Ashford Hospitality Trust Reports Second Quarter Results

SUMMARY

-- Reports net income of $0.07 per share and FFO of $0.14 per share for the second quarter

-- Reaches over $480 million of completed and committed investments

-- RevPAR increases 6.0% for renovated hotels

-- Hotel operating profit up 10% versus predecessor

-- Secures debt financing to fund existing investment pipeline and lower cost of borrowing

HIGHLIGHTS

Investments

-- Direct Hotel Portfolio to increase to 32 assets and 4,441 rooms with recent acquisitions and announcements

-- Current hotel loan portfolio totals $72 million

Mortgage Debt Activity

-- Structures $210 million multi-property direct hotel financing at LIBOR plus 195bp

-- Restructuring $60 million credit facility to lower interest rate and extend maturity

-- Structures two mezzanine warehouse facilities with total borrowing capacity of $126 million

Reporting Basis

The financial results presented below and in the accompanying financial tables include the results of the Company for the second quarter and six months ended June 30, 2004, and the results of the Predecessor for the second quarter and six months ended June 30, 2003.

Financial Results

Total revenue for the second quarter ended June 30, 2004, increased 177.0% to $25,834,000 from $9,326,000 for the Predecessor's second quarter ended June 30, 2003. The Company reported net income of $1,694,000, or $0.07 per diluted share, compared with the Predecessor's net loss of $581,000. Funds from operations (FFO, as defined by NAREIT) was $4,254,000, or $0.14 per diluted share, compared with $497,000 for the Predecessor. EBITDA, which represents Earnings before Interest (except for interest income related to our mezzanine loans), Income Taxes, Depreciation, and Amortization, increased 214.0% to $6,284,000 compared with $2,001,000 for the Predecessor.

Total revenue for the six months ended June 30, 2004, increased 152.8% to $45,145,000 from $17,858,000 for the Predecessor's comparative period ended June 30, 2003. The Company reported net income of $2,249,000, or $0.09 per diluted share, compared with the Predecessor's net loss of $1,397,000. FFO was $6,689,000, or $0.22 per diluted share, compared with $796,000 for the Predecessor. EBITDA increased 150.1% to $9,493,000 compared with $3,795,000 for the Predecessor.

Operating Results - Direct Hotel Investments

As of June 30, 2004, the Company had acquired 12 hotels since its IPO, for a total portfolio of Direct Hotel Investments of 18. Currently four of the acquired hotels are undergoing significant renovation. The Company believes reporting its operating metrics on a consolidated and renovated basis more accurately reflects the operating improvement in its direct hotel portfolio. Details of each category are provided in the tables attached to this release.

All Hotels (18 properties)

RevPAR for the second quarter of 2004 increased 1% over the same period 2003 to $75.23 from $75.28 due to a 4.8% increase in ADR to $103.69 offset by a 284-basis point decrease in occupancy to 73.23%.

Renovated Hotels Only (14 properties)

RevPAR for the second quarter of 2004 increased 6.0% over the same period of 2003 to $81.57 from $76.92 due to a 5.9% increase in ADR to $106.02 and a 14-basis point increase in occupancy to 76.94%.

Monty Bennett, President and CEO, commented, "The operating performance of our hotels reflected the continued improvement in business travel in our markets, and the full implementation of new sales and marketing teams at several of the properties we have recently acquired. Our focus on improving margins also had a direct impact on results in the quarter as hotel operating profit on our 18 hotels increased 9.9% over the previous year."

Balance Sheet and Financing Strategy

As of June 30, 2004, the Company had approximately $111 million of variable-rate debt outstanding at a weighted average interest rate of 4.5% and approximately $22 million of fixed-rate debt outstanding at an average interest rate of 7.2%.

In August, the Company announced a $210 million term loan commitment that is to be secured by 25 hotel properties. The facility bears interest at 195 basis points over LIBOR with a maturity date of August 2006. The facility is interest only and has three one-year extension options. The Company will use the facility to repay or pay down four mortgage notes by approximately $67 million, pay down its $60 million credit facility to $3 million, and to partially fund the acquisition of 9 hotel properties. The balance of the net proceeds after costs will be used to fund future acquisitions. This facility will reduce the interest rate spread on the refinanced debt by approximately 130bp. The company intends to cap the base rate at 6% and to swap 1/2 of this loan to a fixed interest rate.

