Ashford Hospitality Trust - Earnings Call - Q1 2025

Executive Summary

• Comparable RevPAR rose 3.2% YoY to $133, with comparable hotel EBITDA up 8.7%; GAAP diluted EPS was -$4.91 and Adjusted EBITDAre was $61.7M, reflecting cost controls and ancillary revenue initiatives under “GRO AHT”.
• Versus Wall Street: EPS materially beat consensus while revenue modestly missed; Adjusted EBITDAre exceeded consensus EBITDA, aided by corporate and property-level savings and brand conversions (La Concha, Le Pavillon).
• Balance sheet de-risking: fully repaid corporate strategic financing using proceeds from a $580M refinancing; extended a $410M Morgan Stanley pool to 2026–2028 with asset release flexibility, improving maturity profile.
• Near-term catalysts: execution on asset dispositions at attractive cap rates, continued GRO AHT savings (> $30M annual run-rate already identified), and event-driven/group demand strength in key markets (D.C., Miami, Dallas).

What Went Well and What Went Wrong

What Went Well

• Brand conversions outperformed: Le Pavillon (Tribute) +78% total revenue YoY; La Concha (Autograph) +27% total revenue YoY, with strong ADR and occupancy gains, supporting portfolio mix upgrade and incremental EBITDA.
• Event-driven group strength: inauguration-related demand drove 95% occupancy across D.C. hotels and ~$1.6M incremental room revenue; FIFA World Cup pipeline cited for 2026, with group pace ahead across 2025–2026.
• Capital structure improvement: $580M nonrecourse refinancing (SOFR+4.37%) funded payoff of corporate strategic financing; Morgan Stanley 17-hotel loan extended to 2026–2028; ongoing flexibility for asset releases.
• Management quote: “Completely eliminating our corporate-level debt strengthens our balance sheet…positions Ashford Trust for long-term success” – CEO Stephen Zsigray.

What Went Wrong

• Reported hotel revenue declined YoY due to portfolio changes; GAAP net loss attributable to common stockholders was -$27.8M, and AFFO/share was -$0.98, reflecting interest expense and non-comparable adjustments.
• Government segment softness, particularly in D.C., led to cancellations and near-term block reductions; management is backfilling with business transient and other segments.
• Some markets saw weakness or mixed trends: Minneapolis and San Diego underperformed; New York/New Jersey modest; select “Other Areas” down on hotel net income contributions.

Transcript

Operator (participant)

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ashford Hospitality Trust first quarter 2025 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. I would now like to turn the conference over to Deric Eubanks, Chief Financial Officer. Please go ahead.

Deric Eubanks (CFO)

Good morning, and welcome to today's conference call to review results for Ashford Hospitality Trust for the first quarter of 2025 and to update you on recent developments. On the call today will also be Stephen Zsigray, President and Chief Executive Officer, and Chris Nixon, Executive Vice President and Head of Asset Management. The results, as well as notice of the accessibility of this conference call on a listen-only basis over the internet, were distributed yesterday afternoon in a press release. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the federal securities regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties, and known or unknown risks, which could cause actual results to differ materially from those anticipated.

These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus, which can be found at www.sec.gov. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on May 6, 2025, and may also be accessed through the company's website at www.ahtreit.com.

Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. Also, unless otherwise stated, all reported results discussed in this call compare the first quarter ended March 31, 2025, with the first quarter ended March 31, 2024. I will now turn the call over to Stephen Zsigray. Please go ahead.

Stephen Zsigray (President and CEO)

Good morning, everyone, and thank you for joining us today. After my introductory comments, Deric will review our first quarter financial results, and then Chris will provide an operational update on our portfolio. Our first quarter performance was highlighted by 3.2% comparable RevPAR growth, 3.6% comparable total revenue growth, and 8.7% growth in comparable hotel EBITDA. We're very pleased with these results, which clearly underscore the impact of the strategic decisions our team has made over the past several quarters and the strength of our high-quality, geographically diverse portfolio. We're also happy to report the first full quarter results following our recent conversions of the La Concha Hotel in Key West to Marriott's Autograph Collection and the Le Pavillon Hotel in New Orleans to Marriott's Tribute Portfolio.

