Ashford CEO expects to hand some properties to lenders
Ashford CEO expects to hand some properties to lenders
31 JULY 2020 8:00 AM

Ashford Hospitality Trust has had some success negotiating forbearance agreements on some of its debt, but investors should expect foreclosures on some of its 116 properties, CEO J. Robison Hays said.

DALLAS—A quarter after announcing the company had stopped paying principal and interest payments, officials with Ashford Hospitality Trust talked about how they’ve had some success in restructuring debt as a first step in moving forward.

So far, the company has reached forbearance agreements for six loans covering 24 hotels in its 116-property portfolio, and is working on reaching similar agreements for the rest of their properties to varying degrees of success, said President and CEO J. Robison Hays.

Speaking during his company’s second-quarter earnings call, Hays said there has been “agreement in terms on several other loan pools” that will be formalized in “the new few weeks” that in addition to providing six months of forbearance will let the company use reserve accounts to fund operations.

They’ve not had success working with all of their lenders, though.

“It is likely, however, that we will be unable to agree on forbearance terms with all of our loan pools, and investors should anticipate that we may be handing back some assets to lenders in the months to come,” he said.

He noted there are several drivers for what properties will be defaulted and why.

“One (reason is) if there’s negative equity in the loan pool that is unlikely to reach positive equity in the medium to long term,” he said. “Two: There is significant cash requirements of the property such as operating shortfalls, ongoing debt service or CapEx that we do not believe to be economical. Or three: The terms lenders or special servicers are proposing are onerous and make keeping the property unattractive.”

He described the type of property that is most likely to be handed over to lenders as having “issues prior to this pandemic or in markets or situations where they may not be able to cover debt service for years.”

Hays said his company’s current goal is to “retain as many of our properties as possible,” but they are also willing to let go of assets “that do not create long-term value for our shareholders.”

Asked by analysts if they’ve spoken to funds or other possible buyers for assets that are likely targets for a default, Hays said his company is exploring as many avenues as possible to raise capital right now, but property transactions are not the focus.

Asset sales “are not entirely off the table, but as I sit here now, it’s less of a priority,” he said. “We’ve got a variety of different capital-raising options we’re looking at and investigating, and that may be a part of it. It’s just, right now, we’ve got enough other things that we’re focusing on that I think are more substantive and can raise more substantive capital than asset sales.”

Hays noted that the company is having the most difficulty working with senior lenders on assets that have mezzanine debt sitting above them in the capital stack.

“What our experience has been thus far is that I don’t think these senior lenders, these bond holders and special services at CMBS are looking to aggressively foreclose,” he said. “But what they are doing is putting pressure on mezzanine lenders to do something. There’s lot of threats of foreclosing on them, of default interest, of other bad things.”

Exchange plan
On 20 July, Ashford announced an exchange offer for preferred shareholders to take either $9.75 in cash per share or 2.64 shares of common stock. That plan is still pending shareholder approval, which Baird VP and senior hotel research analyst Michael Bellisario described as unlikely to pass in a note to clients.

“If the exchange offer is effectuated (at least a two-thirds vote is required), the non-consenting preferred shareholders are forced to automatically convert at a rate of just 1.02 common shares,” he wrote. “Based on the currently proposed terms, we ascribe a low probability of the exchange offer being completed.”

Q2 performance
For the second quarter, Ashford recorded a $215.3 million net loss attributable to common stockholders with adjusted earnings before interest, taxes, depreciation and amortization for real estate in the red by $56.5 million.

The company saw an 88.3% year-over-year decline in revenue per available room, falling to $16.60 for the quarter. Ashford officials did see success in reopening properties, though, ending the quarter with just four hotels in its portfolio closed.

As of press time, Ashford stock was trading at $4.04 a share, down 86% year to date. The New York Stock Exchange Composite was down 9.92% for the same period.

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