Ashford Hospitality Trust, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The company is a hotel REIT focused on upscale and upper-upscale lodging. At quarter-end it owned interests in 119 consolidated hotels, with 24,922 rooms, plus 90 WorldQuest condominium units. Comparisons are affected by hotel sales in 2017 and the February 2018 sale of SpringHill Suites Glen Allen.
Financial and operating results
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Total revenue | $342.2 million | $353.7 million |
| Operating income | $23.3 million | $28.3 million |
| Net loss attributable to the company | $26.3 million | $25.4 million |
| Net loss attributable to common stockholders / diluted loss per share | $36.9 million / $0.39 | $36.4 million / $0.39 |
| Operating cash flow | $16.7 million | $39.5 million |
| Capital improvements to hotels | $64.0 million | $56.8 million |
- Total revenue fell 3.3%. Rooms revenue declined 2.2% and food-and-beverage revenue declined 12.4%; other hotel revenue increased 12.5%, including hurricane-related business-interruption revenue.
- For comparable hotels and WorldQuest, RevPAR was $119.55 versus $119.75, occupancy was 74.04% versus 74.94%, and average daily rate was $161.46 versus $159.81. Across all properties, RevPAR rose to $119.33 from $118.24.
- Operating margin was approximately 6.8%, compared with 8.0% a year earlier. Hotel operating expenses declined 4.4%, but revenue fell and advisory services fees increased by $6.4 million.
- Adjusted EBITDAre, a non-GAAP measure, was $95.8 million versus $100.9 million. Adjusted FFO available to common stockholders and operating partnership unitholders was $31.4 million versus $35.7 million. The filing cautions these measures are not substitutes for GAAP results or operating cash flow.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $277.7 million and restricted cash was $137.1 million. Net reported indebtedness was $3.713 billion; total assets were $4.637 billion and total equity was $584.3 million.
- Approximately $3.4 billion of debt was variable-rate. Management estimated that a 25-basis-point rate increase would add about $8.5 million of annual interest expense, before considering changes in hedges or capital structure. Interest-rate caps covered loans with $3.3 billion of principal.
- Operating cash flow fell to $16.7 million. Investing used $53.7 million, principally for hotel improvements; financing used $20.0 million, including $23.2 million of dividend and distribution payments. Cash, cash equivalents and restricted cash ended the quarter at $415.0 million, down from $472.1 million.
- The company declared a quarterly common dividend of $0.12 per share, with a stated 2018 target of $0.48 annually; the board reviews dividends quarterly and has not committed to future payments.
Changes, outlook, risks and unusual items
- Net loss attributable to the company worsened by $0.9 million. Higher advisory fees and $2.1 million of loan-cost, premium and exit-fee write-offs were partly offset by lower corporate general and administrative costs and smaller marketable-securities losses than in 2017.
- Advisory services fees rose 60.5% to $17.1 million. The company cited accelerated vesting of an executive officer’s awards following his passing; approximately $4.5 million of advisory-fee equity compensation related to that event. Total non-cash stock/unit-based compensation was $7.0 million.
- Management said existing cash and operating cash flow should cover anticipated interest and principal payments, working capital, capital expenditures and required REIT distributions for the next 12 months, excluding potential final-maturity principal payments. It planned to address 2019 and 2020 maturities proactively. No specific earnings or RevPAR forecast was provided; management noted hotel seasonality.
- After quarter-end, the company refinanced a $971.7 million loan with a $985.0 million interest-only floating-rate loan at LIBOR + 3.20%, maturing April 2020 with five conditional one-year extension options. In January, it refinanced a $376.8 million loan with a $395.0 million loan at LIBOR + 2.92%. SpringHill Suites Glen Allen was sold for about $10.9 million in February; SpringHill Suites Centreville was sold for about $7.5 million on May 1, with approximately $6.6 million of related debt repaid.
- The company reported material compliance with debt covenants at quarter-end. Risks include floating-rate debt, refinancing access and terms, lender cash traps, hotel competition and operating conditions, franchise and management agreement exposure, REIT qualification, and potential conflicts involving its external advisor and affiliated hotel manager. It disclosed a $1.1 million accrual for potential legal fees in a resolved judgment matter; other proceedings could produce losses exceeding current estimates. The filing also describes an indemnity for potential pension withdrawal liability, with the amount dependent on final determinations and payments.
- The company adopted several new accounting standards without material financial-statement impact. It was still assessing the expected balance-sheet recognition of lease assets and liabilities under the forthcoming lease standard.
Important facts for investors to verify
- Refinancing terms, extension conditions and repayment plans for upcoming maturities, particularly in 2019 and 2020.
- Cash available for distributions after hotel capital spending, debt service and restricted-cash requirements; the common dividend is not guaranteed.
- Comparable-hotel operating trends, especially food-and-beverage revenue, occupancy and RevPAR, and the effect of property dispositions on reported comparisons.
- Exposure to rising LIBOR and the extent, cost and duration of interest-rate protection.
- Advisory-fee structure, equity-compensation expense and related-party transactions; also the resolution of legal and pension contingencies.