Ashford Hospitality Trust plans to pay off a key loan from Oaktree Capital Management by year's end as it continues to whittle down debt by tightening up operations, handing back keys to lenders and selling U.S. hotels.
The Dallas-based REIT sold six hotels during the second quarter that ended June 30, leaving it with 69 in its U.S. portfolio. Additional hotels are on the market, including the newly unencumbered 296-room upscale Westin hotel in Princeton, New Jersey. Ashford Hospitality also closed on a new mortgage loan totaling $267.2 million on its 673-room Renaissance hotel in Nashville, Tennessee. The two hotels, once tied together in a portfolio loan, are no longer coupled in financing, with the REIT expecting to sell the Westin.
Ashford Hospitality saw a boost in corporate and group demand business in its urban hotels even as its resort business softened in the second quarter, said Stephen Zsigray, the REIT's new president and CEO, who replaced former leader Rob Hays on July 1. Hays stepped down from his role as CEO of the REIT at the end of June.
"We continue to successfully execute against our operating strategy, and I'm pleased with the progress we have made in paying off our strategic financing," Zsigray said in a statement tied to its second-quarter earnings. "The outstanding loan balance is down almost 53% from the original balance and, between excess proceeds from additional planned asset sales, excess proceeds from planned property refinancings, and proceeds from our non-traded preferred capital raise, we believe we have a viable path to pay off our strategic financing this year."
Zsigray spoke to investors and analysts in Wednesday's earnings call for the first time since he took the helm of the REIT. In the call, Zsigray said the goal hasn't changed from Hays' tenure and the REIT is seeking to strategically cull non-core hotels from its portfolio in the coming years.
During the second quarter, Ashford Hospitality sold more than a handful of hotels, including the following properties:
- The 390-room Hilton Boston Back Bay hotel in Boston for $171 million, or $438,000 per key. The $68 million in proceeds from the sale was used to pay down on the trust's strategic financing.
- The 85-room Hampton Inn in Lawrenceville, Georgia, traded for $8.1 million, or $95,300 per key.
- The 90-room Courtyard hotel in Manchester, Connecticut, for $8 million. The hotel was encumbered by a mortgage loan with an outstanding balance of $5.5 million.
- The 90-room SpringHill Suites and the 86-room Fairfield Inn in Kennesaw, Georgia, in a deal totaling $17.5 million. Both hotels were encumbered with a mortgage loan that had an outstanding balance of about $10.8 million.
- The 193-room One Ocean Resort in Atlantic Beach, Florida, traded for nearly $87 million. The REIT has a few other hotels in this market in various stages of the sale process, executives said.
The hotel sales are part of the REIT's plans to pay off its strategic financing by refinancing mortgage debt — like in the case of the Nashville hotel — and raising capital through non-traded preferred equity in the trust, the company said. To date, Ashford Hospitality has raised about $147 million in gross proceeds from issuing 5.47 million shares of its Series J and 403,903 shares of its Series K non-traded preferred stock since it began the offering in the third quarter of 2022.
Ashford Hospitality expects to repay the remaining balance of the strategic financing loan now totaling $98.2 million to Oaktree Capital Management, according to the REIT's second-quarter earnings. The loan's final maturity date is in January.
By the end of June, the REIT had a total of $2.7 billion in loans with a blended average interest rate of 8.1%.
Other cost-saving moves impacting the REIT's bottom line during the quarter was the firm's in-house property tax team that brought $1.5 million of property tax savings with the team being even more aggressive in the appeal process, executives told investors. In the case of one property, the Marriott hotel in Sugar Land, Texas, outside of Houston, the team pursued litigation that ended with a $5.5 million reduction compared to the prior year's assessment.
Ashford Hospitality has begun working on what executives are calling high-yield renovations to select hotels in the Dallas area, West Palm Beach, Austin and Illinois to enhance the guest experience, including its amenities and hotel rooms. The REIT is also actively seeking to refinance loans with an expectation the debt side of the business will improve in the second half of the year, executives said.
Zsigray told investors the REIT hopes to sell more hotels if the Fed lowers interest rates and brings more buyers to the table in the next six months.
"As we continue to move forward through the rest of the year and if the Fed cuts interest rates ... we could see the transaction market pick up a bit more as deals pencil a bit more for buyers," he said, adding there's still a wide delta between the bid and ask price. "We have consistently seen between three to five players on all of these assets, but we don't have 20 people fighting for an asset."