Ashford Hospitality Trust wants to pay off debt by year end

DALLAS — Dallas-based REIT Ashford Hospitality Trust, which has been selling assets and handing the hotel keys back to lenders in the past year as part of a plan to pay off its strategic financing, said it has a “viable” plan to pay off the rest of its financing by the end of this year.

Stephen Zsigray

“We continue to successfully execute against our operating strategy, and I’m very pleased with the progress we have made in paying off our strategic financing,” said new President and CEO Stephen Zsigray, who took over for Rob Hays on July 1, in a news release for the REIT’s second-quarter earnings. “The outstanding loan balance is down almost 53% from the original balance, and between the excess proceeds from additional planned asset sales, excess proceeds from planned property refinancings, and proceeds from our non-traded preferred capital raise, we believe we have a viable path to pay off our strategic financing this year.”

Through the second quarter, AHT had total loans of $2.7 billion, with a blended average interest rate of 8.1%, taking into account the company’s in-the-money interest rate caps. The company said that based on the current level of SOFR and corresponding interest rate caps, approximately all of its debt is fixed.

R.W. Baird analyst Michael Bellisario said a sluggish fundamental backdrop is slowing Ashford’s deleveraging process, which Baird thought could be completed even earlier. “Our main focus is the company’s over-levered balance sheet; more asset sales need to be completed before Oaktree can be fully repaid (now more likely to occur in 4Q24 than 3Q24), free cash flow can inflect positively, and the company can be in a position to grow again,” he said.

Ashford Trust’s Oaktree loan has a $98 million remaining balance. By repaying the loan’s balance to under $100 million, the REIT will avoid a 3.5% point interest rate increase on September 30. If the loan is fully paid by the end of September, the exit fee will be reduced to $25 million from $30 million.

Bellisario said the fact that no additional dispositions were announced is the reason for the delay. “We had been thinking that the company would be in a position to fully repay the Oaktree loan in 3Q24,” he said. “Now, with no additional dispositions announced (or assets held for sale), 4Q24 is looking more likely for full repayment (pending more asset sales being completed between now and then). Cash on hand (nearly $122 million of unrestricted cash at quarter-end) and additional non-traded preferred equity are not enough to fully repay the Oaktree loan in 3Q24, in our opinion.”

As part of those plans to pay off its financing, the company has disclosed a number of high-profile sales in the second quarter, including a $171 million sale of the 390-key Hilton Boston Back Buy to New York City-based Certares and its $87 million sale of the 193-key One Ocean Resort to Denver-based Sage Hospitality.

Ashford Trust also previously disclosed a refinancing of the Renaissance Hotel in Nashville and sales of a Hampton Inn in Lawrenceville, Georgia ($8.1 million), a Fairfield Inn & Suites and SpringHill Suites Atlanta Kennesaw ($17.5 million) and a Courtyard by Marriott Hartford Manchester in Manchester, Connecticut ($8 million). The REIT’s six sales have had an aggregate gross proceeds of $291.6 million.

Other earnings highlights

Ashford said its comparable RevPAR increased 1.6% during the second quarter, driven by a 2.6% increase in comparable ADR and a 0.9% decrease in comparable occupancy. 

“As we look to the second half of 2024, we believe our high-quality, geographically diverse portfolio remains well positioned to outperform,” Zsigray said in the release.

• Adjusted EBITDA was $78.7 million for Q2, while its comparable hotel EBITDA was $92.7 million.
• The REIT ended Q2 with cash and cash equivalents of $121.8 million and restricted cash of $124.5 million. The vast majority of the restricted cash is comprised of lender and manager-held reserves. There was also $22.2 million in due from third-party hotel managers.
• CapEx invested in Q2 was $29.4 million.
• The REIT did not pay a dividend on its common stock for the quarter.