Executive Summary / Key Takeaways

• Transformative Strategic Shift: Ashford Hospitality Trust (AHT) has embarked on a "New Chapter" marked by aggressive deleveraging, operational optimization through its "Grow AHT" initiative, and strategic portfolio enhancements, moving past the significant challenges of the COVID era.
• Operational Excellence Driving Margins: The "Grow AHT" initiative is yielding tangible results, with comparable hotel EBITDA margin expanding by 39 basis points in Q2 2025 and over $30 million of the $50 million run-rate EBITDA improvement goal already expected from implemented initiatives.
• Strengthened Capital Structure: AHT successfully repaid its corporate strategic financing in February 2025, becoming "completely free of corporate debt," achieved through over $430 million in asset sales, refinancings, and $212 million from preferred stock offerings.
• Targeted Portfolio Enhancement: Strategic renovations and brand conversions are delivering strong returns, with recently repositioned properties showing a 19% RevPAR increase in Q2 2025, and future capital expenditures of $90 million to $110 million planned for 2025 to continue this trend.
• Resilience Amidst Headwinds: Despite macroeconomic pressures and declines in government/group travel, AHT's focused strategy and operational discipline are enabling outsized performance, with a positive outlook for group demand in Q3 2025 and potential tailwinds from anticipated interest rate cuts and the 2026 FIFA World Cup.

A Transformed REIT: Setting the Scene for a New Era

Ashford Hospitality Trust, Inc. (AHT) operates as a real estate investment trust (REIT) specializing in the ownership and investment of upscale and upper upscale full-service hotels across the United States. Its core strategy centers on direct hotel investments, particularly in markets where revenue per available room (RevPAR) generally falls below twice the U.S. national average. This targeted approach allows AHT to identify and capitalize on value-add opportunities within specific market niches.

The company's journey has been one of significant transformation, particularly in the wake of the COVID-19 pandemic. Following a revenue peak of $1.5 billion in 2019, the pandemic triggered a sharp decline to $508 million in 2020, ushering in a period of substantial net losses that persisted through 2024.

Competitive Landscape: Positioning for Advantage

AHT operates in a competitive arena alongside major hotel REITs and operators such as Host Hotels & Resorts (HST), Marriott International (MAR), Hilton Worldwide (HLT), and InterContinental Hotels Group (IHG). AHT holds a mid-tier position, characterized by moderate influence within the broader hotel REIT market. While its growth trajectory has historically lagged behind larger rivals like HST and MAR, AHT differentiates itself through a focused strategy on targeted operational execution and adaptability in niche markets.

Compared to Host Hotels & Resorts, AHT's more concentrated portfolio allows for specialized operational execution, potentially yielding greater efficiency in property upgrades. However, HST's broader scale and diversified assets often translate to stronger cash flow generation and more consistent financial health. Against Marriott International and Hilton Worldwide, global operators with extensive brand portfolios and robust loyalty programs, AHT's direct ownership model offers greater control over property-specific innovations, such as strategic renovations that enhance guest experiences. Yet, MAR and HLT typically exhibit superior revenue diversification, innovation speed, and overall financial resilience. Similarly, InterContinental Hotels Group's asset-light franchise model provides scalability that AHT, as an asset-intensive REIT, may not match, though AHT can achieve greater efficiency in asset utilization through direct investment.

AHT's competitive advantages, or moats, stem from its focused portfolio of upper upscale hotels and strong relationships with property management teams. This enables potentially superior margins through efficient asset management and stronger customer loyalty in select markets. These strengths allow AHT to exploit niche market weaknesses of its larger, more generalized competitors, enhancing pricing power and differentiation. However, AHT's smaller scale and exposure to economic cycles represent vulnerabilities, potentially leading to higher costs during downturns and longer recovery times compared to its more diversified rivals.

Leveraging Technology for Operational Edge

While AHT does not develop proprietary core technology in the manner of a tech company, it strategically leverages technology provided by its advisors, property managers, and brand partners to enhance operational efficiency and maximize revenue. This includes the deployment of tools to monetize amenities, improved food and beverage margin performance plans, and mobile key technology. Furthermore, AHT's property managers utilize technology to refine staffing models, optimize schedules, and improve overall labor efficiency. This strategic utilization of available technology is a critical component of the "Grow AHT" initiative, contributing to cost reductions and high-margin revenue strategies. The "so what" for investors is that this approach allows AHT to benefit from technological advancements without the significant R&D investment, directly contributing to its competitive moat through enhanced operational performance and improved financial outcomes.

The "Grow AHT" Initiative: Fueling Operational Excellence

AHT's strategic narrative is currently dominated by its "Grow AHT" initiative, a transformative program launched in late 2024 with the ambitious goal of driving $50 million in run-rate EBITDA improvement. This initiative is a multi-faceted approach built upon three core pillars: General & Administrative (G&A) reduction, revenue maximization, and operational efficiency.

