The Ashford Hospitality Trust is running out of billions of dollars in relief on its mortgage debt, and selling or returning assets to lenders seems almost certain.
Ashford Hospitality Trust, one of the biggest beneficiaries of a coronavirus aid program to U.S. small businesses – before the money was returned after the criticism – has a debt problem.
The Dallas-based residential real estate investment trust, which owns properties such as the Ritz-Carlton Atlanta and Le Pavillon in New Orleans, received $ 30 million from its $ 2 trillion paycheck protection program as part of the U.S. coronavirus relief package -Dollar.
Deep pocket companies and organizations like Ruth’s Chris Steak House and the Los Angeles Lakers got and gave back their PPP loans after scrutiny, but Ashford Trust chairman Monty Bennett held back initially, saying his trio of companies – to those also owned by Braemar Hotels & Resorts and Ashford Inc. – legitimately qualified for the program and needed the money to meet debt servicing and payroll obligations.
Bennett eventually promised to return the PPP money, but the Ashford Trust is still heavily in debt of $ 4 billion.
“We entered this crisis with too much leverage. It is something that we have previously looked for ways to reduce debt and have been unsuccessful, ”said J. Robison Hays, CEO of Ashford Trust, during the first quarter results conference call. “I’m not content with getting through this crisis and having a company that some investors think is not investable and some think it has too much leverage. I don’t agree with that. “
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Hays, who was announced as the new President and CEO of Ashford Trust at the height of the PPP audit, did not address the acceptance or return of these funds during the call on Thursday.
Ashford Trust executives blamed the coronavirus for the poor performance. The company lost $ 94.8 million in the first quarter. Revenue per room for the company’s 93 hotels fell nearly 23 percent over the same period. However, analysts noted that at the time of its controversial adoption of PPP funds, Ashford was already significantly in debt. The company ended the quarter with $ 4.1 billion in mortgage loans and $ 240 million in cash.
While Ashford Trust works with lenders to buy more time with three to six month deferrals, Hays said talks are not always successful. He added that the number of loans the Ashford Trust currently has is “extremely small”.
“We have had great working relationships with our brands. The brands have hunched back like our friends at Hilton, Marriott and Hyatt, ”Hays said of brands that expose brand standards and other ways to financially support owners. “By and large, the lenders did not take that approach and it was very frustrating. But we have to deal with that. “
Ashford Trust has been able to forbearance deals with some of its lenders and is making progress with others, but there is a limit to the company’s success in negotiations and new terms. The US Federal Reserve has given banks guidance on working with borrowers affected by the coronavirus and providing flexibility, said Deric Eubanks, chief financial officer of Ashford Trust. But banks only account for half of hotel debt, and there are fewer regulatory guidelines or incentives to be flexible with the remaining half of lenders.
“Our industry has just been shattered and really needs guidance from our government officials on how lenders should work with borrowers during this crisis,” Eubanks said.
A slimmed-down portfolio
Ashford Trust’s 116 hotel portfolio is unlikely to remain completely intact during the ongoing crisis.
The company abandoned three hotels in the 2008 financial crisis, Hays said, noting that the coronavirus pandemic is “far worse than this situation in terms of what we see and how certain assets can be underwater.”
Ashford Trust does not seek indulgence to buy recovery time. Instead, she wants to use this time to evaluate her portfolio and determine which properties should be saved and which are easier to sell.
“Our goal is to keep as much of these properties as possible and keep the portfolio as it is, but there is obviously the possibility that some of this may not happen,” Hays said. “We obviously have priorities and custodians and assets that, frankly, if we had to give them back, I would be fine. There is all of this. I just don’t know what the lenders are going to do. “
The Ashford Trust leadership claimed that financial problems were not confined to their own business, but to the hotel industry as a whole. Hays accused debt services and lenders of not yet acknowledging the “reality and depth” of the crisis, saying six months of indulgence was still not enough to help the hotel industry through a persistent, low-occupancy environment. He made no comment on a recovery prognosis other than saying, like most hotel managers, that car and leisure travel would return first.
“At some point, basically every hotel loan in America has to be restructured. I don’t know when that will happen. Of course we want this to happen sooner rather than later, ”said Hays. “I think that’s the case with almost every hotel loan. Nobody is ready to solve it, and that may have to come through persistent pain and watching us slowly crawl back. “