Executive Overview

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 September 30, 2024, the Company’s portfolio consisted of 68 consolidated operating hotel properties with 17,051 total rooms.

The Company’s key priorities and financial strategies include preserving capital, disposing of non-core hotel properties, acquiring accretive hotel properties, accessing cost-effective capital, opportunistically exchanging preferred stock into common stock, implementing capital improvements, effective asset management, financing and refinancing hotels, utilizing hedges and derivatives, and making other strategic investments or divestitures.

The Company is advised by Ashford LLC, a subsidiary of Ashford Inc., through an advisory agreement. Remington Hospitality, a subsidiary of Ashford Inc., manages 50 of the Company’s 69 hotel properties, while third-party management companies manage the remaining properties.

Recent Developments

The Company continues to work with the lender of the KEYS A and KEYS B loan pools on a consensual transfer of ownership of those hotels to the lender, which is expected to occur in the second half of 2024. In March 2024, the hotel properties securing these loan pools were transferred to a court-appointed receiver.

In June 2024, the Company was informed by its lender that the lender intended to exercise remedies for the maturity default on the Ashton Hotel in Fort Worth, Texas. The Company and the lender agreed to a deed-in-lieu of foreclosure, which was completed on July 16, 2024.

The Company has also taken several actions to improve its financial position, including:

• Refinancing the mortgage loan secured by the Marriott Crystal Gateway Hotel in Arlington, Virginia, which resulted in approximately $31 million of excess proceeds used to pay down the Oaktree term loan.
• Entering into a 90-day forbearance agreement for its $409.8 million mortgage loan secured by 17 hotel properties, with the expectation of finalizing a multi-year extension during the forbearance period.
• Amending the Oaktree Credit Agreement to reduce the exit fee from 15.0% to 12.5% of the original loan balance, provided the outstanding loan balance is reduced to $50 million or less by November 15, 2024.

Results of Operations

The Company’s net loss attributable to the Company decreased from $63.6 million in the third quarter of 2023 to $57.9 million in the third quarter of 2024. This was primarily due to:

• A $57.6 million decrease in rooms revenue, primarily from the Company’s hotel dispositions and the KEYS A and B properties that went into receivership.
• A $37.8 million decrease in hotel operating expenses, also due to the hotel dispositions and KEYS A and B properties.
• An $8.2 million decrease in depreciation and amortization expense.
• An $11.1 million gain on the derecognition of assets related to the KEYS A and B properties.

For the first nine months of 2024, the Company reported net income attributable to the Company of $63.9 million, compared to a net loss of $149.1 million in the same period of 2023. This significant improvement was primarily driven by:

• A $156.7 million gain on the derecognition of assets related to the KEYS A and B properties.
• A $94.4 million gain on the consolidation and disposition of assets and hotel properties.
• Decreases in hotel operating expenses, depreciation and amortization, and interest expense.

Liquidity and Capital Resources

As of September 30, 2024, the Company held $119.7 million in cash and cash equivalents and $114.3 million in restricted cash. The Company’s net debt to gross assets was 66.3%.

The Company’s 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 may need to obtain additional financing or refinance upcoming maturities, and there are no assurances that it will be able to do so on favorable terms.

Certain of the Company’s loan agreements contain cash trap provisions that may be triggered if the performance of its hotels declines below a threshold. At September 30, 2024, 12 of the Company’s hotels were in cash traps, which could limit its flexibility and adversely affect its financial condition or REIT qualification.

The Company has extension options on certain property-level loans that require it to meet debt yield targets in order to extend the maturity dates. There is no assurance that the Company will be able to meet these conditions.

Seasonality

The Company’s hotel properties have historically experienced seasonal fluctuations in occupancy rates, with higher occupancy during the summer months and lower occupancy during the winter months. This seasonality can cause fluctuations in the Company’s quarterly lease revenue under percentage leases.

Non-GAAP Financial Measures

The Company presents several non-GAAP financial measures, including EBITDA, EBITDAre, Adjusted EBITDAre, FFO, and Adjusted FFO, to help investors evaluate its operating performance. These measures exclude certain items, such as depreciation and amortization, gains or losses on asset dispositions, and non-cash or non-recurring items, to provide a better understanding of the Company’s core operations.

Outlook

The Company’s current investment strategy is to focus on owning predominantly full-service hotels in the upper upscale segment in domestic markets. 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.

The Company’s ability to pay dividends to its preferred or common stockholders will depend on its receipt of distributions from its operating partnership, which in turn depends on the performance of its hotel properties and general business conditions. The Company does not anticipate paying any dividends on its outstanding common stock for any quarter during 2024 and expects to pay dividends on its outstanding preferred stock during 2024.

Analysis

The key takeaways from the financial report are:

1. The Company has been actively managing its portfolio, disposing of non-core hotel properties and working with lenders on the KEYS A and B loan pools. These actions have resulted in significant gains and improved the Company’s financial position.

2. The Company’s operating performance has improved, with a decrease in net loss in the third quarter and a shift to net income for the first nine months of 2024, driven by lower expenses and gains on asset dispositions and derecognition.

3. Liquidity remains a concern, as the Company may need to obtain additional financing or refinance upcoming maturities, and its loan agreements contain cash trap provisions that could limit its flexibility.

4. The Company’s focus on owning upper upscale hotels in domestic markets appears to be a sound strategy, though it remains exposed to the cyclical nature of the hotel industry and potential changes in market conditions.

5. The Company’s use of non-GAAP financial measures, such as EBITDA and FFO, provides investors with a better understanding of its core operating performance, though these measures should be considered alongside the GAAP financial statements.

Overall, the Company seems to be making progress in improving its financial position and operating performance, but it still faces challenges related to liquidity and the cyclical nature of the hotel industry. Investors should closely monitor the Company’s ability to refinance or extend its upcoming debt maturities, as well as its success in executing its investment strategy and managing its hotel portfolio.