Strong RevPAR Growth and Seasonality Impact Results
Ashford Hospitality Trust, Inc. (NYSE:AHT) today reported the following results and performance measures for the third quarter ended September 30, 2007. The proforma performance measurements for Occupancy, Average Daily Rate (ADR), revenue per available room (RevPAR), and Hotel Operating Profit (or Hotel EBITDA) include the Company's 114 hotels owned as of September 30, 2007, which excludes 5 hotel assets held for sale as of that date. Unless otherwise stated, all reported results compare the third quarter ended September 30, 2007 with the third quarter ended September 30, 2006. The reconciliation of non-GAAP financial measures is included in the financial tables accompanying this press release.
FINANCIAL HIGHLIGHTS
• Total revenue increased 195% to $336.8 million from $114.3 million
• Net loss to common shareholders was $6.6 million, or $0.05 per diluted share
• Adjusted funds from operations (AFFO), excluding gains on sales, increased 56.1% to $34.9 million, or $0.25 per diluted share
• Seasonality for the portfolio has changed from 24.7% of the Hotel EBITDA being produced in the third quarter last year to 23.0% of the Hotel EBITDA being produced in the third quarter this year because of the acquisition of the CNL portfolio. This change created a $0.04 per share variance for the quarter
• Year to date AFFO per diluted share increased 15.1% to $0.99 from $0.86
• Cash available for distribution (CAD) increased 31% to $25.1 million, or $0.18 per diluted share
• Year to date CAD per diluted share increased to $0.78 from $0.76
• Declared quarterly common dividend of $0.21 per diluted share
• CAD dividend coverage was 124% year to date
STRONG INTERNAL GROWTH
• Proforma RevPAR increased 8.3% for hotels not under renovation on a 5.1% increase in ADR to $134.89 and a 233-basis point improvement in occupancy
• Proforma RevPAR increased 7.4% for all hotels on a 5.4% increase in ADR to $135.27 and a 144-basis point improvement in occupancy
• Proforma same-property Hotel Operating Profit for hotels not under renovation improved 11.7%
• Proforma same-property Hotel Operating Profit margin for hotels not under renovation improved 120 basis points
CAPITAL RECYCLING AND ASSET ALLOCATION
• Capex invested in the third quarter totaled $32 million
• Capex for 2007 and 2008 estimated at $280 million for which the Company has adequate resources to fund through continued asset sales, FF&E reserves, and cash flow above our dividend
• Targeted ROI projects for 2008 should approximate $50 million
• Two hotels sold in the third quarter for $10 million and one subsequent to the end of the quarter for $25 million
PORTFOLIO REVPAR GROWTH
As of September 30, 2007, the Company had a portfolio of direct hotel investments consisting of 114 properties classified in continuing operations. During the third quarter, 106 of the hotels included in continuing operations were not under renovation. The Company believes reporting its operating metrics for continuing operations on a proforma total basis (all 114 hotels) and proforma not-under-renovation basis (106 hotels) is a measure that reflects a meaningful and focused comparison of the operating results in its direct hotel portfolio. The Company's reporting by region and brand includes the results of all 114 hotels. Details of each category are provided in the tables attached to this release.
• RevPAR growth by region was led by: West South Central (12 hotels) with a 10.7% increase, Middle Atlantic (10) with 9.3%, South Atlantic (42) with 9.2%, New England (4) with 8.9%, Mountain (8) with 6.5%, Pacific (22) with 6.3%, East South Central (2) with 5.9%, West North Central (3) with 2.4%, East North Central (10) with 1.8%, and Canada (1) with 0.8%
• RevPAR growth by brand was led by: InterContinental (2 hotels) with 13.7%, Hilton (37 hotels) with 9.1%, Marriott (59) with 7.9%, Hyatt (5) with 7.5%, Starwood (7) with 0.1%, Radisson (2) with a 1.6% decrease, and independents (2) with a 19.7% decrease
HOTEL EBITDA MARGINS AND QUARTERLY SEASONALITY TRENDS
For the 106 hotels as of September 30, 2007 that were not under renovation, Proforma Hotel EBITDA (adjusted as if all hotels were included throughout both periods) increased 11.7% to $84.6 million. Proforma Hotel EBITDA margin (expressed as a percentage of Total Hotel Revenue) improved 120 basis points to 26.7%. For all 114 hotels included in continuing operations as of September 30, 2007, Proforma Hotel EBITDA increased 8.8% to $87.9 million and Hotel EBITDA margin increased 74 basis points to 26.0%.