Under the G&A reduction pillar, AHT has implemented significant corporate overhead cuts. This includes a 50% reduction in cash compensation for Board members, a reduction in Board size from nine to seven members, and substantial cuts to total incentive awards granted to executive management and other associates by over 50% relative to recent years. The company is also actively renegotiating advisory fees and expenses with Ashford Inc., its advisor, and reducing professional and administrative costs. These measures underscore a deep commitment to financial discipline at the corporate level.

The revenue maximization pillar focuses on boosting rooms revenue market share, conducting pricing audits to increase ancillary revenue, and introducing additional revenue streams across the portfolio. Property managers have deployed tools to monetize amenities and implemented improved food and beverage margin performance plans. These efforts are clearly yielding results, with comparable total revenue growth outpacing comparable RevPAR growth by 3.5 percentage points in Q2 2025 (1.3% comparable total revenue growth versus a 2.2% comparable RevPAR decline). This indicates successful strategies in driving high-margin ancillary income.

Operational efficiency, the third pillar, aims to combat margin pressures through renegotiating vendor contracts, implementing energy-saving measures, and optimizing labor. The asset management team has refined staffing models, optimized schedules, and leveraged technology to improve efficiency, leading to enhancements in hours per occupied room and reduced contract labor utilization. This disciplined focus has resulted in impressive comparable hotel EBITDA margin expansion: 39 basis points in Q2 2025, approximately 131 basis points in Q1 2025, and 141 basis points in Q4 2024.

By Q1 2025, management anticipated that fully implemented "Grow AHT" initiatives would contribute over $30 million towards the $50 million run-rate EBITDA improvement goal, with confidence in achieving the full target.

Strategic capital investments are further enhancing portfolio performance. Properties that completed significant renovations or repositionings within the past year demonstrated a 19% RevPAR increase in Q2 2025, showcasing strong early returns on capital. Notable successes include the Embassy Suites Dallas Galleria, which saw total hotel revenue rise 31% after a comprehensive guestroom renovation. The La Concha Key West, following its conversion to a Marriott Autograph Collection Hotel, achieved a 28% RevPAR increase, 41% total revenue growth, and a remarkable 59% increase in hotel EBITDA in its second full quarter under the new brand, with food and beverage revenue soaring by 668% per occupied room. Similarly, the Le Pavillon in New Orleans, converted to Marriott's Tribute Portfolio, delivered a 55% RevPAR increase and 46% total revenue growth in Q2 2025. These conversions are outperforming initial underwriting expectations, validating AHT's disciplined capital deployment strategy focused on long-term value creation through portfolio quality and brand alignment.

Financial Transformation: Deleveraging and Capital Structure Optimization

AHT's financial narrative in early 2025 is defined by a significant milestone: the full repayment of its corporate strategic financing in February, marking the company as "completely free of corporate debt." This achievement was the culmination of a comprehensive process that included selling over $430 million in hotel assets, refinancing several properties for excess proceeds, and raising approximately $212 million in gross proceeds through non-traded preferred stock offerings (Series J and K). This strategic deleveraging has fundamentally reshaped AHT's financial health and flexibility.

The company has continued its asset disposition strategy, albeit with a refined focus post-Oaktree payoff. Sales now target assets with $50 million to $75 million of equity value, primarily comprising select-service and underperforming full-service hotels, aiming to reduce leverage and improve overall cash flow after debt service. Recent sales include the Courtyard Boston Downtown for $123 million in January 2025, a parcel of land from Residence Inn Orlando for $7.2 million in April 2025, and the Residence Inn Evansville for $6 million in August 2025. The Hilton Houston NASA Clear Lake, valued at $27 million, is also expected to close in the coming weeks. These transactions, such as the Courtyard Boston Downtown sale at a 6.9% trailing cap rate, highlight the intrinsic value within AHT's portfolio and provide important deleveraging.

AHT has also actively managed its debt maturities. As of June 30, 2025, the company held $2.7 billion in loans with a blended average interest rate of 8.1%, with 24% effectively fixed and 76% floating. Recent extensions include the Morgan Stanley Pool mortgage loan (17 hotels) to March 2026, the Highland mortgage loan (18 hotels) to January 2026 (with a $10 million principal paydown), and the Hotel Indigo Atlanta Midtown mortgage loan to February 2026. A $580 million refinancing secured by 16 hotels was completed in February 2025, generating excess proceeds used for debt repayment. To further enhance liquidity and capital, AHT has launched follow-on offerings for non-traded Series L and M Redeemable Preferred Stock, raising approximately $3.1 million and $6.2 million net proceeds, respectively, as of August 12, 2025. Additionally, Ashford Trust OP secured a Master Line of Credit Promissory Note with Ashford LLC for up to $20 million through August 2026.