Subsequent to the end of the quarter, the Company closed a three-year, $45.6 million secured revolving credit facility for its mezzanine loan program at a rate of 625 basis points over LIBOR with a 2% LIBOR floor. The mezzanine loan facility is initially secured by four existing mezzanine loans the Company has either acquired or originated for a total of $56 million. To date, the Company has drawn approximately $37.5 million of this credit facility. The facility has a two year term with a one year extension option. The Company has also secured a commitment for an additional mezzanine warehouse facility in the aggregate of up to $80 million. The facility will bear interest at the greater of 7.5% or 550 basis points over LIBOR and will mature in August 2007 with two one-year extension options. The facility is expected to close in the third quarter 2004.

The Company is also restructuring its $60 million credit facility to extend the maturity from February 2007 to August 2007 with two additional one year extension options and to reduce the interest rate from 325bp over LIBOR to a range of 200bp to 230bp over LIBOR depending on the loan to value ratio. The Company expects the restructured facility to close in the third quarter.

The Company has a commitment to increase its $6.8 million mortgage on the SpringHill Suites BWI Airport, which matures in April 2011, to $12.0 million and reduce the overall interest rate to 341 basis points over 30-day commercial paper.

Mr. Bennett added, "With over $480 million of investments completed and committed to date and a significant number of additional opportunities in our pipeline, we elected to move forward with a debt financing strategy that provided us timely access to capital and positioned us to execute an accretive long-term investment plan. As these financings clearly demonstrate, we will be proactive and opportunistic in seeking the most attractive capital structure for Ashford."

Second Quarter Investment Activity

In April, the Company acquired The Sea Turtle Inn in Atlantic Beach, Florida, for approximately $23.1 million, which consisted of approximately $6.3 million in cash, approximately $15.7 million in assumed mortgage debt, and approximately $1.1 million worth of limited partnership units priced at $10.06 per unit, which equates to 106,675 units. Annualized revenue of the acquired hotel is approximately $9.1 million.

In May, the Company acquired the SpringHill Suites BWI Airport in Baltimore, Maryland, for approximately $15.9 million, which consisted of approximately $9.1 million in cash and approximately $6.8 million in assumed mortgage debt. Annualized revenue of the acquired hotel is approximately $3.9 million.

Subsequent Investment Activity

In July, the Company acquired the Sheraton Bucks County and an adjacent office building near Philadelphia, Pennsylvania, for approximately $16.7 million in cash. Annualized revenue of the acquired hotel is approximately $9.0 million. Also during July the Company acquired four hotels in suburban Atlanta for approximately $25.9 million in cash plus contingent consideration to be paid, if earned, no later than April 30, 2005. Annualized revenues of these four hotel properties are approximately $7.8 million.

In August 2004, the Company announced it will acquire nine hotel properties from Dunn Hospitality Group for approximately $62 million in cash and limited partnership units. Annualized revenues of these nine hotel properties are approximately $20.1 million. The acquisition is expected to close in late August 2004.

Investment Pipeline

In addition to the over $480 million of completed and committed investments, the Company is currently engaged in discussion or negotiations with several hotel owners and borrowers, most of which are evidenced through conditional contracts or letters of intent.

The consummation of any potential acquisition or financing transaction described above, including transactions under the conditional contracts or letters of intent which the Company has entered into, are subject to various significant conditions, including, but not limited to, the Company's approval of the underwriting of any property to be acquired or financed, completion of due diligence, negotiation of terms for specific properties and execution of definitive agreements, if under letters of intent. Accordingly, there can be no assurance that any such potential transactions will be completed, or, if completed, what the terms or timing of any such transactions will be.

Outlook for Second Half of 2004

Mr. Bennett concluded, "Consistent with our projections over a year ago, we believe the lodging industry is now in the early stages of recovery. Our outlook for the balance of the year and into 2005 remains optimistic. Supply remains constrained, particularly in our markets, and demand is now built on both the business and leisure traveler. Pricing for many assets remains well within our target range, and the lending environment for mezzanine loans is still attractive. The operating performance of our hotels and investment pace through the first half of the year allowed us to declare a dividend of $0.10 per share for the second quarter and $0.06 per share for the first quarter."



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