Executive Overview

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 September 30, 2024, the Company’s portfolio consisted of 68 consolidated operating hotel properties with 17,051 total rooms.

The Company’s key priorities and financial strategies include preserving capital, disposing of non-core hotel properties, acquiring accretive hotel properties, accessing cost-effective capital, opportunistically exchanging preferred stock into common stock, implementing capital improvements, effective asset management, financing or refinancing hotels, modifying or extending property-level debt, and making other strategic investments or divestitures.

The Company is advised by Ashford LLC, a subsidiary of Ashford Inc., through an advisory agreement. Remington Hospitality, a subsidiary of Ashford Inc., manages 50 of the Company’s 69 hotel properties, while third-party management companies manage the remaining properties.

Recent Developments

The Company continues to work with the lender of the KEYS A and KEYS B loan pools on a consensual transfer of ownership of those hotels to the lender, which is expected to occur in the second half of 2024. In March 2024, the hotel properties securing these loan pools were transferred to a court-appointed receiver.

In June 2024, the Company was informed by its lender that the lender intended to exercise remedies for the maturity default on the Ashton Hotel in Fort Worth, Texas. The Company and the lender agreed to a deed-in-lieu of foreclosure, which was completed on July 16, 2024.

The Company has also taken several actions to improve its financial position, including:

• Refinancing the mortgage loan secured by the Marriott Crystal Gateway Hotel in Arlington, Virginia, which resulted in approximately $31 million of excess proceeds used to pay down the Oaktree term loan.
• Entering into a 90-day forbearance agreement for its $409.8 million mortgage loan secured by 17 hotel properties, with the expectation of finalizing a multi-year extension during the forbearance period.
• Amending the Oaktree Credit Agreement to reduce the exit fee from 15% to 12.5% if the outstanding loan balance is reduced to $50 million or less by November 15, 2024.

Results of Operations

The Company’s net loss attributable to common stockholders decreased from $63.6 million in the third quarter of 2023 to $57.9 million in the third quarter of 2024. This improvement was primarily due to:

• A $37.8 million decrease in hotel operating expenses, driven by the Company’s hotel dispositions and the derecognition of the KEYS A and B properties.
• An $8.2 million decrease in depreciation and amortization expense.
• A $20.8 million decrease in interest expense and amortization of discounts and loan costs, primarily due to a lower principal balance and fully amortized deferred loan costs on the Oaktree loan.
• An $11.1 million gain on the derecognition of the KEYS A and B properties, which represented the accrued interest expense that the Company expects to be released from upon final resolution with the lender.

These improvements were partially offset by a $6.4 million decrease in the gain on consolidation and disposition of assets and hotel properties, as the prior-year period included a $6.4 million gain on the sale of the WorldQuest Resort.

For the nine months ended September 30, 2024, the Company reported net income attributable to common stockholders of $63.9 million, compared to a net loss of $149.1 million in the prior-year period. The significant improvement was primarily due to:

• A $156.7 million gain on the derecognition of the KEYS A and B properties.
• A $94.4 million gain on the consolidation and disposition of assets and hotel properties, primarily related to the sale of several hotel properties.
• An $85.3 million decrease in hotel operating expenses.
• A $33.9 million decrease in interest expense and amortization of discounts and loan costs.

These improvements were partially offset by a $150.7 million decrease in total revenue, primarily due to the Company’s hotel dispositions and the derecognition of the KEYS A and B properties.

Liquidity and Capital Resources

As of September 30, 2024, the Company held $119.7 million in cash and cash equivalents and $114.3 million in restricted cash. The Company’s net debt to gross assets was 66.3%.

The Company’s 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 failure to do so could adversely impact the Company’s ability to execute its business strategy.

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. At September 30, 2024, 12 of the Company’s hotels were in cash traps, which could limit the Company’s flexibility and adversely affect its financial condition or REIT qualification.

The Company is committed to an investment strategy of pursuing hotel-related investments as suitable situations arise, with funds expected to be derived from cash on hand, future borrowings, proceeds from asset sales, or additional securities offerings. However, the Company has no formal commitment or understanding to invest in additional assets, and there can be no assurance that it will successfully make additional investments.

Seasonality

The Company’s hotel properties’ operations are seasonal, with certain properties maintaining higher occupancy rates during the summer months and others during the winter months. This seasonality pattern can cause fluctuations in the Company’s quarterly lease revenue under its percentage leases.

Critical Accounting Policies and Estimates

The preparation of the Company’s consolidated financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. The Company’s critical accounting policies and estimates include those related to the valuation of its hotel properties, the recognition of revenue, and the assessment of impairment.

Non-GAAP Financial Measures

The Company presents several non-GAAP financial measures, including EBITDA, EBITDAre, Adjusted EBITDAre, FFO, and Adjusted FFO, to help investors evaluate its operating performance. These measures exclude the effect of the Company’s asset base (primarily depreciation and amortization) and other non-cash items, providing a better indication of the Company’s ability to incur and service debt, satisfy general operating expenses, and fund capital expenditures and other cash needs.

Analysis and Outlook

The Company’s financial performance in the third quarter and first nine months of 2024 showed improvement compared to the prior-year periods, primarily due to cost-cutting measures, asset sales, and the derecognition of the KEYS A and B properties. The Company’s efforts to refinance or extend its upcoming debt maturities will be crucial in the coming year, as its ability to do so could significantly impact its financial flexibility and execution of its business strategy.

The Company’s hotel portfolio remains concentrated in the upper upscale segment, which could be vulnerable to economic downturns or changes in consumer preferences. However, the Company’s focus on cost control, strategic asset management, and selective acquisitions and dispositions may help it navigate industry challenges and create value for shareholders.

Looking ahead, the Company’s success will depend on its ability to maintain a strong liquidity position, effectively manage its debt obligations, and identify and capitalize on new investment opportunities that align with its core strategy. Investors should closely monitor the Company’s progress in these areas, as well as any updates regarding the resolution of the KEYS A and B loan pools and the Company’s efforts to refinance or extend its upcoming debt maturities.