What keeps Ashford Hospitality Trust President and CEO Rob Hays up at night is less about business operations and more about the capital markets.
In a podcast interview with Hotel News Now’s Sean McCracken recorded June 15, Hays described the capital markets as “a mess.”
A recent example of the result of challenged markets was on July 7 when the Dallas-based real estate investment trust said it has plans to hand back the keys for 19 hotels after failing to meet debt yield tests on maturing loans, McCracken reported.
The 19 hotels sit in three pools of commercial mortgage-backed securities loans that matured in June. Company officials said in a statement that the required $255 million in paydowns to extend loan terms would represent “negative equity value.”
In the June podcast interview, Hays said a lot of his time was being put toward negotiating and dealing with loan extensions.
“We’ve got a ton of loans that have extensions this year, that have debt yield tests. We’ve had a $400 million loan earlier this year, where we did basically a $50 million paydown,” he said. “Then we had almost a billion-dollar loan that we had after that, which was about a $100 million paydown, and then we’ve got basically another $1.2 billion of loans that are happening right now that we’re currently negotiating.
“It’s busy on that front, trying to get the capital structure where it needs to be, but we’re making good progress paying things down and making our debt balances slowly but surely more sustainable,” he added.
Asked if he felt confident about closing the loop on loan negotiations or if Ashford would be handing back keys for hotels to lenders, Hays said his team was negotiating on six different pools of assets, each with about $200 million in loans, and within that, some have been struggling.
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"The question is, do you just hand them back? We have before; we handed back 15 assets during COVID," which includes an Embassy Suites in New York City, he said.
Given where the capital markets are, Hays said lenders don't want to take back hotels if they don't have to. Part of what makes this cycle unique, he said, is how wide the gap is in terms of how markets are performing.
"You have Park [Hotels and Resorts] handing back their two assets in San Francisco, which didn't surprise me whatsoever because every asset we own in San Francisco is down 20%-40% versus where it was pre-COVID," he said. "I would love for San Francisco to come back. ... It's ugly. The issues are deep. This isn't just we need the economy to come back, this is a structural issue about crime and homelessness and the future of office space and the future of the technology industry."
He said San Francisco, Portland, Seattle, Minneapolis, Chicago and Philadelphia are among the cities in which keys to hotels are most likely to be handed back to lenders.
"As we are looking at the types of hotels we want to have in our portfolio, I think [we] genuinely want to have the ability to not be reliant on one [demand driver]," he said.
Future of Ashford
Compared to a few years ago, Ashford has made a lot of progress in fine-tuning its business, albeit less than he would have liked by this point, Hays said.
"The capital markets, the change of them over the last year or so, definitely [have] been a headwind. I would have liked to make some more progress on de-levering a little bit more, raising some more capital, paying off our friends at Oak Tree on that strategic financing [and] trying to get a path back to our common dividend turned on," he said. "That's just reality ... but I do think things are going in the right direction."
What's materially different for Ashford now is that it has taken raising capital into its own hands with Ashford Securities, he said. The company has raised about $35 million so far. The focus won't be on pursing an acquisition spree but rather on paying off debt.
"It will help me pay down debt as we do refinancings, and then eventually pivot to going on offense a little bit more," he said. "Having that fundraising capability in our own power is really crucial because the public markets have changed."