Le Pavillon had an outstanding quarter with 78% total revenue growth over prior year quarter, while La Concha realized 27% total revenue growth over the same period. Late last year, we announced GRO AHT, a transformative initiative aimed at driving $50 million in run rate EBITDA improvement. Realizing outsized improvement in property-level performance is critical to achieving that goal, and our nearly 9% year-over-year improvement in comparable hotel EBITDA for the quarter reflects the tremendous efforts that our asset management team and property managers have made to drive revenue growth while aggressively managing operating expenses. In addition to strong property performance, we've also realized substantial reductions to corporate expenses as part of our GRO AHT initiative. Our board of directors approved a 50% reduction in cash compensation for board members while also reducing the current size of the board from nine members down to seven.

Additionally, total incentive awards granted to executive management and other associates were reduced by more than 50% relative to recent years. Lastly, our advisor, Ashford Inc., has now fully implemented a number of corporate cost savings measures for Ashford Trust. Several initiatives remain underway, but we now expect fully implemented GRO AHT initiatives to contribute more than $30 million of run rate EBITDA improvement towards our $50 million goal. Since year-end, we've also continued to make improvements to our capital structure. In January, we closed on the sale of the Courtyard Boston Downtown for $123 million. The 6.9% trailing cap rate achieved on sale highlighted the intrinsic value within our portfolio, provided important deleveraging for our largest loan pool, and resulted in significant capital expenditure savings. In mid-February, we completed the refinancing of 16 assets spanning four mortgage loans with final maturities in the first half of the year.

This refinancing also enabled us to achieve another significant milestone as we fully repaid the remaining balance on our corporate strategic financing, leaving the company completely free of corporate debt. In late February, we extended our mortgage loans secured by the 141-room Hotel Indigo Atlanta Midtown in Atlanta, Georgia. The extension provides for an initial maturity of February 2026 and a one-year extension option subject to the satisfaction of certain conditions, with a final maturity date in February 2027. The loan has a current balance of $12.3 million and bears interest at a floating rate of SOFR +2.75%. Most recently, in April, we extended our MS 17 mortgage loan secured by 17 hotels. The extension provides for an initial maturity in March 2026 and two one-year extension options subject to the satisfaction of certain conditions, with a final maturity date in March 2028.

The loan has a current balance of $410 million and continues to bear interest at a floating rate of SOFR plus 3.39%. As previously discussed, our non-traded preferred stock offering closed at the end of March. This capital raise allowed us to access substantial capital totaling $212 million in gross proceeds. We have launched our follow-on offering of non-traded preferred stock and expect this to be an important source of capital for continued deleveraging and future growth. We believe these coordinated efforts are opening a new chapter for Ashford Hospitality Trust, and the collective impact was evident in our company results for the first quarter. Looking ahead to the rest of 2025, while macroeconomic events have introduced uncertainty to industry forecasts, we remain focused on controlling what we can control and achieving our GRO AHT goal by maximizing the performance and value of our hotels and further reducing corporate expenses.

We also plan to continue making improvements to our capital structure by pushing out remaining near-term debt maturities and exploring strategic dispositions to better position the company moving forward. I will now hand the call over to Deric to review our first quarter financial performance.

Deric Eubanks (CFO)

Thanks, Steven. For the first quarter, we reported a net loss attributable to common stockholders of $27.8 million, or $4.91 per diluted share. For the quarter, we reported AFFO per diluted share of -$0.98. Importantly, total AFFO improved by $8.2 million over the prior year quarter. Adjusted EBITDA RE for the quarter was $61.7 million, which reflected a $2.2 million increase over the prior year quarter. With total revenue down $26.5 million compared to the prior year quarter, this adjusted EBITDA RE result reflects our focus on cost-saving measures at both the property level and corporate level. At the end of the first quarter, we had $2.6 billion of loans with a blended average interest rate of 8.1%, taking into account in-the-money interest rate caps.

