Ashford Hospitality Trust has sold 79 units at WorldQuest Resort in Orlando — a condominium-style hotel within 3 miles of Walt Disney World in Florida — for nearly $15 million in a move it plans to replicate as it pays down debt.
The Dallas-based real estate investment trust has another four hotels on the market that it classifies as non-core assets. The Orlando property, which was unencumbered by debt, traded at an "attractive valuation during a challenging time in the hotel transaction market," Ashford Trust President and CEO Rob Hays said in a statement.
The hotel debt financing market led the REIT to hand back the keys to 19 hotels last month rather than pay $255 million to extend the loans tied to the properties, which were primarily limited-service hotels. The REIT is focused on investing in upper upscale, full-service hotels.
"We continue to seek opportunities to sell non-core assets," Hays told investors during an earnings call Wednesday. "We have identified several additional assets that we may bring to market for sale if market conditions warrant. We expect any net proceeds from these sales to pay down debt."
Handing back keys to the 19 hotels in an ongoing process with lenders helped the REIT lower its debt by $700 million in "a significant step" toward its long-term goals of deleveraging the trust. The hotels being returned to lenders had lower revenue per available room in markets that have been slower to return to pre-pandemic levels of occupancy.
Hays said the REIT is positioning itself to pay down debt it took on in the wake of the pandemic to help it navigate dire financial woes. Ashford Trust borrowed $200 million in what it called strategic corporate financing in January 2021 from Oaktree Capital Management, with the ability to borrow more if needed.
As of the second quarter that ended June 30, Ashford had outstanding debt of $195,959 due to Oaktree, with an initial maturity in January 2024 and a final maturity due two years later. The REIT is paying a 14% interest rate on the debt with an anticipated exit fee tied to the debt of $43.7 million, according to filings with the U.S. Securities and Exchange Commission.
"We have time," Hays told investors, saying the REIT has about two-and-a-half years left to pay back the corporate financing, but "from our perspective this is an important symbol to the market that we are moving out of our COVID phase of this company and moving on towards growth and a more sustainable capital structure. That's why it's important for us to focus on taking that out and we'll be more aggressive in how we are using the proceeds from our non-traded preferred and asset sales now."
During the second quarter, Ashford Trust refinanced its mortgage loans for the 157-room La Posada de Santa Fe in Santa Fe, New Mexico, and the 252-room Hilton Alexandria in Alexandria, Virginia.
More Asset Sales
Hays told investors the REIT is planning more asset sales like the WorldQuest Resort in Orlando deal that sold for $14.8 million to an undisclosed buyer. The company has three limited-service hotels and one full-service hotel on the market right now.
The four hotels are in the second round of the marketing process, and Hays hopes to have more details on the status of those deals in the next month or so. It will likely take a few months for any deal to close, he added.
"We have some lower-quality, non-core assets that have [capital expenditure] requirements over the next two years or brands we don't feel strong about that are assets that are not long-term holds," Hays said. "I think you'll see a mix of those over the next six to 12 months come to market."
Most of the hotels in the REIT's portfolio are out of cash traps, Hays said. This is a stark turnaround from last year when 93% of the trust's portfolio was in a cash trap, meaning any excess cash flow generated by the hotels would be held by the lender and not available for corporate purposes. Ashford also plans to pay some of its corporate debt with proceeds from the non-traded preferred equity in the REIT, he said.
"You will likely see us get more aggressive here in the next few quarters on some asset sales both in order to clean up the portfolio, but you'll also see assets that we like and are solid assets, but have some equity value to generate some proceeds," Hays said. "We do see asset sales as a crucial part to what we are doing in the next couple of years to get the portfolio and capital structure where we want it."
Ashford Hospitality Trust reported a net loss of $30.3 million for the second quarter. Comparable revenue per available room increased 6.7% to $144.25 during the quarter compared to the same period the prior year. The REIT had $344 million of working capital at the end of the quarter.