Ashford Hospitality Trust Third Quarter Adjusted EBITDA Up 14.4%

Ashford Hospitality Trust, Inc. (NYSE: AHT) reported the following results and performance measures for the third quarter ended September 30, 2012.  The performance measurements for Occupancy, Average Daily Rate (ADR), Revenue Per Available Room (RevPAR), and Hotel Operating Profit (or Hotel EBITDA) are proforma.  Unless otherwise stated, all reported results compare the third quarter ended September 30, 2012, with the third quarter ended September 30, 2011 (see discussion below). 

FINANCIAL HIGHLIGHTS

• Adjusted EBITDA increased $10.1 million or 14.4% during the quarter
• RevPAR increased 6.6% for all Legacy hotels in continuing operations, driven by a 5.2% increase in ADR and a 102 basis point increase in occupancy
• RevPAR for all hotels in continuing operations, including the Highland Hospitality portfolio, increased 5.9% during the quarter
• RevPAR increased 3.4% for all hotels in the Highland Hospitality portfolio, driven by a 4.7% increase in ADR
• RevPAR for hotels in the Washington D.C. market area increased 6.1% during the quarter
• Hotel operating profit for all hotels, including the Highland Hospitality portfolio, increased by $10.3 million, or 13.0%
• Hotel operating profit margin increased 249 basis points for all Legacy hotels not under renovation in continuing operations
• Hotel operating profit margin increased 230 basis points for all Highland Hospitality hotels not under renovation in continuing operations
• Net loss attributable to common shareholders was $23.6 million, or $0.35 per diluted share, compared with net loss attributable to common shareholders of $28.6 million, or $0.43 per diluted share, in the prior-year quarter
• Adjusted funds from operations (AFFO) was $0.31 per diluted share for the quarter as compared with $0.38 from the prior-year quarter; Interest Rate Derivative Income decreased by $10.2 million as the benefits from our Flooridor terminated in 2011, impacting AFFO per share by $0.12
• In September 2012, the Company added a new participant to its senior credit facility, upsizing this facility to $165 million from $145 million
• During the quarter a receiver was appointed to take over operations of the Hilton El Conquistador Resort in Tucson, AZ; the receiver now has full control of the hotel operations and cash flows; hotel cash flows since the appointment of the receiver have been excluded for purposes of calculating Adjusted EBITDA and AFFO
• At the end of the third quarter 2012, Ashford had cash and cash equivalents of $146 million

CAPITAL ALLOCATION  

• Capex invested in the quarter for the Legacy portfolio was $18.5 million bringing the year-to-date total to $62.6 million
• Ashford's pro rata share of capex invested in the quarter for the Highland Hospitality portfolio was $6.7 million bringing the year-to-date total to $19.9 million

CAPITAL STRUCTURE

At September 30, 2012, Ashford had total assets of $3.5 billion in continuing operations and $4.5 billion overall including the Highland Hospitality portfolio which is not consolidated.  As of September 30, 2012, the Company had $2.3 billion of mortgage debt in continuing operations and $3.1 billion overall including Highland Hospitality. The Company's total combined debt had a blended average interest rate of 4.9%, with a weighted average debt maturity of 3.6 years.

During the third quarter of 2012, Ashford added a new participant to its senior credit facility, upsizing the revolving commitments under this facility to $165 million from $145 million.  The terms of the credit facility remain unchanged including the option, subject to lender approval, to further expand the revolving commitments under the facility to an aggregate size of $225 million.  As part of the expansion, Bank of America Merrill Lynch has been added to the syndicate of banks supporting the facility, which now consists of six banks including Bank of America Merrill Lynch, Deutsche Bank, Morgan Stanley, UBS, Credit Suisse, and KeyBank as lead agent.  The senior credit facility remains undrawn and all other Company debt is non-recourse.

Ashford continues to make progress regarding the refinancing or extension of its $101 million of loans in the Highland Hospitality portfolio set to mature in early 2013.  The trailing 12-month NOI debt yield on this high quality portfolio is currently 17.5%.  At this time, given the potential loan proceeds, there is no anticipated pay down required.  Further, Ashford has been in discussions with lenders regarding the refinancing of its $154 million non-recourse loan set to mature in December 2015, with a combined interest rate of 12.72%.  Given the current favorable interest rate environment and improved hotel performance, Ashford believes it is an appropriate time to address this portfolio loan.  The loan is secured by five hotels including: the Embassy Suites Crystal City, Embassy Suites Orlando Airport, Embassy Suites Santa Clara, Embassy Suites Portland and the Hilton Costa Mesa. 

During the quarter a receiver was appointed to take over the Hilton El Conquistador in Tucson, AZ.  The receiver has been granted possession and full control of the property including all accounts and cash flow.  Despite Ashford having no control of the property or cash flows and no ongoing liability, for GAAP purposes, the property will continue to be included in our consolidated financial statements until title to the property has been transferred from Ashford.  For purposes of calculating Adjusted EBITDA and AFFO, we have adjusted the results of operations for the period beginning when the receiver was appointed and Ashford no longer had any control or financial obligations for the hotel.  At the time the receiver was appointed, the hotel had $19.7 million of non-recourse mortgage debt and a trailing twelve-month EBITDA of negative $1.7 million.  By transferring this hotel to the lender, the Company will lower its overall debt level while increasing both EBITDA and AFFO. 

The Company also received a payment of $5 million during the quarter from a guarantor on a previously impaired mezzanine loan.  This payment is reflected on the income statement as a negative impairment charge and has been excluded for purposes of calculating Adjusted EBITDA and AFFO.

