Overview of the Company’s Financial Performance

Ashford Hospitality Trust, Inc. (the “Company”) is a real estate investment trust (REIT) that focuses on owning upper upscale hotels in the United States. As of June 30, 2024, the Company’s portfolio consisted of 69 consolidated operating hotel properties with 17,087 total rooms, as well as four consolidated operating hotel properties with 405 total rooms owned through a 99.3% ownership interest in Stirling OP.

The Company’s net income attributable to common stockholders changed significantly, from a net loss of $85.5 million for the six months ended June 30, 2023 to net income of $121.8 million for the six months ended June 30, 2024. This $207.3 million improvement was driven by several key factors:

Revenue and Profit Trends

• Total revenue decreased $84.3 million, or 12.0%, to $620.4 million in the first half of 2024 compared to the same period in 2023. This was primarily due to decreases from hotel dispositions, the derecognition of the KEYS A and B properties that went into receivership, and lower performance at the Company’s comparable hotel properties.

• Hotel operating expenses decreased $47.5 million, or 10.2%, to $418.3 million, driven by lower costs from the hotel dispositions and KEYS A and B properties, partially offset by higher costs at the Company’s comparable hotel properties.

• Depreciation and amortization expense decreased $17.3 million, or 18.2%, due to lower depreciation from the hotel dispositions, KEYS A and B properties, and the Company’s comparable hotels.

• The Company recognized significant gains of $94.4 million and $145.6 million from the disposition of hotel assets and the derecognition of the KEYS A and B properties, respectively.

Strengths and Weaknesses

The Company’s key strengths include:

• Significant liquidity, with $121.8 million in cash and cash equivalents and $124.5 million in restricted cash as of June 30, 2024.
• Ability to generate cash flow from operations, asset sales, and capital market activities to fund upcoming requirements.
• Diversified portfolio of upper upscale hotels across the United States.
• Experienced management team and advisory services provided by Ashford Inc.

The Company’s key weaknesses include:

• Exposure to variable-rate debt, which makes the Company vulnerable to rising interest rates.
• Reliance on hotel management companies to operate its properties, which introduces operational risk.
• Concentration of hotels in certain markets, which exposes the Company to regional economic conditions.
• Ongoing legal proceedings related to employment matters at some of its hotels.

Outlook and Future Strategies

The Company’s current key priorities and financial strategies include:

• Preserving capital and maintaining significant liquidity.
• Disposing of non-core hotel properties.
• Acquiring hotel properties that are expected to be accretive to the portfolio.
• Pursuing capital market activities to enhance long-term shareholder value.
• Accessing cost-effective capital, including through the issuance of non-traded preferred securities.
• Implementing selective capital improvements and effective asset management strategies.
• Financing or refinancing hotels on competitive terms and modifying or extending property-level indebtedness.
• Utilizing hedges, derivatives, and other strategies to mitigate risks.
• Pursuing opportunistic value-add additions to the hotel portfolio.

The Company’s current investment strategy is to focus on owning predominantly full-service hotels in the upper upscale segment in domestic markets that have RevPAR generally less than twice the national average. The Company believes this strategy will allow it to take advantage of changing industry and capital market cycles.

Key Performance Indicators

The Company uses several key performance indicators to evaluate its operating performance, including:

Occupancy: The total number of hotel rooms sold divided by the total number of rooms available. Occupancy measures the utilization of the Company’s hotels.

ADR (Average Daily Rate): The average room price attained by a hotel, which provides useful information about pricing and the customer base.

RevPAR (Revenue per Available Room): A combination of occupancy and ADR, which is a commonly used measure to evaluate hotel operations.

For the six months ended June 30, 2024, the Company’s comparable hotel properties experienced a 1.5% increase in room rates, but a 102-basis point decrease in occupancy, resulting in a 0.8% increase in RevPAR compared to the same period in 2023.

Non-GAAP Financial Measures

The Company presents several non-GAAP financial measures to help investors evaluate its operating performance, including:

EBITDA: Net income (loss) before interest, taxes, depreciation, and amortization.

EBITDAre: EBITDA adjusted to exclude gains or losses on asset dispositions and derecognition, as well as the Company’s share of EBITDA from unconsolidated entities.

Adjusted EBITDAre: EBITDAre further adjusted to exclude certain non-cash and non-recurring items.

FFO (Funds from Operations): Net income (loss) attributable to common stockholders, excluding gains or losses on asset dispositions and derecognition, plus depreciation and amortization of real estate assets.

Adjusted FFO: FFO adjusted to exclude certain non-cash and non-recurring items.

These non-GAAP measures provide investors with additional information to evaluate the Company’s operating performance and liquidity.

Liquidity and Capital Resources

As of June 30, 2024, the Company held $121.8 million in cash and cash equivalents and $124.5 million in restricted cash. The Company’s current level of operations, cash flow from operations, capital market activities, asset sales, and existing cash balances are expected to be adequate to meet upcoming requirements for interest and principal payments, working capital, and capital expenditures for the next 12 months.

However, the Company’s ability to refinance upcoming maturities is uncertain, and its failure to obtain future financing on favorable terms could adversely impact its ability to execute its business strategy or result in lender foreclosure.

The Company’s debt includes both fixed-rate and variable-rate instruments. A 25-basis point change in interest rates on the Company’s variable-rate debt would impact its results of operations by approximately $6.3 million per year. The Company uses interest rate caps to mitigate this interest rate risk.

Certain of the Company’s loan agreements contain cash trap provisions that may be triggered if the performance of its hotels declines below a threshold. This could limit the Company’s flexibility and adversely affect its financial condition or REIT qualification.

The Company is committed to an investment strategy focused on hotel-related investments, which it expects to fund through a combination of cash on hand, future borrowings, proceeds from asset sales, and capital market activities. However, there is no guarantee the Company will successfully make additional investments.

Seasonality and Critical Accounting Policies

The Company’s hotel properties typically experience seasonal fluctuations in occupancy and revenue, with higher occupancy rates during the summer months and lower rates during the winter months. This seasonality can cause fluctuations in the Company’s quarterly lease revenue.

The Company’s critical accounting policies include those related to estimating the useful lives of real estate assets, evaluating the recoverability of long-lived assets, and accounting for derivative instruments and hedging activities. These policies require significant judgments and estimates by management.

Conclusion

Ashford Hospitality Trust has navigated a challenging operating environment in the first half of 2024, with decreases in revenue and profitability at its comparable hotel properties. However, the Company has been able to generate significant gains from asset sales and the derecognition of the KEYS A and B properties, resulting in a substantial improvement in net income.

The Company’s key strengths include its strong liquidity position and diversified portfolio of upper upscale hotels. Its weaknesses include exposure to variable-rate debt, reliance on hotel management companies, and ongoing legal proceedings. Looking ahead, the Company’s focus on preserving capital, disposing of non-core assets, and pursuing accretive acquisitions and capital market activities should position it to take advantage of changing industry and market conditions.

Overall, Ashford Hospitality Trust appears to be taking the necessary steps to manage its business through the current environment and position itself for future growth and success.