Considering the current level of SOFR and the corresponding interest rate caps, approximately 23% of our debt is now effectively fixed, and 77% is effectively floating. We ended the quarter with cash and cash equivalents of $85.8 million and restricted cash of $139.2 million. The vast majority of that restricted cash is comprised of lender and manager-held reserve accounts and $2.6 million related to trapped cash held by lenders. Our restricted cash increased $39 million from the previous quarter, and the vast majority of that cash is set aside for future capital expenditures. At the end of the quarter, we also had $22.1 million due from third-party hotel managers. This primarily represents cash held by one of our property managers, which is also available to fund hotel operating costs. We ended the quarter with networking capital of approximately $156 million, which was $34 million higher than the previous quarter.

As of March 31, 2025, our consolidated portfolio consisted of 72 hotels with 17,329 rooms. After taking into account our recently completed one-for-ten reverse stock split, our share count currently stands at approximately 5.9 million fully diluted shares outstanding, which is comprised of 5.8 million shares of common stock and 0.1 million OP units. As Stephen mentioned, we closed our offering of Series J and Series K non-traded preferred stock on March 31, 2025. Since launching the offering in 2022, we raised approximately $212 million of gross proceeds from the sale of our Series J and Series K non-traded preferred stock. While we are currently paying our preferred dividends quarterly or monthly, we do not anticipate reinstating a common dividend in 2025. This concludes our financial review, and I would now like to turn it over to Chris to discuss our asset management activities for the quarter.

Chris Nixon (EVP and Head of Asset Management)

Thank you, Deric. During the first quarter of 2025, our geographically diverse portfolio delivered strong results, highlighting both the quality of our assets and the effectiveness of our strategic initiatives. Comparable hotel RevPAR increased by 3% over the prior year period, reflecting the successful execution of our top-line strategies. This performance was supported by our ability to capture elevated demand tied to the presidential inauguration and several high-profile events. In Washington, D.C., over the three-day period extending from January 18 through January 20, the inauguration-related demand drove 95% occupancy across our hotels and generated over $1.6 million in incremental room revenue compared to the prior year period. We are particularly proud of our asset management team, whose exceptional efforts were instrumental in driving these results, despite continued softness in the government segment and related travel.

Even with these challenges, hotel EBITDA across the entire portfolio grew 9% during the first quarter over the prior year quarter. These results were driven in large part by implementation of several GRO AHT initiatives that were in full swing during the quarter. The property's disciplined focus on maximizing ancillary revenue and executing targeted expense management strategies has set a strong foundation for the year ahead. With that, I would now like to highlight a few of the recent success stories from across our portfolio. Group room revenue pace remains positive across the portfolio despite broader macroeconomic pressures. Every quarter of 2025, group rate is pacing ahead of the respective prior year periods. Starting in February, we observed softness in a few markets, largely attributable to recent policy changes and actions by Doug.

The top five hotels in the portfolio by key count closed the quarter with a 10% increase in group room revenue pace compared to the prior year. Looking ahead, these properties are well-positioned for sustained performance, with group room revenue pace up 6% for the full year 2025 and 6% for 2026. We are also encouraged by the pipeline of event-driven opportunities, particularly the FIFA World Cup 2026, which will run from early June through mid-July across several key U.S. markets, including Miami, Dallas, and Washington, D.C. Turning to operating margins, as we have discussed on prior calls, we remain focused on reducing costs through operational improvements and enhanced efficiencies. I am pleased to report that first quarter hotel EBITDA margin expanded by approximately 131 basis points compared to the prior year period.

As part of our GRO AHT initiative, we have taken decisive strategic actions over the past several months to enhance hotel-level EBITDA and improve overall profitability while maintaining service standards. As Stephen mentioned, we have worked closely with our largest property manager, Remington, as well as other brand managers to implement a range of cost optimization measures. Looking ahead, we believe the GRO AHT initiative positions us to establish a more sustainable and efficient operating model. As we move through the remainder of 2025, we will continue to proactively identify new opportunities to strengthen hotel-level performance and maximize long-term value. Last quarter, we highlighted the completion of our strategic repositioning of Crowne Plaza in Key West, Florida, into La Concha, now part of Marriott's Autograph Collection. The property officially converted on December 6, following a $36 million renovation.

