Ashford looks to address debt as it hands back keys
Ashford looks to address debt as it hands back keys
29 OCTOBER 2020 8:31 AM

Ashford Hospitality Trust officials said the decision to hand back the keys at 13 properties in their portfolio was made for the long-term health of the real estate investment trust, and they were working on getting more concessions from lenders.

DALLAS—In a quarter that Ashford Hospitality Trust handed back 13 properties to lenders, analysts wanted to know the company’s plan going forward to dealing with its debt.

During the company’s third-quarter earnings call, President and CEO J. Robison Hays said he is hopeful his company can reach more forbearance agreements with lenders even as the initial sixth-month grace period for much of its debt is coming to a close. The company recently signed a forbearance agreement covering 34 properties and $1.2 billion in debt and a separate agreement for forbearance for the $97 million mortgage on the Hilton Boston Back Bay.

“We do anticipate those loans that we signed up forbearance arrangements to restart interest expense here this month or next month,” he said. “We have reached out to some of them to open up discussions to see if there's additional forbearance possibilities available, and that’s still kind of TBD on whether or not that's going to be possible or not.”

He said they’re actively looking for more flexibility on their other debt.

“We do have about 25% of the assets that we haven’t yet announced forbearance arrangements,” he said. “We are in discussions with all the various parties, and I do feel good about where most of them are. But some of those need time to be documented and finalized.”

Handing back assets
In a note to investors following the call, Baird analysts pointed out the 13 hotels handed back to lenders during the quarter represented roughly 9% of the company’s portfolio by room count. The moves collectively eliminated $404.8 million in debt, for a group of hotels that generated $30.9 million in earnings before interest, taxes, depreciation and amortization in 2019, or roughly 7.4% of earnings.

Hays told analysts there was not a common theme for all the hotels handed back other than their long-term prospects seemed to be dwindling.

“Each one had its own story, frankly,” he said.

He said some assets were underperformers prior to the pandemic. Others fell victim to more specific issues. Hays pointed to the Embassy Suites Manhattan as a hotel for which the company had high hopes for before, but it now has a difficult path to recovery given the challenges in New York.

“What has happened in New York and the outlook for New York over the next few years just made it uneconomic in order to keep it,” he said.

He said the properties handed back have been both full-service and limited-service hotels, although the majority fall into the latter category.

Hays acknowledged the debt on those hotels was more challenging than the rest of the portfolio.

“All of those loans were ones that had (mezzanine debt) on them,” he said. “And that can create a situation where you have a tension.”

Steps taken to address debt burden
In addition to forbearance and relinquishing properties, Ashford officials have moved to reduce their debt burden, including a plan to exchange preferred stock for common stock in order to alleviate the dividend obligation to preferred shareholders. That exchange program has now been extended twice, and originally included a provision to pay out as much as $30 million to shareholders, but the cash component has since been eliminated.

In terms of more long-term plans to boost liquidity and reduce debt, Hays told analysts “all options are on the table,” including selling off portions of the real estate investment trust’s portfolio.

“We obviously have spent some time looking at asset sales,” he said. “We are fortunate to be in a position where we think we have a decent amount of equity in the portfolio, even at the prices we have as we sit here today. We have assets that are desirable, and we could sell, but as you know, there's downside to that because those are the exact same assets that are also going to have equity value in them as we recover.”

He said his company is focused on finding “what are the best ways to raise capital, whether that’s publicly or privately.”

“There are efforts underway on that front to see what are sizable amounts of capital that we could raise to be able to give the company enough liquidity to make it through all this,” Hays said.

He also said restructuring the company is an option.

Q3 performance
While Ashford officials said they do take solace in the fact they’re nearing break-even levels at many of their properties, performance metrics do remain severely depressed compared to 2019.

According to Ashford’s third-quarter earnings release, the company reported a $109 million net loss, with revenue per available room falling 72.1% year over year to $36.63.

The company posted adjusted EBITDA for real estate of negative $22.7 million for the quarter, with $120.9 million in cash and cash equivalents along with $89.5 million in restricted reserves.

As of press time, Ashford stock was trading at $1.39 a share, down 95% year to date. The NYSE Composite was down 11.3% for the same period.

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