Ashford Hospitality Trust, Inc. (AHT-PF) 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 a diverse mix of hotel properties, strategically located in key markets across the country. With a rich history spanning over two decades, Ashford Hospitality Trust has navigated the dynamic hospitality industry, adapting to various market conditions and emerging trends.
Business Overview: Ashford Hospitality Trust was founded in 2003 with an initial focus on acquiring, renovating, and repositioning upscale and upper-upscale full-service hotels in the United States. Over the years, the company has built a diversified portfolio of hotel properties, primarily branded under well-known upscale and upper-upscale brands such as Hilton, Hyatt, Marriott, and Intercontinental Hotel Group. In the late 2000s and early 2010s, Ashford Trust faced challenges related to the financial crisis and recession, including declines in occupancy and revenue per available room (RevPAR) at its hotel properties. The company worked to refinance debt, restructure operations, and identify strategic opportunities to reposition its portfolio, which included acquiring several distressed hotel assets and renovating and repositioning properties to improve their performance.
Despite these headwinds, Ashford Trust continued to grow its portfolio, taking advantage of market conditions to selectively acquire additional hotel properties. The company also pursued capital markets activities, issuing both common and preferred equity to fund acquisitions and strengthen its balance sheet. By the mid-2010s, Ashford Trust had established itself as a significant player in the upscale and upper-upscale hotel REIT space. In the late 2010s and early 2020s, Ashford Trust faced new challenges related to the COVID-19 pandemic, which significantly impacted the hospitality industry. The company worked to manage its liquidity, reduce expenses, and navigate the uncertain operating environment, including modifying debt agreements, drawing on credit facilities, and exploring various strategic alternatives to strengthen its position.
Financials and Performance: For the third quarter of 2024, Ashford Hospitality Trust reported a net loss attributable to common stockholders of $63.2 million, or $12.39 per diluted share. The company's Adjusted Funds from Operations (AFFO) per diluted share was negative $1.71 for the quarter. Adjusted EBITDAre, a key metric for the hospitality industry, stood at $52.4 million.
The company's total revenue for the quarter was $276,600,000, with a net income of -$57,905,000. Operating cash flow (OCF) for the quarter was $795,000, while free cash flow (FCF) amounted to $65,611,000. The significant difference between OCF and FCF is likely due to asset sales and other non-operating cash inflows.
Breaking down the revenue streams, Rooms revenue was $212.96 million, Food and Beverage revenue was $46.38 million, and Other Hotel Revenue was $16.67 million. Compared to the same period in 2023, Rooms revenue decreased by 21.3%, Food and Beverage revenue decreased by 11.2%, and Other Hotel Revenue decreased by 14.7%. These decreases were primarily attributable to the disposition of certain hotel properties and the derecognition of assets related to the KEYS A and B loan pools that were placed into receivership.
Hotel operating expenses totaled $194.83 million for the quarter, a decrease of 16.2% compared to the same period in 2023. This decrease was driven by lower expenses from the disposed and derecognized hotel properties, partially offset by increases in expenses at the company's comparable hotel properties. Property taxes, insurance, and other expenses decreased slightly by 4.1% to $18.06 million, while depreciation and amortization decreased by 17.9% to $37.74 million.
The company's advisory services fee decreased by 4.3% to $11.86 million, while corporate, general, and administrative expenses increased by 30.8% to $5.06 million, primarily due to higher legal, professional, and Ashford Securities-related costs.
During the quarter, Ashford Hospitality Trust recognized a $9,000 gain on the consolidation and disposition of assets and hotel properties, as well as an $11.11 million gain on the derecognition of assets related to the KEYS A and B loan pools. The company also reported a $6.2 million realized and unrealized loss on derivatives, which was partially offset by a $2.75 million gain on the extinguishment of debt.
