Ashford Hospitality Trust(AHT) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited financial statements for the period ended September 30, 2020, reflect a severe negative impact from the COVID-19 pandemic, leading to significant asset and equity declines, plummeting revenues, and negative cash flow from operations Consolidated Balance Sheets | Balance Sheet Items (in thousands) | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $3,844,276 | $4,691,348 | | Total Liabilities | $3,990,413 | $4,352,212 | | Total Stockholders' Equity (Deficit) | $(166,933) | $268,762 | | Cash and cash equivalents | $120,916 | $262,636 | | Investments in hotel properties, net | $3,484,019 | $4,108,443 | | Indebtedness, net | $3,739,737 | $4,106,518 | - The company's financial position deteriorated significantly by September 30, 2020, with total assets declining by approximately $847 million and stockholders' equity shifting from a positive $268.8 million to a deficit of $166.9 million compared to year-end 2019[5] Consolidated Statements of Operations | Operating Results (in thousands) | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $93,043 | $374,237 | $417,985 | $1,148,103 | | Operating Income (Loss) | $(164,525) | $29,438 | $(365,702) | $102,200 | | Net Income (Loss) | $(151,626) | $(39,086) | $(495,632) | $(107,060) | | Net Loss Attributable to Common Stockholders | $(139,925) | $(41,822) | $(450,030) | $(117,409) | | Basic and Diluted EPS | $(11.89) | $(4.21) | $(41.92) | $(11.87) | - Total revenue for Q3 2020 collapsed by 75% year-over-year, leading to a significant operating loss of $164.5 million compared to an operating income of $29.4 million in Q3 2019. The net loss attributable to common stockholders more than tripled for the quarter[6] Consolidated Statements of Cash Flows | Cash Flow Summary (in thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(98,884) | $149,784 | | Net cash provided by (used in) investing activities | $(3,866) | $(247,176) | | Net cash provided by (used in) financing activities | $(85,046) | $62,709 | | Net (decrease) in cash, cash equivalents and restricted cash | $(187,796) | $(34,683) | - For the first nine months of 2020, the company experienced a severe reversal in operating cash flow, from a $149.8 million inflow in 2019 to a $98.9 million outflow, reflecting the deep impact of the pandemic on operations[17] Notes to Consolidated Financial Statements The notes detail the severe operational and financial distress caused by the COVID-19 pandemic, leading to a significant decline in RevPAR, suspension of dividends, and widespread loan defaults, raising substantial doubt about the company's ability to continue as a going concern - The company has determined there is substantial doubt about its ability to continue as a going concern within one year, citing the impact of COVID-19, uncertainty of future cash flows, and inability to consider remedies outside of its control like future fundraising or obtaining further forbearances[24] - Beginning April 1, 2020, the company defaulted on principal and interest payments for nearly all of its loans. While forbearance agreements have been executed for approximately $2.6 billion of its $3.7 billion in property-level debt, several lenders have issued acceleration notices and notices of UCC sales[23][52] - During Q3 2020, the company disposed of 12 hotel properties through sales, consensual assignments, or UCC foreclosures in response to loan defaults and maturities, resulting in a significant gain on extinguishment of debt of $90.3 million[38][41] - The company recorded impairment charges of $29.9 million for Q3 2020 and $85.1 million for the nine months ended September 30, 2020, primarily related to hotels that were disposed of or had reduced cash flow expectations due to the pandemic[42][43][45] - In June 2020, the company received an administrative subpoena from the SEC regarding related-party transactions since January 1, 2018, including its agreement with Lismore Capital LLC for debt modification services[106][179][192] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the catastrophic impact of the COVID-19 pandemic, leading to a 72% decline in RevPAR, widespread loan defaults, and liquidity constraints, raising substantial doubt about the company's ability to continue as a going concern - The company explicitly states there is substantial doubt about its ability to continue as a going concern and is analyzing strategic alternatives including raising capital, restructuring debt, or seeking protection under Chapter 11 of the United States Bankruptcy Code[116][145][147] - As of September 30, 2020, the company held $120.9 million in cash and cash equivalents and $89.5 million in restricted cash. It utilized $50.4 million of cash, cash equivalents, and restricted cash during the third quarter of 2020[116][145] | Key Performance Indicators (Comparable Hotels) | Q3 2020 | Q3 2019 | % Change | | :--- | :--- | :--- | :--- | | RevPAR | $37.90 | $143.64 | -73.6% | | Occupancy | 31.16% | 78.47% | -47.31 pps | | ADR | $121.62 | $183.05 | -33.6% | | Non-GAAP Measures (in thousands) | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Adjusted EBITDAre | $(22,727) | $103,091 | | Adjusted FFO | $(98,274) | $32,855 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate changes on its variable-rate debt, with a 25-basis point change impacting annual results by approximately $8.7 million - Of the company's $3.7 billion in total indebtedness, $3.5 billion is variable-rate debt. A 25-basis point change in interest rates would impact annual results by approximately $8.7 million[173] Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2020, due to a material weakness in accounting for troubled debt restructurings - A material weakness in internal control over financial reporting was identified related to the accounting for troubled debt restructurings. This led to a misstatement in the company's previously issued third-quarter earnings press release, which has since been amended[176] PART II. OTHER INFORMATION Legal Proceedings The company is involved in several legal proceedings, including a class action lawsuit and a critical SEC investigation into related-party transactions since January 2018 - In June 2020, the company, along with its advisor Ashford Inc. and other related entities, received an administrative subpoena from the SEC. The investigation focuses on related-party transactions since January 1, 2018, and the company's accounting and controls related to them[179][192] Risk Factors The company highlights severe risks amplified by the COVID-19 pandemic, including continued negative impact on RevPAR, widespread debt defaults, substantial doubt about going concern, potential delisting, and the risk of Chapter 11 bankruptcy - There is a substantial risk that it may be necessary for the company to seek protection under Chapter 11 of the United States Bankruptcy Code, which could place stockholders at significant risk of losing their entire investment[194] - The company has defaulted on its property-level secured debt, and failure to negotiate forbearance agreements may lead to lenders foreclosing on the hotels[182] - The company is dependent on its advisor, Ashford Inc., which has publicly disclosed that there is substantial doubt about its own ability to continue as a going concern[184] - The company is not in compliance with NYSE continued listing standards due to its low average market capitalization and negative stockholders' equity, creating a risk of delisting[187] Defaults Upon Senior Securities The company suspended quarterly cash dividends on its preferred stock for the second and third quarters of 2020 due to financial turmoil, resulting in significant dividend arrearage across all five series | Preferred Stock Series | Dividend Arrearage (in thousands, as of filing date) | | :--- | :--- | | 8.45% Series D | ~$2,524,000 | | 7.375% Series F | ~$4,425,000 | | 7.375% Series G | ~$5,715,000 | | 7.50% Series H | ~$3,562,000 | | 7.50% Series I | ~$5,062,000 |