One hospitality real estate investment trust that took some drastic actions over the past year as it navigated the pandemic and plans to keep some strategies it used to survive. So don't be surprised if Ashford Hospitality Trust, along with handing back hotels to lenders, keeps unplugging mini-fridges and closing unused hotel wings at its properties.
Ashford, a Dallas-based REIT with a portfolio of 100 hotels with 22,278 rooms in 28 states, has been able to offload about $513 million in debt since the first quarter of 2020. It did that by handing back 15 properties to lenders or selling them to satisfy debts including the high-profile W Minneapolis and Embassy Suites Midtown Manhattan hotels, exchanging preferred equity with common stock and raising up to $450 million in capital while running tight operations at its hotels.
"All of the deleveraging mechanisms we've used over the past year will be considered going forward," said J. Robison Hays, president and CEO of Ashford Hospitality, in an email interview with CoStar News.
Hays said the company plans to capitalize on additional opportunities to enhance Ashford Hospitality's financial flexibility by generating additional liquidity and further reducing debt.
It's a financial turnaround for the REIT just months after it warned investors it might have to file for bankruptcy protection. Even though there are still significant headwinds, Hays said he's optimistic about the economy reopening and believes the company's geographically diverse portfolio of high-quality, well-positioned hotels throughout the United States are ready for recovery. The trust has no significant debt maturities until 2024 and 2025, assuming extensions are exercised.
"Looking ahead, one of the challenges and opportunities as CEO is to make sure that Ashford Trust emerges from this crisis in a better position as a company," Hays said. "To that end, we’ve been spending time analyzing lessons that we've learned from this crisis and over the past decade. Those reflections will likely lead to an update of the go-forward strategy of Ashford Trust. This could include changes to our leverage profile, financing strategies and investment criteria and we will be communicating these updates in due course."
Like other lodging companies, the past year hit Ashford Hospitality financially hard when travel abruptly came to a halt because of the pandemic. The company's ability to close on a long-term agreement of up to $450 million in a loan with funds managed by Oaktree Capital Management in recent months and shake off an attack by an activist investment group, having settled the case filed in a U.S. district court in Texas, put Ashford Hospitality on a rosier path for the future as executives say they hope to see a recovery of the hospitality industry in 2023 and 2024.
"We completely rethought the cost structure of our hotels, focused on minimizing costs and maximizing liquidity, while also strengthening our balance sheet, reducing our cash utilization and having success in our forbearance efforts," Hays said. "All of those steps combined have been crucial in positioning the company to participate in the upcoming lodging recovery."
On the company's operations side, beyond working with lenders on forbearance agreements on property-level debt, the REIT has taken "aggressive cost control initiatives," Hays said, with some of those methods including the unplugging of the mini-fridges and shutting whole sections of hotels. The REIT has also been leveraging its relationship with its affiliated property manager, Remington, to quickly cut costs and adjust to the new operating environment, Hays said. Remington operates 68 of the hotels in Ashford Hospitality's portfolio.
"Overall, our property managers are running these hotels as lean as possible in order to keep costs down as long as possible," Hays said.
The lodging industry has shown signs of improvement in the past few months with the continued rollout of vaccines and leisure travel has resumed in many parts of the country such as Florida, Texas and other resort markets, Hays said.
Hays said the REIT is well positioned to take advantage of an anticipated demographic shift away from the Northeast, Rust Belt and West Coast to more areas that tout themselves as welcome to business. About 25% of business owners are considering moving their operations to more business-friendly states, according to a study from West Monroe Partners from the first quarter last year. Ashford Hospitality's top 17 markets include 12 located in inbound migration states, Hays said.
"Strategically, we believe our geographic profile, along with owning assets in early recovery segments and high-growth chain scales with best-in-class hotel brands and property managers, provides some very distinct advantages with respect to our future performance," Hays said.