Filing and reporting period
Entity mismatch: The request identifies Braemar Hotels & Resorts Inc., but the supplied Form 10-Q is for Ashford Hospitality Prime, Inc. This summary reflects the filing text provided, for the quarter and nine months ended September 30, 2016. Financial amounts are in U.S. dollars; unless stated otherwise, figures below are in millions.
Ashford Prime was a lodging REIT focused on luxury, upper-upscale and upscale hotels. At quarter-end it owned interests in 11 hotels with 3,702 total rooms (3,467 net rooms). The filing is unaudited.
Financial performance and condition
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $99.7 | $90.8 | $311.9 | $261.4 |
| Operating income | $11.2 | $13.3 | $33.2 | $40.6 |
| Net income (loss) | $21.3 | $(7.3) | $23.5 | $1.4 |
| Net income (loss) attributable to common stockholders | $15.9 | $(7.7) | $16.0 | $(1.4) |
| Diluted earnings (loss) per share | $0.55 | $(0.29) | $0.56 | $(0.06) |
| Adjusted EBITDA | $22.0 | $24.2 | $79.8 | $71.8 |
| Adjusted FFO | $13.1 | $15.2 | $49.0 | $44.6 |
Q3 hotel operating indicators improved: portfolio occupancy was 86.89% versus 85.75%, ADR was $249.86 versus $237.53, and RevPAR was $217.11 versus $203.69. For nine comparable hotels, Q3 RevPAR increased to $202.05 from $194.71. Nine-month portfolio RevPAR was $210.20 versus $189.52; comparable-hotel RevPAR was $193.81 versus $188.48.
Operating margin, calculated as operating income divided by total revenue, was approximately 11.3% in Q3 2016 versus 14.6% in Q3 2015, and 10.7% for the first nine months of 2016 versus 15.5% in 2015. Hotel revenue growth did not keep pace with hotel operating expense growth.
Cash and cash equivalents were $128.6 at September 30, 2016, compared with $105.0 at year-end 2015; restricted cash was a further $41.1. Gross indebtedness was $768.9 ($766.0 net of deferred loan costs), down from $840.2 gross at year-end. Total assets were $1,264.1 and total liabilities were $831.9. Operating cash flow for the first nine months was $33.8, versus cash used of $7.2 in 2015. Investing activities provided $114.8, while financing activities used $125.0, leaving cash up $23.6.
The company declared common dividends of $0.12 per share for Q3 and $0.34 per share for the nine-month period. Preferred dividends were $2.9 for the nine months. Variable-rate debt was $425.4; management estimated that a 25-basis-point rate change would affect annual results by about $1.1.
Material changes and unusual items
- Q3 revenue rose 9.8%, but total expenses rose 14.1% and operating income fell 15.2%. Nine-month revenue increased 19.3%, while expenses rose 26.2% and operating income declined 18.2%.
- Reported net income included a $26.4 gain on the July 1 sale of the Courtyard Seattle Downtown for $84.5 cash. The sale also resulted in a $2.6 write-off of loan costs and exit fees; approximately $65 of related debt was repaid. Net cash proceeds after debt repayment and transaction costs were about $13.9.
- Q3 common-stockholder earnings also reflected a $3.9 unrealized derivative loss. For the nine-month period, derivatives recorded a $2.2 unrealized gain. The company reported a $1.1 nine-month unrealized loss on its Ashford Inc. investment.
- Corporate general and administrative expense rose to $16.4 for the nine months from $3.8, primarily due to professional fees associated with the proxy contest and litigation. Advisory fees increased to $12.4 from $9.8, including incentive fees and higher equity compensation and reimbursements.
- In June, the company liquidated its AQUA U.S. Fund investment, receiving approximately $43.5 of net proceeds; a $2.3 holdback receivable remained at quarter-end.
- The company repurchased 2.9 million common shares for approximately $39.0 during the first nine months. It issued additional Series B preferred stock for $5.0 gross proceeds ($4.2 net) in April.
Outlook, risks and contingencies
No specific earnings or revenue guidance was provided. Management reaffirmed its strategy of focusing on luxury hotels in resort and gateway markets and targeting net debt to EBITDA of 5.0x or less. The revolver covenant ratio was 5.69x at quarter-end, below its 5.75x limit then in effect; fixed-charge coverage was 1.74x against a 1.35x minimum. The company reported covenant compliance.
The $150.0 million secured revolving credit facility had no borrowings at quarter-end and matured November 21, 2016, with two one-year extensions subject to conditions. Several mortgages also matured in 2017, with extension options on certain loans. Management cited access to capital, leverage, interest rates, hotel performance, seasonality, REIT requirements, and related-party conflicts as risks. Cash-trap provisions were not triggered at quarter-end. The company noted potential indemnification obligations tied to certain loans for which Ashford Trust remained jointly and severally liable.
Sessa-related proxy and governance litigation remained pending, including an appeal; Sessa sought attorneys’ fees and costs, not monetary damages. Management did not expect the resolution of legal proceedings to have a material adverse effect, but acknowledged outcomes were uncertain. After quarter-end, the company announced Richard J. Stockton’s appointment as CEO effective November 14, 2016; Monty J. Bennett remained chairman.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Ashford Hospitality Prime, not Braemar Hotels & Resorts.
- Assess earnings excluding the $26.4 property-sale gain and other fair-value changes; compare GAAP results with Adjusted EBITDA and Adjusted FFO, which are non-GAAP measures.
- Review the upcoming revolver and mortgage maturities, extension conditions, refinancing plans, and covenant headroom.
- Evaluate the sustainability of the $0.12 quarterly common dividend against operating cash flow, capital needs, and REIT distribution requirements.
- Track comparable-hotel performance and expense growth, as well as the impact of acquisitions and the Seattle hotel disposition on year-over-year comparisons.
- Monitor the outcome of the Sessa litigation and governance changes, related-party advisory arrangements, and the subsequent CEO transition.