Ashford Inc. (NYSE American: AINC) last week reported the following results and performance measures for the second quarter ended June 30, 2019.
- High-growth, fee-based business model
- Diversified platform of multiple fee generators
- Seeks to grow in three primary areas:
- Expanding existing platforms accretively, and accelerating performance to earn incentive fees;
- Starting new platforms for additional base and incentive fees; and
- Investing in or incubating strategic businesses that can achieve accelerated growth through doing business with our existing platforms, and by leveraging our deep knowledge and extensive relationships within the hospitality sector
- Highly-aligned management team with superior long-term track record
- Leader in asset and investment management for the real estate & hospitality sectors
FINANCIAL AND OPERATING HIGHLIGHTS
- Net loss attributable to common stockholders for the second quarter of 2019 totaled $3.2 million, or $3.00 per diluted share, compared with net income of $9.0 million, or $0.93 per diluted share, in the prior-year quarter. Adjusted net income for the second quarter was $8.7 million, or $2.04 per diluted share, compared with $9.5 million, or $3.61 per diluted share, in the prior-year quarter.
- Total revenue for the second quarter of 2019 was $63.5 million, reflecting a growth rate of 16% over the prior-year quarter.
- Adjusted EBITDA for the second quarter was $9.6 million.
- At the end of the second quarter of 2019, the Company had approximately $8.2 billion of gross assets under management.
- During the quarter, the Company signed a definitive agreement to acquire the Hotel Management business of privately-held Remington Holdings, LP.
- Subsequent to the end of the quarter, the Company closed on the acquisition of Sebago for $7 million, which equates to an implied trailing 12-month Adjusted EBITDA multiple of 4.4x.
- As of June 30, 2019, the Company had corporate cash of $38.2 million.
AGREEMENT TO ACQUIRE REMINGTON'S HOTEL MANAGEMENT BUSINESS
On June 3, 2019, the Company announced that it had signed a definitive agreement to acquire the Hotel Management business of privately-held Remington Holdings, LP ("Remington"). The proposed acquisition of Remington's high-margin, low-capex Hotel Management business is expected to close sometime in the fourth quarter of 2019. The transaction is expected to be immediately accretive to adjusted net income per share and will immediately add scale, diversification and an enhanced competitive position for Ashford. It will also expand the breadth of services the Company offers to its advised REITs. Additionally, the Company believes the transaction represents a compelling opportunity to further diversify its earnings stream and, moving forward, the potential to expand business to other third-party clients.
Remington is an independent hotel management company with over 40 years of experience in the hospitality business. Remington's Hotel Management business currently provides comprehensive and cost-effective hotel management services for both Ashford Hospitality Trust, Inc. (NYSE: AHT) ("Ashford Trust" or "Trust") and Braemar Hotels & Resorts Inc. (NYSE: BHR) ("Braemar"). Remington's portfolio consists of almost 90 hotels with over 17,400 rooms of full-service and select-service properties representing over a dozen brands across 28 states as well as the District of Columbia. Remington's Hotel Management business currently has very little third-party business outside of the Company's advised REITs, which will be an immediate growth opportunity and area of focus for the Company going forward.
ENHANCED RETURN FUNDING PROGRAM WITH BRAEMAR
During the first quarter of 2019, the Company announced that it entered into an agreement with Braemar for the new Enhanced Return Funding Program ("ERFP" or the "Program"). Under the Program, the Company has agreed to provide up to $50 million in connection with the acquisition by Braemar of additional hotels. Ashford will provide 10% of the purchase price of each hotel acquired by Braemar up to $500 million in total acquisitions and, to date, Braemar has acquired one hotel for $103 million under the Program. The Program is expected to generate attractive returns on invested capital for Ashford via incremental base advisory fees, potential incentive fees, fees for various products and services offered, and tax savings.
ENHANCED RETURN FUNDING PROGRAM WITH ASHFORD TRUST
During the second quarter of 2018, the Company entered into an agreement with Ashford Trust for an ERFP. Similar to the Braemar Program, under the Program with Trust, the Company agreed to provide $50 million in connection with the acquisition by Trust of additional hotels. Ashford will provide 10% of the purchase price of each hotel acquired by Trust, and, to date, Trust has completed four acquisitions totaling $406 million under the ERFP, which amounts to approximately 80% committed utilization of the $50 million of ERFP funding from Ashford Inc.
PREMIER PROJECT MANAGEMENT UPDATE
In August 2018, the Company completed the acquisition of Premier Project Management ("Premier") for $203 million. Premier provides comprehensive and cost-effective architecture, design, development, and project management services. It provides project oversight, coordination, planning, and execution of renovation, capital expenditure or ground-up development projects. Its operations are responsible for managing and implementing substantially all capital improvements at Ashford Trust and Braemar hotels. Additionally, it has extensive experience working with many of the major hotel brands in the areas of renovating, converting, developing or repositioning hotels. Premier generated $7.7 million of revenue and $3.5 million of Adjusted EBITDA in the second quarter, including $347,000 of revenue from its new architectural services initiative.
On May 15, 2019, Donald R. Kelly was appointed Co-Chief Executive Officer to work alongside Mark Matz, who was promoted from Co-President and Chief Operating Officer to Co-Chief Executive Officer and Chief Operating Officer, to lead Premier's new growth initiatives.
The Company owns a controlling interest in a privately-held company that conducts the business of JSAV in the United States, Mexico, and the Dominican Republic ("JSAV"). JSAV provides an integrated suite of audio visual services, including show and event services, hospitality services, creative services, and design and integration, making JSAV a leading single-source solution for their clients' meeting and event needs. In the first quarter of 2019, JSAV completed the acquisition of BAV. During the second quarter, JSAV had revenue growth of 29% compared to the prior-year period. Additionally, at the end of the second quarter, JSAV had multi-year contracts in place with 93 hotels and convention centers, in addition to regular business representing over 2,700 annual events and productions, 500 venue locations, and 750 clients.
