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, with approximately $2.4 million of restricted cash subject to these provisions.

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.

Outlook

The Company’s cash position and liquidity are expected to be adequate to meet its near-term obligations, but the Company may need to obtain additional financing or refinance upcoming maturities to execute its long-term strategy. The Company’s ability to do so will depend on market conditions and its financial performance.

The Company’s hotel portfolio faces competition from other hotels, home-sharing companies, and apartment operators offering short-term rentals in its markets. This competition could adversely affect occupancy, average daily rates, and revenue per available room at the Company’s hotels.

Overall, the Company is taking steps to improve its financial position, including disposing of non-core assets, refinancing debt, and working with lenders on the KEYS A and B loan pools. However, the Company’s future performance will depend on its ability to navigate the competitive landscape, access capital markets, and execute its strategic priorities.

Analysis

The key takeaways from the financial report are:

1. The Company is making progress in addressing its financial challenges, including the KEYS A and B loan pools, the Ashton Hotel, and its Oaktree term loan. The actions it has taken, such as the Marriott Crystal Gateway refinancing and the Oaktree Credit Agreement amendment, have improved its liquidity and reduced its debt burden.

2. The Company’s operating performance has been mixed, with declines in revenue and profitability in the third quarter of 2024 compared to the prior year, but significant improvements in the first nine months of 2024 compared to the same period in 2023. The gains on derecognition of assets and disposition of properties have been the primary drivers of the year-to-date improvement.

3. Liquidity remains a concern, as the Company may need to obtain additional financing or refinance upcoming maturities to execute its long-term strategy. The cash trap provisions in some of its loan agreements and the need to meet debt yield targets for loan extensions add further complexity to the Company’s financial management.

4. The Company’s hotel portfolio faces competitive pressures from other hotels, home-sharing companies, and apartment operators offering short-term rentals. This could continue to put pressure on occupancy, average daily rates, and revenue per available room at the Company’s hotels.

Overall, the Company appears to be making progress in addressing its near-term financial challenges, but it still faces significant hurdles in terms of accessing capital, managing its debt, and navigating the competitive landscape in the hotel industry. Investors should closely monitor the Company’s ability to execute its strategic priorities and improve its long-term financial performance.