Ashford not paying most loans but working with lenders
Ashford not paying most loans but working with lenders
22 MAY 2020 8:24 AM

Newly appointed President and CEO J. Robison Hays said he expects multiple Ashford Hospitality Trust properties to eventually be foreclosed and taken over by lenders, but it’s too early to predict what that will look like.

DALLAS—Ashford Hospitality Trust officials have said they’ve stopped making interest and principal payments on “nearly all” of their loans as first-quarter results show 90% of property-level employees were laid off and the company posted a $94.8-million net loss.

Speaking during a call with analysts to discuss quarterly earnings, newly appointed President and CEO J. Robison Hays said his company is working with lenders across its portfolio to varying degrees of success.

“Most discussions are on temporary forbearances, ranging three to six months or deferring interest to a later date,” said Hays, who took over as chief executive of the company earlier in the month after a tenure working as an executive across the Ashford group of companies.

Many lenders have been accommodating, or at least willing to listen, he said. But CMBS lenders have been reluctant to move, and others, are “frankly difficult to deal with.”

“They may see this as an opportunity to get restructuring fees or other things,” he said.

Hays pointed to the company’s Embassy Suites New York Manhattan Times Square property as one that has been a point of contention between Ashford and its lender. The property has remained open amid a uniquely difficult situation within New York housing only health care workers and first responders in the market. At the same time, the lender sought an acceleration of the debt.

“For a loan to be accelerated and (a lender) to take reserves to pay for a loan on a hotel in New York housing first responders doesn’t feel right,” he said.

CMBS lenders have suffered from a lack of broad-based guidance or clarity on what’s next for borrowers. Some, he said, are worried about making too many concessions and looking foolish in the case of a quick rebound.

“They’re a little overwhelmed, and nobody is engaging in serious discussions on how to solve the problem,” Hays said, noting the current range of forbearances are just the first step as virtually all borrowers in the hotel industry suffer in a similar situation as Ashford.

He said it could ultimately require the industry feeling more pain before the gravity of the situation sets in, and while Ashford officials are hopeful of governmental intervention to benefit the hotel industry, they aren’t counting on it.

“At some point in time, fundamentally every hotel loan in America will need to have some sort of restructuring, but I don’t know when that will happen,” he said.

When the dust settles on this crisis, Hays said Ashford will have to quickly pivot to do an analysis of the company’s long-term strategy and portfolio. It’s too early to say what that effort will ultimately yield, he said, but he expects everything to be on the table. Given the company’s current position, he expects leverage levels to be a big discussion point.

“I do think we’ve gone into this crisis with too much leverage,” he said.

According to the company’s latest earnings release, Ashford is carrying $4.1 billion in debt, all of which is non-recourse.

Hays said he’s not satisfied with the company simply surviving the current crisis, which he believes it's poised to do given its capital structure. He wants Ashford to come out of it a stronger company.

“We are set up with all non-recourse debt for a reason, and we’ve built cash balances for a reason,” Hays said. “We didn’t imagine this situation, but here we are.”

He noted that during the financial crisis of 2008 and 2009, the company ultimately surrendered three properties to lenders, and it’s unlikely the company comes out of this downturn unscathed.

“This is materially worse than that situation in what we’re seeing and how far underwater some assets are, so you can say it’ll probably be more than (three),” Hays said. “But as they say, if I owe you a dollar, that’s my problem, but if I owe you $1 million, that’s your problem. That’s what could happen with lenders. They’re so underwater and have so many problems.”

He said the company is working on what it needs to do to protect its portfolio going forward, identifying what properties to prioritize and what assets executives would be more comfortable with giving up.

For the short term, it seems like asset sales aren’t a solution, as Hays noted efforts to take hotels to market yielded offers roughly 40% lower than pre-COVID-19 valuations.

“And the reality is with our loans in default across our portfolio, it’s unlikely if we sold an asset that the net proceeds would come to us,” Hays said.

Hays and other executives did not discuss the controversy around Ashford’s use of Paycheck Protection Program loans, but they did note those funds were returned after guidance changes from the Small Business Administration made them less helpful for the company.

Q1 performance
According to Ashford’s Q1 earnings release, 23 of its properties are temporarily closed, with the remaining 93 “operating at reduced levels.”

Comparable revenue per available room fell 22.9% year over year to $95.16, and adjusted earnings before interest, taxes, depreciation and amortization for real estate was $47.4 million.

As of press time, Ashford Trust stock was trading at $0.68 a share, a 75.8% drop year to date. The Baird/STR Hotel Stock Index fell 37.5% for the same period.

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