DALLAS—Ashford Hospitality Trust, Inc. announced that its Board of Directors has unanimously approved a plan to spin-off its asset management business into a separate publicly traded company in the form of a taxable distribution. The distribution is expected to be completed in the third quarter of 2014 and will be comprised of common stock in Ashford, Inc. ("Ashford Inc."), a newly formed or successor company of the Company's existing advisor subsidiary, Ashford Hospitality Advisors LLC, which currently advises Ashford Hospitality Prime, Inc. ("Ashford Prime"). The Company plans to file a listing application for Ashford Inc. with the NYSE or NYSE MKT Exchanges. In connection with the spin-off, it is anticipated that Ashford Inc. will enter into a 20-year advisory agreement to externally advise the Company. In addition, Ashford Inc. will continue to externally advise Ashford Prime.
It is expected that Ashford Inc. will be well positioned to grow its asset management business. The Company's investment securities subsidiary is raising capital and it is expected that Ashford Inc. will advise this platform. In addition, other business opportunities for Ashford Inc. include future external advisory services to other platforms, such as a select service hotel platform and a hotel debt platform, both of which are opportunities being explored by the Company. Further, it is anticipated that Ashford Inc. will pursue other business acquisitions which may include hotel management, project and construction management, and other hospitality related services.
This distribution is anticipated to be declared during the third quarter of 2014; however, it remains subject to the filing of the required registration statement with the Securities and Exchange Commission ("SEC"), the review of the registration statement by the SEC, the approval of the listing of shares by the applicable exchange, and other legal requirements. The Company expects to file the required registration statement next month. The Company cannot be certain this distribution will proceed or proceed in the manner as currently anticipated.
Further, the Company reported the following results and performance measures for the fourth quarter ended December 31, 2013. Prior to the third quarter of 2013, the Company had been reporting its Legacy Portfolio and Highland Hospitality Portfolio pro forma hotel operating statistics separately. In the third quarter 2013, the Company changed its reporting format and now combines the pro forma hotel operating statistics for its Legacy Portfolio and Ashford Trust's pro rata share of the Highland Hospitality Portfolio as the Ashford Trust Portfolio. The performance measurements for Occupancy, Average Daily Rate (ADR), Revenue Per Available Room (RevPAR), and Hotel Operating Profit (or Hotel EBITDA) are pro forma. Unless otherwise stated, all reported results compare the fourth quarter ended December 31, 2013, with the fourth quarter ended December 31, 2012 (see discussion below). The reconciliation of non-GAAP financial measures is included in the financial tables accompanying this press release.
FINANCIAL AND OPERATING HIGHLIGHTS
- During the quarter, the Company completed the spin-off of Ashford Prime, which started trading under the ticker symbol "AHP" on November 20, 2013, on the New York Stock Exchange
- The Company closed mortgage loans totaling $18.2 million on the Residence Inn Jacksonville, FL and the Residence Inn Manchester, CT
- Subsequent to the end of the fourth quarter, the Company refinanced its $165 million MIP Portfolio mortgage loan, with a new $200 million non-recourse mortgage loan
- At the end of the fourth quarter 2013, the Company had total net working capital, including its pro rata share of the Highland Hospitality Portfolio net working capital and the market value of its OP Units in Ashford Prime, of $381 million
- RevPAR for the Ashford Trust Portfolio hotels not under renovation increased 2.5% during the quarter
- RevPAR for all Ashford Trust Portfolio hotels increased 1.3% during the quarter
- Excluding Washington, D.C. assets and markets positively impacted by Hurricane Sandy, RevPAR increased 4.3% for all Ashford Trust Portfolio hotels
- Hotel EBITDA flow-through was 62% for all Ashford Trust Portfolio hotels
- Due to Marriott's change to calendar reporting in 2013, the prior year fourth quarter included twenty more days than the fourth quarter 2013 which significantly impacted the year over year comparisons
- Net loss attributable to common shareholders for the Company was $25.9 million, or $0.32 per diluted share, compared with net loss attributable to common shareholders of $21.1 million, or $0.32 per diluted share, in the prior-year quarter
- Adjusted funds from operations (AFFO) for the Company was $0.14 per diluted share for the quarter as compared with $0.39 from the prior-year quarter
- Interest rate derivative income decreased by $8.1 million from the prior year quarter, impacting AFFO per share by $0.08
CAPITAL EXPENDITURES
- Capex invested in the quarter for the Ashford Trust Portfolio was $40.8 million
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For the full-year 2013, capex invested in the Ashford Trust Portfolio was $149.2 million
CAPITAL STRUCTURE
At December 31, 2013, the Company had total assets of $2.7 billion in continuing operations, and $3.7 billion overall including the Highland Hospitality Portfolio which is not consolidated. As of December 31, 2013, the Company had $1.8 billion of mortgage debt in continuing operations and $2.6 billion overall including the Highland Hospitality Portfolio. Ashford Trust's total combined debt had a blended average interest rate of 5.3%, with a weighted average debt maturity of 2.8 years.
