Ashford Hospitality Trust, Inc. is a real estate investment trust (REIT) that primarily focuses on investing in upper-upscale, full-service hotels in the United States. The company's portfolio consists of 73 consolidated hotel properties, representing 17,644 total rooms, as of September 30, 2024.
Business Overview and History
Ashford Hospitality Trust was founded in 2003 and is headquartered in Dallas, Texas. The company's initial public offering (IPO) took place in 2003, raising approximately $212 million. Since its inception, Ashford Trust has grown its portfolio through strategic acquisitions, with a focus on upper-upscale, full-service hotels.
In its early years, Ashford Trust faced challenges during the global financial crisis of 2008-2009, which significantly impacted the hospitality industry. The company successfully navigated this downturn by working closely with its lenders and hotel managers to maintain operations and preserve capital. Despite the headwinds, Ashford Trust was able to strategically acquire several hotel properties at attractive valuations during this period.
As the lodging market recovered, Ashford Trust continued to expand its portfolio through targeted acquisitions. In 2015, the company took on additional debt to fund growth, which later proved challenging when the COVID-19 pandemic struck in 2020. The pandemic had a severe impact on the hospitality industry, causing significant declines in occupancy and revenue per available room (RevPAR) across Ashford Trust's portfolio.
To weather the pandemic, Ashford Trust worked diligently with its lenders to restructure and modify debt agreements. The company also focused on reducing operating expenses and implementing cost-saving measures at the property level. Despite these efforts, Ashford Trust incurred significant losses in 2020 and 2021 due to the widespread disruption in the hotel industry.
Over the years, Ashford Trust has faced various industry challenges, including the global financial crisis of 2008-2009, the COVID-19 pandemic, and more recently, macroeconomic headwinds impacting the lodging sector. However, the company has demonstrated resilience, navigating these obstacles through effective asset management, strategic dispositions, and proactive financial management.
Financial Performance and Ratios
As of September 30, 2024, Ashford Trust reported total assets of $3.27 billion and total liabilities of $3.36 billion, resulting in a debt-to-asset ratio of 0.80. The company's net debt stood at $2.73 billion, with a blended average interest rate of 8%. Ashford Trust's net working capital position was approximately $160 million at the end of the third quarter.
For the nine months ended September 30, 2024, the company reported total revenue of $897.0 million, a decrease of 14.5% compared to the same period in the prior year. Net income attributable to common stockholders was $48.6 million, or $10.94 per diluted share. Adjusted funds from operations (AFFO) per diluted share was negative $1.71 for the third quarter of 2024.
For the most recent quarter ended September 30, 2024, Ashford Trust reported revenue of $276,018,000 and a net loss of $60,018,000. The company's operating cash flow (OCF) for the quarter was $795,000, while free cash flow (FCF) stood at $65,611,000.
Operational Highlights and Industry Trends
Ashford Trust's portfolio experienced a 1% decrease in comparable hotel RevPAR (revenue per available room) during the third quarter of 2024 compared to the prior-year period. However, the company noted an acceleration in attendance at major events and decreased price sensitivity, with its Silversmith Hotel in Chicago seeing an 85% increase in group room revenue and a 50% increase in group average daily rate (ADR) during the Democratic National Convention in August.
The company's revenue optimization team has worked to capitalize on the positive 2025 group outlook, growing group block sizes and extending the booking window across the portfolio. Additionally, Ashford Trust has seen an increase in corporate transient business, with year-to-date corporate revenue up 9% compared to the prior-year period.
Amidst the industry's ongoing challenges, Ashford Trust has remained focused on strategic portfolio management, including asset dispositions and selective capital improvements. During the third quarter, the company completed renovations at the La Concha Key West and Le Pavillon New Orleans properties, which are expected to benefit from Marriott's extensive sales, distribution, and loyalty platforms upon their brand conversions by the end of 2024.
Liquidity and Debt Management
Ashford Trust's liquidity position remains strong, with $119,660,000 in cash and cash equivalents and $114.3 million in restricted cash as of September 30, 2024. The company also had $26.7 million due from third-party hotel managers, which is available to fund hotel operating costs.
A key focus for Ashford Trust has been the management of its debt obligations, particularly its strategic financing with Oaktree Capital Management. In January 2024, the company announced a plan to pay off this fully recourse debt through a combination of asset sales, mortgage refinancings, and capital raising initiatives. As of November 12, 2024, the company has reduced the Oaktree loan balance to approximately $48.6 million, a 59% reduction since the beginning of the year.
On November 6, 2024, Ashford Trust announced an amendment to its strategic financing with Oaktree, which will reduce the exit fee from 15% to 12.5% of the original loan balance, provided that the outstanding balance is reduced to $50 million or less by November 15, 2024. This latest development is a testament to the company's ongoing efforts to improve its financial flexibility and reduce its debt burden.
Outlook and Strategic Priorities
As Ashford Trust navigates the challenges of the current lodging environment, the company remains focused on several key strategic priorities:
1. Completion of the Oaktree loan repayment: The company is committed to fully repaying its strategic financing with Oaktree, which will mark a significant milestone in its deleveraging efforts. Ashford Trust has stated that they have a viable path to paying off this financing entirely before the end of 2024 and are currently working on a couple of transactions that they hope will close in the near term to help achieve this goal.
2. Portfolio optimization: Ashford Trust continues to evaluate strategic asset sales and repositioning opportunities to enhance the quality and performance of its hotel portfolio. The company's investment strategy focuses on predominantly full-service hotels in the upper upscale segment in domestic markets that have revenue per available room (RevPAR) generally less than twice the national average.
3. Operational efficiency: The company is working closely with its property managers to drive sales, manage expenses, and capitalize on the industry's positive trends, such as the recovery in group and corporate transient demand. As of September 30, 2024, Remington Hospitality, a subsidiary of Ashford Inc., managed 50 of Ashford Trust's 69 hotel properties.
4. Capital structure management: Ashford Trust is actively pursuing debt refinancings and extensions to manage its upcoming maturities and maintain financial flexibility. The company's advisor, Ashford Inc., has provided an unwavering commitment to substantially improve the profitability of Ashford Hospitality Trust over the coming year through corporate cost reductions, strategic portfolio turnover, and continued deleveraging.
5. Value-enhancing initiatives: The company is focused on completing brand conversions and strategic renovations to drive improved performance and RevPAR premiums at key properties in its portfolio. For 2024, Ashford Trust anticipates spending between $80 million and $100 million on capital expenditures as they continue to invest in key renovations and strategic upgrades across their portfolio.
6. Dividend policy: Ashford Trust does not anticipate reinstating a common dividend in 2024, as the company prioritizes debt reduction and financial stability.
Despite the industry's ongoing headwinds, Ashford Hospitality Trust remains committed to navigating these challenges and positioning the company for long-term success. The company's experienced management team, diversified portfolio, and proactive financial management strategies are key assets in weathering the current market environment. With a focus on deleveraging, operational improvements, and strategic portfolio management, Ashford Trust aims to enhance long-term stockholder value in the face of a dynamic lodging landscape.