Ashford Hospitality Trust, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Ashford Trust is a hotel REIT; it reported 132 hotel properties with 27,977 rooms and was shifting its investment focus toward upscale and upper-upscale full-service hotels.
Financial performance and liquidity
- Revenue: $367.8 million, up 47.0% from $250.2 million. Much of the increase reflected the PIM Highland JV consolidation and 2015 hotel acquisitions, rather than only growth at existing properties.
- Operating income: $41.4 million versus $32.1 million; operating margin was approximately 11.3%, compared with 12.8%.
- Net result: Net loss was $12.1 million; loss attributable to the Company was $10.0 million, or $0.20 per share. Common-stockholder loss was $18.5 million after preferred dividends. The prior-year quarter included a $380.7 million gain related primarily to acquiring the remaining PIM Highland JV interest; 2015 net income was $366.8 million.
- Non-GAAP measures: Adjusted EBITDA available to the Company and operating partnership unitholders was $105.0 million, versus $89.4 million. FFO was $42.0 million and Adjusted FFO was $40.2 million, versus $24.6 million and $34.2 million, respectively. These measures are not GAAP cash flow or a substitute for it.
- Hotel indicators: Across the portfolio, RevPAR was $113.55 versus $112.81; occupancy was 74.38% versus 77.01%, and ADR was $152.67 versus $146.48. For the 86 hotels included in both periods, RevPAR rose to $115.40 from $110.18, occupancy increased to 77.22% from 76.92%, and ADR increased to $149.44 from $143.25.
- Cash flow and spending: Operating cash flow was $44.7 million versus $30.3 million. Investing used $43.3 million, including $40.7 million of hotel improvements. Financing provided $10.4 million; cash and cash equivalents ended at $226.9 million, with an additional $162.1 million of restricted cash.
- Debt: Indebtedness, net, was $3.879 billion, up from $3.841 billion at year-end. Approximately $2.8 billion was variable-rate debt; management estimated that a 25-basis-point rate change would affect annual results by about $7.0 million. Interest expense and loan-cost amortization rose to $55.9 million from $34.6 million.
- Liquidity and distributions: The $100 million revolving facility was undrawn at quarter-end and matures in October 2016. The Company declared a $0.12 common dividend per share, consistent with Q1 2015; the 2016 policy anticipated $0.12 quarterly for the rest of the year but did not commit the board to future dividends.
Material changes and outlook
- On March 1, 2016, Ashford increased a floating-rate, interest-only mortgage secured by 17 hotels by $37.5 million, bringing its balance to $412.5 million; it matures in December 2017, with extension options.
- Three mortgage loans totaling approximately $401.4 million mature in August 2016. Management said it believed cash and operating cash flow would meet anticipated needs for the next 12 months and that it would proactively address 2017 maturities; future financing terms and availability were not assured.
- After quarter-end, the Company agreed to sell five select-service hotels for approximately $142 million in cash, subject to closing conditions, with closing scheduled for Q2 2016. Their land, buildings, and equipment had a March 31 carrying value of approximately $117.5 million.
- Management cited acquisitions of accretive hotels, dispositions of non-core assets, liquidity preservation, selective capital improvements, cost control, and financing/refinancing as priorities. Results are seasonal and Q1 results may not indicate full-year performance.
Risks, contingencies, and unusual items
- The Company reported compliance with debt covenants. Revolver covenants included maximum funded debt to EBITDA of 9.0x (reported ratio 8.8x), minimum fixed-charge coverage of 1.25x (reported 1.72x), and a minimum tangible net worth requirement.
- Cash-trap provisions could direct hotel cash to lenders if property performance declines, reducing liquidity and funds available for distributions. Refinancing risk, interest-rate exposure, competition, REIT qualification, and potential conflicts involving the external advisor and affiliated hotel manager were also identified.
- A Florida landlord-tenant judgment against a subsidiary was recorded at $10.8 million, plus interest and estimated legal costs; total recorded expenses were approximately $12.0 million through March 31. The appeal was scheduled for oral argument on May 31, 2016.
- The Company reported no material changes to its previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Progress and final proceeds from the proposed five-hotel sale, and how proceeds are used.
- Refinancing, extension, or repayment plans for the August 2016 maturities and the October 2016 revolving facility.
- Ongoing performance at comparable hotels, since reported revenue growth was substantially affected by acquisitions and consolidation.
- Cash available for operations and distributions after restricted-cash requirements, capital spending, and debt service.
- Outcome of the Florida litigation appeal and any effect on recorded reserves or future cash obligations.
- Leverage-covenant headroom, variable-rate debt exposure, and the sustainability of the $0.12 quarterly common dividend.