Ashford Hospitality Trust Has a Long Road Back to Success
Ashford Hospitality Trust (NYSE:AHT) is a real estate investment trust (REIT) that owns full-service upscale and upper-upscale hotel properties in the U.S. AHT stock opened on August 3 at $15.35.
All of its hotels are located across the U.S. and operate under brands including Marriott, Hilton, Hyatt, Crowne Plaza, Sheraton and others. Ashford also provides real estate investment services, such as mezzanine financing, first mortgage financing and sales-leaseback transactions. It derives revenues from room charges, food and beverages and other miscellaneous revenue. Room revenue accounts for the majority of total sales.
As of the end of 2020, the company’s portfolio consisted of 103 consolidated hotel properties, including 101 directly owned and two owned through a majority-owned investment in a consolidated entity. The total amount of rooms owned is approximately 22,621.
AHT was one of the worst victims of the Covid-19 pandemic as business and leisure travel ground to a halt. As a large fixed-cost operator, hotel owners do very well in good times and poorly in bad times, as hotels properties still have to be maintained even with very low occupancy.
Revenues declined 66% in 2020 from 2019 and operating losses totaled $465 million. Yet interest expense still has to be paid on its heavy debt load so net loss for 2020 came in at $633 million (before non-controlling interest). Cash burn for the year was approximately $230 million.
Results like that had the obvious effect on AHT stock, which declined approximately 98% from its highs in 2018. As it entered penny-stock status for quite some time, AHT engineered a reverse stock split to bring its share price above $5 in order to attract more institutional investors, reducing its total shares from 265 million to 26.5 million.
High Debt Levels
AHT remains highly levered with an excessively high debt-to-EBITDA ratio. EBITDA has yet to fully recover to levels that can support the company’s $3.9 billion debt load.
The company has refinanced most of its debt and near-term maturities have been reduced to de minimis levels over the next 3 years. The next big refinancing cliff comes in 2025 when $2.6 billion becomes due. Debt reduction over the past 12 months has totaled $533 million.
During Q2 2021, and subsequent to the end of the quarter, the Company issued approximately 8.9 million common shares raising approximately $356 million in gross proceeds.
Conclusion on AHT Stock
Decisions on what to do with AHT stock are fairly straightforward. Although debt remains a concern for equity holders, if the post-pandemic travel and leisure recovery continues unabated for the next 2-3 years, the stock will likely continue its trajectory upward at a steady pace. But if lockdowns return and panic returns to the travel markets, AHT equity may not be worth much as debt consume all of the companies operating cash flow.
So make your best Covid-19 recovery bets and run with it.
On the date of publication, Tom Kerr did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tom Kerr has worked in the financial services industry for over 25 years. Currently he is a Senior Portfolio Manager at Rocky Peak Capital Management. Prior to that he was Chief Investment Officer and Director of Research of SGL Investment Advisors, and has served in a number of positions at other investment related organizations. Mr. Kerr has also been a contributing writer to TheStreet.com, RagingBull.com and InvestorPlace.com. He’s a CFA charterholder and obtained a B.B.A in Finance from Texas Tech University.