On November 19, 2013 Ashford Trust completed the spin-off of Ashford Prime, which began trading on the New York Stock Exchange ("NYSE") under the ticker symbol "AHP" on November 20, 2013. Ashford Trust completed the spin-off by distributing a pro-rata taxable dividend of Ashford Prime common stock to Ashford Trust stockholders of record as of the close of business of the NYSE on November 8, 2013 (the "Record Date"). The distribution was based on a distribution ratio of one share of Ashford Prime common stock for every five shares of Ashford Trust common stock held by such stockholder on the Record Date. Following the distribution, there were approximately 24.9 million shares of Ashford Prime common stock and partnership units outstanding. This was comprised of approximately 16.1 million shares of Ashford Prime common stock and 8.8 million partnership units, which includes the partnership units issued to Ashford Trust reflecting its 20% ownership in Ashford Prime's operating partnership.
On December 23, 2013, the Company announced that it had closed mortgage loans totaling $18.2 million on the Residence Inn Jacksonville, FL and the Residence Inn Manchester, CT, with both loans now set to mature in January 2024. The previous $6.4 million loan balance on the Residence Inn Jacksonville was refinanced with a new $10.8 million loan, with a 10-year term that provides for a fixed interest rate of 5.49% and is non-recourse. The refinance resulted in excess net proceeds of approximately $4.0 million, which were added to the Company's unrestricted cash balance. As a result, this refinancing was neutral to the Company on a net debt basis.
The new financing on the Residence Inn Manchester includes a $7.4 million loan, also with a 10-year term. The new loan provides for a fixed interest rate of 5.49% and is non-recourse. Ashford has an 85% ownership interest in the property, with Interstate Hotels & Resorts holding the remaining 15%. Terms described in this press release refer to 100% of the loan indebtedness unless otherwise indicated. This property was previously unencumbered, and the excess loan proceeds above typical closing costs and reserves were distributed to the partners on a pro rata basis. Ashford Trust's share of the excess proceeds was approximately $6.0 million, which were added to the Company's unrestricted cash balance. As a result, this refinancing was neutral to the Company on a net debt basis.
Subsequent to the end of the fourth quarter, on January 27, 2014, the Company announced it had successfully refinanced its $165 million MIP Portfolio mortgage loan, with a new $200 million non-recourse mortgage loan with a two-year initial term and three one-year extension options, subject to the satisfaction of certain conditions. The new loan is interest only and provides for a floating interest rate of LIBOR + 4.75% with a 0.20% LIBOR Floor. The refinance resulted in excess net proceeds of approximately $30 million, which were added to the Company's unrestricted cash balance. As a result, this refinancing is neutral to the Company on a net debt basis. The new loan remains secured by the same five hotels including: the Embassy Suites Philadelphia Airport, Embassy Suites Walnut Creek, Sheraton Mission Valley San Diego, Sheraton Anchorage and the Hilton Minneapolis/St Paul Airport Mall of America.
The Company expects to close on the sale of the Pier House Resort to Ashford Prime on February 28, 2014. The sales price is $92.7 million. Ashford Prime will assume the $69 million mortgage and will pay the balance of the purchase price in cash.