Liquidity: As of September 30, 2024, Ashford Hospitality Trust had $2.7 billion in total loans with a blended average interest rate of 8%, taking into account the company's in-the-money interest rate caps. Approximately 83% of the company's debt is effectively fixed, while 17% is effectively floating. The company ended the quarter with $119.7 million in cash and cash equivalents and $114.3 million in restricted cash, the majority of which is comprised of lender and manager-held reserve accounts.
Operational Highlights: During the third quarter, Ashford Hospitality Trust continued to execute on its strategic initiatives, including the conversion of two key hotels in its portfolio. The company completed a $35 million transformation of the La Concha Hotel in Key West, Florida, converting it into an Autograph Collection hotel. Additionally, the company invested $19 million to convert the Le Pavillon Hotel in New Orleans, Louisiana, into a Tribute Portfolio property.
The company's asset management team has also been actively engaged in driving revenue growth and expense management across the portfolio. While achieving RevPAR growth has been challenging, the team has implemented several initiatives to grow ancillary revenue, which increased 15% per occupied room compared to the prior-year quarter. Corporate transient demand has also improved, with year-to-date corporate revenue up 9% compared to the prior-year period.
Debt Management and Strategic Financing: A key focus for Ashford Hospitality Trust has been the management of its debt obligations, particularly its strategic financing with Oaktree Capital Management, L.P. 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.
Since the beginning of the year, the company has made significant progress in executing this plan. Ashford Hospitality Trust has completed over $310 million in asset sales, including the disposition of the Residence Inn in Salt Lake City, Utah, the Hilton Boston Back Bay, and several other properties. Additionally, the company has refinanced its mortgage loan secured by the Marriott Crystal Gateway Hotel in Arlington, Virginia, generating $31 million in excess proceeds to be used towards paying down the strategic financing.
As a result of these efforts, the company has reduced the balance of its strategic financing from $184 million at the beginning of the year to approximately $48.6 million as of November 12, 2024. To further incentivize the payoff of this debt, Ashford Hospitality Trust has recently entered into an amendment to the strategic financing agreement that will reduce the exit fee from 15.0% to 12.5% of the original loan balance, provided that the outstanding loan balance is reduced to $50 million or less by November 15, 2024.
Industry Outlook and Challenges: The hospitality industry has faced various challenges in recent years, including the COVID-19 pandemic, macroeconomic uncertainties, and changing consumer preferences. However, Ashford Hospitality Trust remains cautiously optimistic about the industry's long-term prospects, particularly as the lodging market begins to show signs of recovery.
The company has noted that group business has continued to demonstrate growth, with group room revenue pacing ahead of the prior year by 2% for the full year 2024 and 8% for the full year 2025. Additionally, the company has seen an acceleration in attendance at major events and decreased price sensitivity around those events, further supporting the recovery in group demand.
That said, the company has also experienced softening in the leisure segment, with weekend retail remaining soft. The government segment has also shown some weakness, which the company attributes to uncertainty surrounding the recent election. However, Ashford Hospitality Trust is hopeful that the government segment will rebound as the political landscape stabilizes.
Looking ahead, management expects to see the benefits of additional expense management initiatives in the fourth quarter of 2024 and more fully throughout 2025. They are particularly excited about the upcoming conversions of their La Concha Hotel in Key West and Le Pavillon Hotel in New Orleans, expecting these conversions to result in 20-30% and 10-20% RevPAR premiums respectively compared to pre-conversion.
The company believes that industry fundamentals are lining up favorably, with limited supply growth expected for the next 2-3 years and potential upside from the return to office trend impacting business transient demand. Furthermore, Ashford Inc., the company's advisor, 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."
Conclusion: Ashford Hospitality Trust has navigated a challenging environment in the hospitality industry, leveraging its extensive experience and strategic vision to position the company for long-term success. The company's focused approach to debt management, strategic asset sales, and operational improvements have been instrumental in strengthening its financial position and aligning its portfolio for sustainable growth. As the industry continues to evolve, Ashford Hospitality Trust remains well-positioned to capitalize on emerging opportunities and deliver value for its stakeholders.