Ashford Hospitality Trust Reports Second Quarter Results
Ashford Hospitality Trust, Inc. (NYSE:AHT) today reported the following results and performance measures for the second quarter ended June 30, 2006. The proforma performance measurements for Occupancy, ADR, RevPAR, and Hotel Operating Profit include the Company's 72 core hotels. Unless otherwise stated, all reported results compare the second quarter ended June 30, 2006, to the second quarter ended June 30, 2005. The reconciliation of non-GAAP financial measures is included in the financial tables accompanying this press release.
FINANCIAL HIGHLIGHTS
• Total revenue increased 56.4% to $127.1 million from $81.3 million
• Net income available to common shareholders increased 87.1% to $8.3 million from $4.4 million
• Net income available to common shareholders per share increased 36.4% to $0.15 from $0.11
• Adjusted funds from operations (AFFO) increased 84.7% to $25.0 million from $13.6 million
• AFFO per diluted share increased 36.0% to $0.34 from $0.25
• Cash available for distribution (CAD) increased 79.9% to $22.7 million from $12.6 million
• CAD per share increased 34.8% to $0.31 from $0.23
• Declared quarterly common dividend of $0.20 per share
• Dividend coverage reaches 153.1%
STRONG INTERNAL GROWTH
• Proforma revenue per available room (RevPAR) increased 12.1% for hotels not under renovation on a 7.45% increase in ADR to $114.87 and a 323- basis point improvement in occupancy
• Proforma RevPAR increased 11.5% for consolidated hotels on a 7.7% increase in ADR to $117.02 and 266-basis point improvement in occupancy
• Proforma same-property hotel operating profit for hotels not under renovation improved 13.4%
• Adjusted Proforma same-property hotel operating profit margins for hotels not under renovation improved 151 basis points
CAPITAL RECYCLING AND ASSET ALLOCATION
• Capex invested in second quarter totals $9.4 million
• Additional Capex estimated for 2006 totals approximately $30 to $40 million
EXTERNAL GROWTH
• Total enterprise value improved to $1.7 billion at June 30, 2006
• Acquired the Pan Pacific Hotel in San Francisco for $95.0 million in cash and planned capital improvements of $10.0 million
• Mezzanine and first mortgage loan portfolio totaled $112.6 million at June 30, 2006, with an average annual unleveraged yield of 13.8%
• Announced Marriott Crystal City Gateway acquisition for $107.2 million and planned capital improvements of $13.0 million
PORTFOLIO REVPAR REFLECTS BENEFIT OF VALUE-ADDED RENOVATIONS
As of June 30, 2006, the Company had a portfolio of direct hotel investments consisting of 72 properties, all of which were classified in continuing operations. During the second quarter, 67 of the hotels included in continuing operations were not under renovation. The Company believes reporting its operating metrics for continuing operations on a proforma consolidated and proforma not-under-renovation basis is a measure that reflects a meaningful and more focused comparison of the operating results in its direct hotel portfolio. The Company's reporting by region and brand includes the results of all 72 hotels. Details of each category are provided in the tables attached to this release.
• RevPAR growth by region was led by: West South Central (6 hotels) with a 35.1% increase; New England (4) with 16.4%; Middle Atlantic (4) with 16.0%; South Atlantic (28) with 11.3%; West North Central (2) with 10.3%; East North Central (11) with 9.0%; Mountain (5) with 8.4%; East South Central (4) with 7.4%; and Pacific (8) with 2.8%.
• RevPAR growth by brand was led by: Starwood (2 hotels) with a 24.7% increase; Hilton (22) with 17.0%; InterContinental (2) with 12.2%; Marriott (36) with 11.2%; Radisson (6) with 7.8 %; Hyatt (2) with 2.7%; and independents (2) with a 0.6%.
Monty J. Bennett, President and CEO, commented, "We continued to reap the benefits of our significant ongoing renovation program and the strong demand in our core markets during the second quarter. This is our sixth consecutive quarter of double-digit RevPAR gains, and we see no indications of this momentum losing steam. We made great strides in improving our operating margins during the quarter despite the continued cost pressures in energy, insurance and property taxes. Although we consider our margins to be well above our peers, we expect further margin growth during the second half of the year as our property managers focus on flowthrough and we anniversary the higher management fees."