PORTFOLIO REVPAR
As of December 31, 2013, the Ashford Trust Portfolio consisted of direct hotel investments with 115 properties classified in continuing operations. During the fourth quarter of 2013, 99 of the Ashford Trust Portfolio hotels included in continuing operations were not under renovation. The Company believes reporting its operating metrics for the Ashford Trust Portfolio hotels in continuing operations on a pro forma total basis (all 115 hotels) and pro forma not under renovation basis (99 hotels) is a measure that reflects a meaningful and focused comparison of the operating results in its portfolio. Details of each category are provided in the tables attached to this release.
Pro forma RevPAR increased 1.3% to $88.86 for all hotels in the Ashford Trust Portfolio on a 1.6% increase in ADR and a 17 basis point decrease in occupancy Pro forma RevPAR increased 2.5% to $88.40 for hotels not under renovation in the Ashford Trust Portfolio on a 1.4% increase in ADR and a 72 basis point increase in occupancy.
HOTEL EBITDA MARGINS AND QUARTERLY SEASONALITY TRENDS
The Company 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 Hotel EBITDA and Hotel EBITDA Margin for the current and certain prior-year periods based upon the number of hotels in the Ashford Trust Portfolio, including its pro-rata share of the Highland Hospitality Portfolio as of the end of the current period. As the Company's portfolio mix changes from time to time so will the seasonality for Pro forma Hotel EBITDA and Pro forma Hotel EBITDA margin. The details of the quarterly calculations for the previous four quarters for the 115 Ashford Trust Portfolio hotels included in continuing operations are provided in the table attached to this release.
In addition, in 2013, Marriott Hotels and Resorts converted to a monthly reporting calendar as opposed to its traditional thirteen-period reporting calendar. Historically, the Company has recorded four of its Marriott-managed hotels' accounting periods in the fourth quarter and three in each of the other quarters during the year. Presently, Marriott manages 40 hotels for the Company, making it one of the Company's largest property managers. Accordingly, this year the Company has converted its 2012 numbers on a pro forma basis to calendar months, consistent with the new Marriott monthly reporting calendar, to provide necessary consistency in period-to-period comparisons.
COMMON STOCK DIVIDEND
On December 16, 2013, the Company announced that its Board of Directors had declared a quarterly cash dividend of $0.12 per diluted share for the Company's common stock for the fourth quarter ending December 31, 2013, payable on January 15, 2014, to shareholders of record as of December 31, 2013.
The Board also approved the Company's dividend policy for 2014. The Company expects to pay a quarterly cash dividend of $0.12 per share for 2014, or $0.48 per share on an annualized basis. The Company believes this dividend policy is appropriate given the recent spin-off of Ashford Hospitality Prime, and its recent dividend announcement. The adoption of a dividend policy does not commit the Board of Directors to declare future dividends or the amount thereof. The Board will continue to review its dividend policy on a quarter-to-quarter basis.
"Ashford Trust has made significant progress in creating value for our shareholders. We have completed $487 million of refinancings since the beginning of 2013 resulting in significant excess proceeds, and, in November, we completed the spin-off of Ashford Prime," commented Monty J. Bennett, Ashford Trust's Chairman and Chief Executive Officer. "The announced plan to spin-off Ashford Trust's asset management business is another step toward maximizing value for our shareholders. With advisory agreements in place with two publicly traded REITs, the anticipated launch of our securities investment platform, and several potential business possibilities in front of us, Ashford Inc. is well positioned for growth. This transaction provides an opportunity to unlock that value for the benefit of Ashford Trust shareholders. With both Ashford Trust and Ashford Prime pursuing distinct investment strategies, we believe both companies are well positioned to capitalize on the attractive lodging industry fundamentals we expect to continue for the next several years, and that Ashford's asset management business will benefit from that growth. For Ashford Trust, we will also continue to proactively address our debt maturities by capitalizing on the current attractive interest rates and debt market conditions we are seeing. As the management team with the highest insider ownership in our industry, you can be assured we are highly aligned with you in our pursuit to maximize shareholder value."