Overview of the Company’s Financial Performance

Ashford Hospitality Trust, Inc. (the “Company”) is a real estate investment trust (REIT) that focuses on owning upper upscale hotels in the United States. As of June 30, 2024, the Company’s portfolio consisted of 69 consolidated operating hotel properties with 17,087 total rooms, as well as four consolidated operating hotel properties with 405 total rooms owned through a 99.3% ownership interest in Stirling OP.

The Company’s net income attributable to common stockholders changed significantly, from a net loss of $85.5 million for the six months ended June 30, 2023 to net income of $121.8 million for the six months ended June 30, 2024. This $207.3 million improvement was driven by several key factors:

Revenue and Profit Trends

• Total revenue decreased $84.3 million, or 12.0%, to $620.4 million in the first half of 2024 compared to the same period in 2023. This was primarily due to decreases from hotel dispositions, the derecognition of the KEYS A and B properties that went into receivership, and lower performance at the Company’s comparable hotel properties.

• Hotel operating expenses decreased $47.5 million, or 10.2%, to $418.3 million, driven by lower costs from the hotel dispositions and KEYS A and B properties, partially offset by higher costs at the Company’s comparable hotel properties.

• Depreciation and amortization expense decreased $17.3 million, or 18.2%, due to lower depreciation from the hotel dispositions, KEYS A and B properties, and the Company’s comparable hotel properties.

• The Company recognized significant gains of $94.4 million and $145.6 million from the disposition of hotel assets and the derecognition of the KEYS A and B properties, respectively.

Strengths and Weaknesses

The Company’s key strengths include:

• Significant liquidity, with $121.8 million in cash and cash equivalents and $124.5 million in restricted cash as of June 30, 2024.
• Ability to generate cash flow from operations, asset sales, and capital market activities to fund upcoming requirements.
• Diversified portfolio of upper upscale hotels across the United States.
• Experienced management team and advisory services provided by Ashford Inc.

The Company’s key weaknesses include:

• Exposure to rising interest rates, which increase the cost of the Company’s variable-rate debt.
• Reliance on hotel operations, which can be impacted by macroeconomic conditions, seasonality, and other external factors.
• Potential challenges in refinancing upcoming debt maturities.
• Conflicts of interest with related parties, including Ashford Inc. and its subsidiaries.

Outlook and Future Strategies

The Company’s current key priorities and financial strategies include:

• Preserving capital and maintaining significant liquidity.
• Disposing of non-core hotel properties.
• Acquiring hotel properties that are expected to be accretive to the portfolio.
• Pursuing capital market activities and implementing strategies to enhance long-term stockholder value.
• Accessing cost-effective capital, including through the issuance of non-traded preferred securities.
• Opportunistically exchanging preferred stock into common stock.
• Implementing selective capital improvements and effective asset management strategies.
• Financing or refinancing hotels on competitive terms and modifying or extending property-level indebtedness.
• Utilizing hedges, derivatives, and other strategies to mitigate risks.
• Pursuing opportunistic value-add additions to the hotel portfolio.

The Company’s current investment strategy is to focus on owning predominantly full-service hotels in the upper upscale segment in domestic markets that have RevPAR generally less than twice the national average. The Company believes it will be able to shift its investment strategy to take advantage of new lodging-related investment opportunities as market conditions change.

Key Performance Indicators

The Company uses several key performance indicators to evaluate its operating performance, including:

Occupancy: The total number of hotel rooms sold divided by the total number of rooms available. Occupancy measures the utilization of the Company’s hotels.

ADR (Average Daily Rate): The average room price attained by a hotel, calculated by dividing total hotel rooms revenues by total number of rooms sold.

RevPAR (Revenue per Available Room): A combination of occupancy and ADR, calculated by multiplying ADR by the average daily occupancy. RevPAR is a commonly used measure to evaluate hotel operations.

For the six months ended June 30, 2024, the Company’s comparable hotel properties experienced a 1.5% increase in room rates, but a 102-basis point decrease in occupancy, resulting in a 0.8% increase in RevPAR compared to the same period in 2023.

Non-GAAP Financial Measures

The Company also presents several non-GAAP financial measures to help investors evaluate its operating performance, including:

EBITDA: Net income (loss) before interest expense, income taxes, depreciation, and amortization.

EBITDAre: EBITDA adjusted to exclude gains or losses on disposition of assets, impairment charges, and the Company’s portion of EBITDA from unconsolidated entities.

Adjusted EBITDAre: EBITDAre further adjusted to exclude certain non-cash and non-recurring items.

FFO (Funds from Operations): Net income (loss) attributable to common stockholders, excluding gains or losses on disposition of assets, plus depreciation and amortization of real estate assets, and adjustments for unconsolidated entities and noncontrolling interests.

Adjusted FFO: FFO adjusted to exclude certain non-cash and non-recurring items.

These non-GAAP measures provide additional insight into the Company’s operating performance and are frequently used by securities analysts, investors, and other interested parties in the evaluation of REITs.

Liquidity and Capital Resources

As of June 30, 2024, the Company held $121.8 million in cash and cash equivalents and $124.5 million in restricted cash. The Company’s current level of operations, cash flow from operations, capital market activities, asset sales, and existing cash balances are expected to be adequate to meet upcoming requirements for interest and principal payments, working capital, and capital expenditures for the next 12 months.

However, the Company’s ability to refinance upcoming debt maturities is uncertain, and its failure to obtain future financing on favorable terms could adversely impact its ability to execute its business strategy. The Company also has certain loan agreements with cash trap provisions that may be triggered if hotel performance declines, which could limit the Company’s financial flexibility.

The Company is committed to an investment strategy focused on hotel-related investments, which it expects to fund through a combination of cash on hand, future borrowings, proceeds from asset sales, and capital raises. However, there is no guarantee the Company will successfully make additional investments.

Seasonality and Critical Accounting Policies

The Company’s hotel properties typically experience seasonal fluctuations in occupancy, ADR, and RevPAR, with higher performance during the summer months and lower performance during the winter months. This seasonality can cause fluctuations in the Company’s quarterly lease revenue and cash flows.

The Company’s critical accounting policies include those related to the preparation of its consolidated financial statements in accordance with GAAP, such as estimates and assumptions regarding asset impairments, depreciation and amortization, and the valuation of derivatives and other financial instruments.

Conclusion

Ashford Hospitality Trust, Inc. is a REIT that has experienced significant improvements in its financial performance in the first half of 2024, driven by gains from asset sales and the derecognition of the KEYS A and B properties. The Company maintains a diversified portfolio of upper upscale hotels and a strong liquidity position, but faces challenges related to rising interest rates, upcoming debt maturities, and potential conflicts of interest with related parties.

Looking ahead, the Company’s key priorities include preserving capital, disposing of non-core assets, acquiring accretive properties, and pursuing capital market activities to enhance long-term stockholder value. The Company’s ability to successfully execute its strategies and navigate the evolving market conditions will be crucial to its future performance.