As of June 30, 2025, AHT reported cash and cash equivalents of $101.3 million and restricted cash of $154.6 million, with $21.8 million due from third-party hotel managers also available for hotel operating costs.

The net debt to gross assets stood at 71.3%. While the company does not anticipate reinstating a common dividend in 2025, it expects to continue paying preferred dividends, prioritizing capital towards deleveraging and strategic investments.

Performance with Perspective: Navigating Headwinds with Strategic Focus

AHT's recent financial performance reflects a company strategically responding to persistent macroeconomic headwinds. In Q2 2025, the company reported a net loss attributable to common stockholders of $39.9 million, or $6.88 per diluted share. Adjusted Funds From Operations (AFFO) per diluted share was $0.78, though it would have been approximately $1.93 had it not been for $6.8 million in default interest accrued on the Highland loan, which has since been resolved. Year-to-date, total reported revenue declined over $41 million versus 2024, yet year-to-date Adjusted EBITDAre was down less than $3 million, demonstrating the effectiveness of cost-saving measures. This trend was also evident in Q1 2025, where Adjusted EBITDAre increased by $2.2 million despite a $26.5 million drop in total revenue.

The operational environment remains challenging, with macroeconomic headwinds driving RevPAR declines and pressuring margins across the industry. In Q2 2025, comparable hotel RevPAR declined 2.2% year-over-year, largely due to reduced demand from group and government-related travel, with government room nights specifically down approximately 26%. Management noted that Q2 2025 was expected to be the softest period for the group segment, impacted by the late timing of Easter and ongoing Department of Government Ethics (DOGE) initiatives. Leisure travel, particularly weekend retail, has also shown continued softness.

Despite these challenges, AHT's "Grow AHT" initiatives are enabling outsized performance. The asset management team's focus on driving ancillary income and controlling costs has laid a strong foundation. For instance, the Marriott Crystal Gateway delivered a 100% increase in other revenue and improved its Gross Operating Profit (GOP) margin by 219 basis points in Q2 2025, even amidst government activity headwinds in Washington, D.C. AHT is actively backfilling government business in the D.C. market with new business transient accounts, demonstrating agility in demand generation.

Outlook and Risks: A Path Forward

AHT's outlook for 2025 is framed as a "transformational year," with management expressing confidence in its ability to drive outsized performance and unlock additional value. The company anticipates demand headwinds to continue to subside, with potential benefits from anticipated interest rate cuts in the second half of 2025. Group demand remains healthy for Q3 2025, pacing ahead of the prior year, and AHT is strategically positioned to capitalize on event-driven demand, such as the 2026 FIFA World Cup, with 42% of its portfolio rooms located in host cities. The "return to office" trend is also seen as a potential "tremendous driver" for the business transient segment.

The "Grow AHT" initiative remains central to the forward-looking strategy, with management expecting over $30 million of the $50 million run-rate EBITDA improvement goal to be realized from already implemented initiatives. The company plans to continue rolling out additional initiatives throughout 2025, focusing on further enhancing hotel-level performance and maximizing long-term shareholder value. For capital expenditures, AHT anticipates spending between $90 million and $110 million for the full year 2025, funding strategic brand conversions (e.g., Sheraton Mission Valley and Sheraton Anchorage to Hyatt Regency) and property enhancements.

However, the investment thesis is not without risks. Macroeconomic conditions, including uncertainty in the banking sector and geopolitical events, could continue to impact travel demand. The ability to refinance upcoming debt maturities on favorable terms remains a concern, as evidenced by the default on the Hilton Scotts Valley mortgage loan. Cash trap provisions, affecting 47% of AHT's hotels and $4.6 million of restricted cash, could limit financial flexibility and potentially impact REIT qualification. Litigation risks, including class action lawsuits related to California employment laws and a cyber incident, also present potential liabilities that could materially affect financial position if realized losses exceed current estimates.

Conclusion

Ashford Hospitality Trust is in the midst of a significant strategic reinvention, having successfully shed its corporate strategic financing and embarked on a rigorous program of operational and financial discipline. The "Grow AHT" initiative, with its focus on G&A reduction, revenue maximization, and operational efficiency, is already demonstrating tangible results through margin expansion and enhanced property-level performance. This transformation, coupled with a proactive approach to debt management and strategic asset dispositions, positions AHT for a more sustainable and profitable future.

While macroeconomic headwinds and demand volatility present ongoing challenges, AHT's commitment to portfolio quality, strategic capital deployment, and leveraging operational technology provides a competitive edge. The company's ability to drive outsized performance from its high-quality, geographically diverse portfolio, particularly through successful brand conversions and targeted expense management, underpins its long-term value creation potential. Investors should closely monitor the continued execution of the "Grow AHT" initiatives and the company's ability to capitalize on improving industry fundamentals and event-driven demand, as these factors will be critical in solidifying AHT's transformed competitive standing.