Ashford believes year-over-year Hotel EBITDA and Hotel EBITDA margin comparisons are more meaningful to gauge the performance of the Company's hotels than sequential quarter-over-quarter comparisons. Given the substantial seasonality in the Company's portfolio and its active capital recycling, to help investors better understand this seasonality, the Company provides quarterly detail on its Proforma Hotel EBITDA and Proforma Hotel EBITDA margin for the current and certain prior-year periods based upon the number of core hotels in the portfolio as of the end of the current period. As Ashford's portfolio mix changes from time to time so will the seasonality for Proforma Hotel EBITDA and Proforma Hotel EBITDA margin.
Prior to the acquisition of the 51 CNL assets in April 2007, the Company's third quarter contributed approximately 24.7% of the annual Hotel EBITDA. For the current portfolio of 114 hotels the Company's third quarter now contributes approximately 23.0% of the annual Hotel EBITDA. This 170 basis point change is the equivalent of approximately $0.04 per diluted share. The details of the quarterly calculations for the last four quarters for the current portfolio are provided in the tables attached to this release.
Monty J. Bennett, President and CEO, commented, "The internal growth from our portfolio has been a consistent theme for us all year, which was evident once again in the third quarter. With RevPAR growth above the industry average and sustained improvement in operating margins, we are seeing a direct benefit from the previous investments we have made to improve our assets as well as our efforts to concentrate the portfolio in high growth markets with the strongest brands. We intend to place an even greater emphasis on accelerating the returns from some of our recently acquired assets through ROI projects. While we have been pleased with the continued improvement in internal growth, we believe allocating additional capital to several assets in select markets has the potential for even greater returns."
FINANCING ACTIVITY
On July 18, 2007, the Company priced 8,000,000 shares of 8.45% Series D Cumulative Preferred Stock at $25.00 per share. The annual distribution for the preferred stock is $2.1125 per share, payable quarterly. Ashford used the net proceeds of the offering to redeem the Company's Series C Preferred Stock.
At September 30, 2007, 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 60.5% based upon the Company's closing stock price of $10.05. As of September 30, 2007, the Company's $2.9 billion debt balance consisted of 78% of fixed-rate debt, with a total weighted average interest rate of 6.05%. The Company's weighted average debt maturity including extension options is 7.2 years.
THIRD QUARTER INVESTMENT ACTIVITY
On July 2, 2007, the Company sold the Hampton Inn Horse Cave in Horse Cave, Kentucky, for approximately $3.5 million. On September 27, 2007, the Company sold the Doubletree Guest Suites - Dayton / Miamisburg in Dayton, Ohio for approximately $6.5 million. In connection with these two sales, the Company recognized a gain of $0.5 million.
SUBSEQUENT INVESTMENT ACTIVITY
On October 2, 2007, the Company sold the Hilton Birmingham Perimeter Park in Birmingham, Alabama for approximately $25 million.
In November, the Company expects to close the sale of the Residence Inn Atlanta in Atlanta, Georgia and the Residence Inn Torrance in Torrance, California for a total of approximately $61.5 million as well as the sale of the Residence Inn Kansas City in Kansas City, Missouri for approximately $7.0 million.
The Company has placed the Marriott BWI Airport in Baltimore, Maryland under contract for sale for approximately $61.5 million. The sale, subject to customary closing conditions, is expected to close by the end of November.
INVESTMENT OUTLOOK
Mr. Bennett concluded, "While hotel fundamentals remain strong by historical measures, increased volatility exists in the financial markets. Our hotel portfolio and investment strategy are structured to benefit from these changing conditions. The diversified mix of assets offers the best of both worlds, namely value-add internal growth from our upper-upscale hotels and operating resiliency from our high quality select-service upscale and mid-scale without F&B properties. Additionally our capital allocation strategy is taking advantage of changing trends. We are recycling capital through asset sales and reducing debt, or redeploying the proceeds in high ROI internal growth investments as well as our hotel lending program. The company is currently targeting approximately $50 million of value added ROI capital projects to be completed during 2008. With the widening of lending spreads, we see a growing, though modest, opportunity in our mezzanine lending investment strategy. We remain committed to seeking the best risk adjusted returns for our shareholders."
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