PORTFOLIO REVPAR

As of September 30, 2012, the Company's Legacy portfolio consisted of direct hotel investments with 95 properties classified in continuing operations, excluding the Hilton El Conquistador.  During the third quarter of 2012, 86 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 95 hotels) and proforma not under renovation basis (86 hotels) is a measure that reflects a meaningful and focused comparison of the operating results in its direct hotel portfolio.  Details of each category are provided in the tables attached to this release.

• Proforma RevPAR increased 6.6% to $101.93 for all hotels in the Legacy portfolio on a 5.2% increase in ADR and a 102 basis point increase in occupancy
• Proforma RevPAR increased 7.3% to $105.01 for hotels not under renovation in the Legacy portfolio on a 5.3% increase in ADR and a 148 basis point increase in occupancy
• Proforma RevPAR increased 3.4% to $100.59 for all hotels in the Highland Hospitality portfolio on a 4.7% increase in ADR and a 90 basis point decrease in occupancy
• Proforma RevPAR increased 4.3% to $100.00 for hotels not under renovation in the Highland Hospitality portfolio on a 4.7% increase in ADR and a 30 basis point decrease in occupancy

HIGHLAND HOSPITALITY PORTFOLIO UPDATE 

The Highland Hospitality portfolio experienced RevPAR growth of 3.4% during the third quarter of 2012, with RevPAR growth for hotels not under renovation in continuing operations of 4.3%.  The Highland Hospitality portfolio continued to experience strong EBITDA flow-through during the third quarter as a result of improved property management and the benefits of capital expenditures previously completed.  For all 28 hotels in the Highland Hospitality portfolio, Hotel EBITDA Margin increased 189 bps and Hotel EBITDA flow-through was 97%.  For the 25 hotels not under renovation during the third quarter 2012, Hotel EBITDA Margin increased 230 basis points and Hotel EBITDA flow-through was 95%.  Hotel EBITDA increased 10.5% in the third quarter for all hotels in the Highland Hospitality portfolio, and since the closing of the acquisition, trailing 12-month EBITDA has increased 18.5%. 

HOTEL EBITDA MARGINS AND QUARTERLY SEASONALITY TRENDS

During the quarter, Hotel operating profit (Hotel EBITDA) for all Legacy hotels increased 13.8% to $70.2 million.  For the 86 hotels that were not under renovation, Proforma Hotel EBITDA increased 15.2% to $65.9 million. Proforma Hotel EBITDA margin (expressed as a percentage of Total Hotel Revenue) increased 249 basis points to 31.8% for the 86 Legacy hotels not under renovation.  For all 95 Legacy hotels included in continuing operations, Proforma Hotel EBITDA margin increased 221 basis points to 31.2%.

For the Company's 71.74% share of all hotels in the Highland Hospitality portfolio, Hotel operating profit (Hotel EBITDA) increased 10.5% to $19.4 million.  For the 25 hotels in the Highland Hospitality portfolio that were not under renovation, Proforma Hotel EBITDA increased 13.1% to $16.7 million.  Proforma Hotel EBITDA margin (expressed as a percentage of Total Hotel Revenue) increased 230 basis points to 26.7% for the 25 Highland Hospitality hotels not under renovation.  For all 28 Highland Hospitality hotels included in continuing operations, Proforma Hotel EBITDA margin increased 189 basis points to 27.0%.

Starting with its second quarter 2012 financial results, the Company added additional disclosure information regarding property level trailing 12-month Hotel EBITDA by debt pool.  The Company believes this additional disclosure will assist the investment community in analyzing Ashford and help analysts and investors see the benefits of the non-recourse nature of its property level debt.  Prior to providing this information, the investment community could only reference the Company's total EBITDA and total debt when applying a valuation multiple.  With this additional disclosure, analysts and investors can analyze the EBITDA of the Company by debt pool and when using a valuation multiple approach, can see where the market might be inadvertently implying negative equity value to certain debt pools.  Implied negative equity value in any debt pools may underestimate the benefits of non-recourse debt, and all of the Company's property level debt is non-recourse. 

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 well as its pro-rata share of the Highland Hospitality 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.  The details of the quarterly calculations for the previous four quarters for the current portfolio of 95 Legacy hotels included in continuing operations together with Ashford's pro-rata share of the Highland portfolio are provided in the table attached to this release.

COMMON STOCK DIVIDEND

On September 14, 2012, Ashford announced that its Board of Directors had declared a quarterly cash dividend of $0.11 per diluted share for the Company's common stock for the third quarter ending September 30, 2012, payable October 15, 2012, to shareholders of record as of September 28, 2012.

Monty J. Bennett, Chief Executive Officer, commented, "Our third quarter results demonstrate the continuing improvement in the U.S. lodging industry as we make further progress in key areas such as operating margin expansion, RevPAR growth, and risk mitigation.  Year to date, our capital markets strategies continued to focus on improving our financial liquidity while addressing near-term debt maturities, both of which are top priorities for us.  Given the improving trends we are seeing in the real estate and debt markets, now is an opportune time for us to take advantage of these attractive interest rates to actively address our debt maturity schedule.  We remain committed to these objectives, which we consider essential to creating both near term and long term shareholder value within an environment where we continue to see improving trends in the hotel industry and the U.S. economy in general."

Ashford is a self-administered real estate investment trust focused on investing in the hospitality industry across all segments and at all levels of the capital structure. 

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