FINANCING ACTIVITY LOWERS BORROWING COSTS
At June 30, 2006, the Company's net debt, defined as total debt less cash, to total enterprise value, defined as net debt plus the market value of all common shares, preferred shares and operating partnership units outstanding, was 42.0% based upon the Company's closing stock price of $12.62. As of June 30, 2006, the Company's $802.5 million debt portfolio consisted of approximately 87% of fixed-rate debt and approximately 13% of variable-rate debt, with a total weighted average interest rate of 5.73%. The Company's weighted average fixed rate debt maturity is 9.3 years.
On April 3, 2006, and July 26, 2006, the Company modified its $45.0 million mortgage note payable secured by the Hyatt Dulles, due October 10, 2007, at an interest rate of LIBOR plus 2%, to a $47.5 million revolving credit facility, with a revolving period through October 11, 2007, maturing on October 10, 2008. Interest rates during the revolving period range from LIBOR plus 1% to LIBOR plus 1.5% depending on the outstanding balance. After the revolving period expires, the interest rate resumes its original rate of LIBOR plus 2%. Consistent with the original mortgage, the modified credit facility requires monthly interest-only payments and has three one-year extension options.
On July 25, 2006, in an underwritten follow-on public offering, the Company issued 14,950,000 shares of its common stock at $11.40 per share, which generated net proceeds of approximately $162.7 million. The net proceeds were used to pay-down the outstanding balance of $129 million on the Company's credit facilities.
SECOND QUARTER INVESTMENT ACTIVITY
On April 1, 2006, Company management made a strategic decision to discontinue further sales efforts related to the seven remaining hotels, a portfolio of Towne Place Suites, classified as assets held for sale and included in income from discontinued operations as of and for the three months ended March 31, 2006. Year to date the RevPAR for these hotels has increased over 14% while EBITDA has increased over 28%. Consequently, the Company is classifying such assets and operating results as continuing operations. Such assets are reported at the lower of carrying value (net of depreciation not recognized while said assets were held for sale) or fair value. In addition, all income statement results previously reported as discontinued related to these hotels have been reclassified to continuing operations for all comparative future periods.
On April 19, 2006, the Company acquired the Pan Pacific San Francisco Hotel in San Francisco, California, for approximately $95.0 million in cash. The Company used proceeds from its credit facility to fund this acquisition. The Company immediately re-branded this hotel to a JW Marriott and expects to invest $10 million to renovate and upgrade the property. On a forward twelve- month basis, the purchase price equates to a 12.2x EBITDA multiple, an EBITDA yield of 8.2% and a net operating income capitalization rate of 6.5% with projected annual revenues of $32 million. The purchase price equates to a trailing twelve-month net operating income capitalization rate of 3.9% and a 5.0% EBITDA yield. The property generated revenues of $25.5 million for the calendar year 2005.
On June 9, 2006, the Company closed a $26.3 million junior mezzanine loan on a portfolio of 107 select service hotels recently purchased by Goldman Sachs' Whitehall Funds, referred to as the Tharaldson portfolio. The loan is a pari passu participation in a $52.6 million junior mezzanine loan and bears interest at a rate of LIBOR plus 500 basis points for a term of two years, with three one-year extension options.
SUBSEQUENT INVESTMENT ACTIVITY
On July 13, 2006, the Company acquired the 697-room Marriott Crystal City Gateway in Arlington, Virginia for total consideration of $107.2 million. The consideration includes the assumption of approximately $53.3 million of existing debt, at a fixed interest rate of 7.24%, maturing in 2017, reimbursement of approximately $7.2 million of capital expenditure costs by the seller and the issuance of approximately $42.7 million of limited partnership units in our operating partnership. The limited partnership units issued were priced at $11.20 per unit and are considered Class B units. They have a fixed dividend rate of 6.82% in years one through three and 7.2% thereafter, and have priority in payment of cash dividends over holders of common units and common stock. The units do not have a priority in liquidation and after ten years either party may convert the units to common units. In addition, the Company paid approximately $2.5 million in cash in lieu of units and approximately $1.5 million in other net closing costs and adjustments.
INVESTMENT OUTLOOK
Mr. Bennett concluded, "The outlook for the lodging industry and for Ashford remains very optimistic. We see little chance of a slowdown in RevPAR growth and greater opportunities to translate the continued improvement at our properties into additional margin growth. On the acquisition front, we are currently reviewing a multitude of investment opportunities. With the additional investment capacity we now enjoy from our recent equity offering, we expect to put our capital to work in a disciplined and deliberate fashion to source accretive transactions over the next several quarters."
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