Business Overview and History

Ashford Hospitality Trust, Inc. (AHT) is a real estate investment trust (REIT) that focuses on acquiring, renovating, and repositioning upscale and upper-upscale full-service hotels in the United States. With a diverse portfolio of properties in prime locations, the company has navigated the challenges of the past few years with resilience and forward-thinking strategies.

Ashford Hospitality Trust was founded in 2003 and is headquartered in Dallas, Texas. The company's primary investment strategy has been to acquire and own upper-upscale and full-service hotel properties with a focus on select-service and extended-stay segments. As of September 30, 2024, the company's portfolio consisted of 73 consolidated operating hotel properties with a total of 17,644 rooms.

In its early years, Ashford Trust faced significant challenges during the financial crisis of 2008-2009, which required the company to restructure its debt and adjust its portfolio to navigate the economic downturn. Despite these obstacles, the company emerged stronger and continued to expand its hotel holdings in the following years.

Ashford Trust's growth strategy has included strategic acquisitions in key markets across the United States, focusing on upper-upscale hotel properties. The company has also diversified its revenue streams by investing in hotel management and advisory services through its relationship with Ashford Inc.

The COVID-19 pandemic in 2020 presented another major challenge for Ashford Trust, necessitating difficult decisions to manage liquidity and protect assets during the unprecedented disruption to the hospitality industry. The company worked closely with hotel managers and lenders to navigate this turbulent period, demonstrating its adaptability and resilience.

Throughout its history, Ashford Hospitality Trust has remained committed to its strategy of owning high-quality hotel properties in prime locations. The company's experienced management team and diversified business model have been key factors in its ability to weather various economic cycles and industry challenges over the past two decades.

Financial Performance and Ratios

For the nine months ended September 30, 2024, Ashford Hospitality Trust reported total revenue of $897.0 million, a decrease of 14.4% compared to the same period in 2023. The company's net income attributable to common stockholders was $48.6 million, or $10.94 per diluted share, for the nine-month period.

Looking at the most recent fiscal year (2023), Ashford Hospitality Trust reported revenue of $1.37 billion and a net loss of $178.49 million. The company generated operating cash flow (OCF) of $14.39 million and free cash flow (FCF) of $13.79 million in 2023.

For the most recent quarter (Q3 2024), the company reported revenue of $276.60 million, representing a 19.4% year-over-year decrease. The net loss for Q3 2024 was $57.91 million. Operating cash flow for the quarter was $795,000, while free cash flow increased significantly to $65.61 million.

The decrease in revenue was primarily attributed to hotel dispositions and properties placed into receivership. The decline in net income was mainly due to lower operating income, higher interest expense, and losses on derivatives. The decrease in OCF was primarily due to timing of working capital changes, while the increase in FCF was largely a result of lower capital expenditures and asset sales.

The company's financial ratios demonstrate a mixed picture. As of September 30, 2024, Ashford Hospitality Trust had a debt ratio of 83.2%, indicating a high level of financial leverage. The debt-to-equity ratio stood at -20.36, reflecting the company's negative equity position. The current ratio was 1.70, and the quick ratio was 1.68, suggesting adequate short-term liquidity. However, the interest coverage ratio was 0.16, indicating potential challenges in meeting its interest payment obligations.

Operational Highlights and Initiatives

During the third quarter of 2024, Ashford Hospitality Trust continued to focus on improving its operational performance and executing its strategic initiatives. The company saw a 1% decrease in comparable hotel RevPAR (revenue per available room) compared to the prior-year quarter, as it navigated the ongoing challenges in the hospitality industry.

To enhance its portfolio, the company completed the conversion of its Le Pavillon Hotel in New Orleans into a Marriott Tribute Portfolio property, following a $19 million renovation. This strategic repositioning is expected to drive improved performance and higher RevPAR in the future.

Additionally, the company opened the Le Meridien Fort Worth Downtown, a 188-room full-service hotel, in August 2024. This newly developed property has been performing well, exceeding the company's initial underwriting.

As of September 30, 2024, Ashford Hospitality Trust's portfolio consisted of 68 consolidated operating hotel properties, representing 17,051 total rooms. The company also had an interest in one consolidated operating hotel property with 188 total rooms through a 29.3% owned investment, and four consolidated operating hotel properties with 405 total rooms owned through a 99% ownership interest in Stirling OP.

Debt Management and Capital Raising

Ashford Hospitality Trust has been actively managing its debt and capital structure to improve its financial position. The company reduced its strategic financing loan balance to approximately $82 million as of September 30, 2024, representing a 59% reduction since the beginning of the year.

To further strengthen its balance sheet, the company has raised capital through the issuance of its non-traded Series J and Series K Preferred Stock, generating approximately $173 million in gross proceeds as of November 2024. These funds have been used to pay down the company's strategic financing.

As of September 30, 2024, the company had cash and cash equivalents of $119.66 million. It's worth noting that a $100 million delayed draw term loan commitment expired in July 2023, of which none was drawn.

Outlook and Challenges

Ashford Hospitality Trust has made significant progress in navigating the challenging environment and positioning itself for future growth. The company's focus on strategic asset sales, refinancing, and capital raising has allowed it to reduce its debt burden and improve its financial flexibility.

While the company has not provided explicit quantitative guidance for future periods, management has expressed optimism about industry fundamentals. They noted that group room revenue for full-year 2025 is pacing ahead by 8% compared to the prior year. The company anticipates spending between $80 million and $100 million on capital expenditures in 2024 as they continue to invest in renovations and upgrades across the portfolio.

Management also highlighted their focus on paying off the strategic Oaktree financing by the end of 2024, which they believe will allow them to "turn the page on the COVID era" and improve the profitability of the company going forward. They expressed optimism about limited supply growth over the next 2-3 years and a potential return to office driving business transient demand.

However, the company continues to face industry-wide headwinds, such as softening leisure demand and ongoing uncertainty in the corporate travel segment. Additionally, the company's high debt levels and potential challenges in meeting interest payment obligations remain areas of concern.

Conclusion

Ashford Hospitality Trust has demonstrated resilience and a proactive approach to managing the complexities of the hospitality industry. The company's efforts to streamline its portfolio, optimize its capital structure, and execute strategic initiatives have laid the groundwork for potential future growth. As the industry continues to evolve, Ashford Hospitality Trust will need to navigate the challenges ahead while capitalizing on opportunities to enhance shareholder value.