RED HOSPITALITY & LEISURE UPDATE
RED Hospitality & Leisure ("RED Hospitality") is a leading provider of watersports activities and other travel and transportation services in the U.S. Virgin Islands. RED Hospitality has several potential avenues for future growth including opportunities to expand into other hotels at Ashford-advised REITs or non-Ashford hotels in the USVI, the Caribbean, and the U.S. To that end, with the commencement of ferry transportation services and beach and watersports services to the Westin St. John in January, continued beach and watersports services to the Ritz-Carlton St. Thomas Club - the timeshare and rental property adjacent to the Ritz-Carlton St. Thomas hotel - and increased direct bookings and private charter business, in the second quarter, RED Hospitality generated $1.9 million of revenue and $490,000 of Adjusted EBITDA. Second quarter revenue growth was 397% compared to the prior-year period, and Adjusted EBITDA growth was 579% compared to the prior-year period.
ACQUISITION OF SEBAGO
On July 23, 2019, the Company announced that RED Hospitality completed the acquisition of substantially all of the assets of Sebago, a leading provider of watersports activities and excursion services based in Key West, Florida for approximately $2.5 million in cash and $4.5 million of Ashford common stock (excluding transaction costs and working capital adjustments). Based on unaudited financials provided by the seller, Sebago's Adjusted EBITDA for the trailing twelve-month period ended April 30, 2019 was $1.6 million. The implied Adjusted EBITDA multiple based on the total purchase price is 4.4x which the Company believes represents an attractive potential return on investment. After giving effect to the transaction, Ashford will own an approximately 84% interest in the common equity of RED Hospitality.
With over 25 years of operating history, Sebago provides watersports activities and excursion services in the Key West market. Sebago's watersports activities and excursion services include sunset sails, reef snorkeling, kayak tours, jet ski tours, and all-day adventure tours combining the best of all their excursion products. Sebago has a leading brand with 3 of the top 10 ranked tours on TripAdvisor. Sebago's sales booths are well-located across the Key West market, and they have ideal dock locations for marketing and boarding the company's tours in the Key West Bight marina – a hub of tourism centrally located in Key West. Based on local regulations, significant barriers to entry exist for this competitive market including the transfer of boat slips, the supply of boat slips for commercial use, and physical limitations to expanding the Key West Bight marina. The Company believes the brand recognition, existing employee base, lead time to replicate existing assets, and other significant barriers to entry support Sebago's competitive advantage and future growth potential.
Net loss attributable to common stockholders for the quarter totaled $3.2 million, or $3.00 per diluted share, compared with net income of $9.0 million, or $0.93 per diluted share, in the prior-year quarter. Adjusted net income for the quarter was $8.7 million, or $2.04 per diluted share, compared with $9.5 million, or $3.61 per diluted share in the prior-year quarter.
For the quarter ended June 30, 2019, base advisory fee revenue was $11.2 million. The base advisory fee revenue in the second quarter was comprised of $8.4 million from Ashford Trust and $2.8 million from Braemar.
Adjusted EBITDA for the quarter was $9.6 million.
At the end of the second quarter of 2019, the Company had approximately $8.2 billion of gross assets under management from its advised platforms. The Company had corporate cash of $38.2 million, 2.8 million fully diluted shares, and a current fully diluted equity market capitalization of approximately $94 million. The Company's financial results include 1.45 million common shares associated with its Series B convertible preferred stock. The Company had $25.1 million of loans at June 30, 2019, of which approximately $3.2 million related to its joint venture partners' share of those loans.
QUARTERLY HIGHLIGHTS FOR ADVISED PLATFORMS
ASHFORD TRUST HIGHLIGHTS
- During the quarter, Ashford Trust refinanced its loan on the Ashton Hotel for approximately $8.9 million.
BRAEMAR HOTELS & RESORTS HIGHLIGHTS
- Subsequent to quarter end, Braemar opened The Notary Hotel, an Autograph Collection property, in downtown Philadelphia after a multi-million dollar conversion of its Courtyard Downtown Philadelphia.
- Subsequent to quarter end, Braemar announced the planned opening of The Clancy, an Autograph Collection property, in downtown San Francisco after a multi-million dollar conversion of its Courtyard San Francisco Downtown.
"We are pleased with our second quarter results, which reflect the diligent execution of our operating strategy focused on accretively growing our advised platforms and acquiring growth-oriented, hospitality-related businesses," commented Monty J. Bennett, Ashford's Chairman and Chief Executive Officer. "To this end, the proposed acquisition of Remington's Hotel Management business will immediately add scale, diversification and an enhanced competitive position for Ashford in the hospitality industry. It will also expand the breadth of services we offer to our advised REITs as well as the potential to expand business to third-party clients. We are also pleased with the progress of our Enhanced Return Funding Programs with our advised platforms. To date, the ERFP initiative has resulted in the acquisition of five high-quality hotels totaling over $500 million in new assets, and these two Programs should continue to create substantial growth in assets under management for us while also delivering attractive returns to our shareholders and the shareholders of our advised platforms. Adding hotel management to our growing list of service businesses should significantly increase our returns from the ERFP. Looking ahead to the remainder of 2019, we remain committed to maximizing value for our shareholders as we look to opportunistically grow our business by accretively expanding our existing REIT platforms, adding additional investment platforms and investing in other hospitality-related businesses through which we can accelerate meaningful, profitable growth."
Ashford provides global asset management, investment management and related services to the real estate and hospitality sectors.
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