attributable to the company widened by $5.8 million year over year; nine-month loss widened by $35.1 million. Higher interest expense, depreciation and advisory fees weighed on results.
- Nine-month interest expense and loan-cost amortization rose to $173.7 million from $167.2 million. The company also recorded $9.3 million of nine-month write-offs of loan costs and exit fees related to refinancing and property sales.
- Advisory services fees increased to $53.0 million for the nine months from $39.5 million, including higher equity-based compensation. Approximately $4.5 million of the 2018 nine-month compensation expense related to accelerated vesting after an executive’s death.
- The company acquired the 252-room Hilton Alexandria Old Town for $111.0 million in June, financed with a $73.5 million mortgage. It sold three hotels during the first half of 2018 for approximately $42.4 million in aggregate cash proceeds and recorded a net gain of $0.4 million.
- Capital activity included refinancing $1.068 billion of existing mortgage debt into six loans totaling approximately $1.270 billion, issuing about 2.4 million common shares through its at-the-market program for $15.3 million net proceeds, and establishing a $100 million secured revolving credit facility. No amount was drawn on the facility at September 30.
- The quarterly common dividend was $0.12 per share, unchanged from 2017. The board’s stated 2018 policy anticipated that quarterly amount for the remainder of the year, subject to review and declaration.
Liquidity, outlook and risks
Management said existing cash and operating cash flow should be adequate for anticipated interest and principal payments, working capital, capital expenditures and REIT-required dividends over the next 12 months, excluding potential final maturity principal payments. It planned to address 2019 and 2020 maturities proactively, but gave no specific earnings or operating guidance and cautioned that future financing availability and terms are uncertain. Nine-month cash from operations declined by $41.2 million year over year; investing activities used $239.4 million, while financing activities provided $97.0 million.
Key risks include refinancing and floating-rate exposure; debt covenant breaches, cash-trap provisions and restrictions on distributions; hotel demand, occupancy and competitive supply; and the possibility that required financing may not be available on favorable terms. The company reported compliance in all material respects with debt covenants at September 30. It also disclosed potential conflicts associated with its external advisor, Ashford Inc., and affiliated service providers. Under the Enhanced Return Funding Program, Ashford LLC was to provide approximately $11.1 million of future furniture, fixtures and equipment associated with the Hilton acquisition; approximately $390,000 had been received by September 30, and the filing notes the provider’s cash-balance condition and execution risk.
Other contingencies include ongoing legal proceedings and a remaining attorney-fee dispute in the Nantucket litigation; approximately $508,000 was accrued for potential remaining fees. The company also indemnified its hotel manager for a potential multi-employer pension withdrawal liability, with final liability dependent on the outcome of the dispute. A $50 million acquisition of La Posada de Santa Fe closed on October 31, after quarter-end.
Important facts for investors to verify
- Debt maturity schedule, extension-option conditions, refinancing progress and the cost of floating-rate debt.
- Whether operating cash flow can support capital spending, dividends and upcoming debt obligations, given the year-over-year cash-flow decline.
- Comparable-hotel operating trends, particularly occupancy weakness, and the effects of acquisitions and dispositions on reported results.
- Future advisory, equity-compensation and related-party service costs, and delivery of the remaining Enhanced Return Funding Program benefits.
- Resolution and potential cost of legal and pension contingencies, and the terms and funding of the post-quarter La Posada acquisition.