In its first full quarter under the Autograph flag, the hotel delivered strong results, with RevPAR up 16% and total revenue increasing 27% compared to the prior year period. We anticipate continued upside as four new food and beverage outlets ramp up, including a full-service dinner restaurant that launched midway through the first quarter of 2025. Le Pavillon also delivered a solid first quarter following its conversion to Marriott's Tribute Portfolio. RevPAR increased 87% over the prior year period, and hotel EBITDA reached $1.3 million, an improvement of nearly $1 million compared to the prior year period. The hotel benefited from both its brand repositioning and heightened demand associated with the Super Bowl and Mardi Gras, driving a 313% increase in group room revenue compared to the prior year period. During Super Bowl weekend, Le Pavillon achieved 100% occupancy for four consecutive nights, with ADR exceeding $900 per night.

Turning to the impact of the 2024 Florida hurricane, several of our properties played a meaningful role in supporting recovery efforts during the first quarter. Residence Inn Orlando SeaWorld and Hilton Tampa provided extended accommodations to construction crews and displaced residents, helping meet critical housing needs during a period of disruption. Residence Inn Orlando was the only hotel in its competitive set registered for the FEMA program, which allowed the hotel to support federal recovery efforts by providing nearly 4,500 room nights to those affected. This generated approximately $1.2 million in revenue while serving as a vital resource for the community. Moving on to capital expenditures, during the first quarter of 2025, we advanced several key property improvement initiatives aligned with brand franchise agreement renewals and our ongoing commitment to elevating our guest experience.

Notable projects included the launch of a comprehensive guest room renovation at Courtyard Bloomington, the completion of a public space renovation at Hampton Inn Evansville, and the guest room renovation at Embassy Suites West Palm Beach. In the second quarter, we will begin a guest room renovation at Hilton Garden Inn Austin, which will also include upgrades to the restaurant and meeting space, enhancing the property's appeal and leveraging its premier downtown location. Looking ahead, we plan to initiate additional capital projects later this year, including a guest room renovation at Hilton Garden Inn Virginia Beach, public space enhancements at the Westin Princeton, and the strategic brand conversions of Sheraton Mission Valley and Sheraton Anchorage into Hyatt Regency Hotels. These initiatives are consistent with our disciplined capital deployment strategy and underscore our focus on long-term value creation through portfolio quality and brand alignment.

For full year 2025, we anticipate capital expenditures will range between $95 million and $115 million. Looking ahead, we are actively rolling out additional GRO AHT initiatives aimed at enhancing operational performance. We are also focused on reducing energy costs, optimizing contract labor utilization, and cutting travel expenses, all designed to drive efficiency, lower costs, and improve profitability. We remain optimistic about our portfolio's outlook for 2025 and are confident in our ability to unlock additional value. That concludes our prepared remarks, and we will now open up the call for Q&A.

Operator (participant)

We'll take our first question from the line of Jonathan Jenkins with Oppenheimer & Company. Please go ahead.

Jonathan Jenkins (Equity Analyst)

Good morning. Thank you for taking my questions. First one for me, I wanted to dive into the portfolio trends. Can you maybe help us think about the monthly RevPAR progression in the quarter and the impact of calendar shifts, what impact that had on March and April, and what you're seeing more real-time in demand trends given the industry had a somewhat volatile March coupled with some calendar shifts and other factors?

Chris Nixon (EVP and Head of Asset Management)

Yeah, Jonathan, I can take that. This is Chris. January was the strongest month of the quarter. Right after inauguration, when many of the Doug initiatives went into effect, is when we started to see softening. There were some other headwinds within the quarter. February losing February 29 in the comparable to last year being a leap period certainly played an impact. Easter moving into April certainly helped March and will have an impact on April. In terms of the broader trends, we mentioned softening in certain markets from the group segment. We're certainly seeing that. It's not across the board. Corporate group and the entertainment segments within our group customers are still fairly resilient, fairly strong. We did see some cancellations within the D.C. market. Cancellations outside of D.C. have subsided. We're not seeing a lot of cancellations outside of D.C.

There are some reductions in block, but a lot of the kind of softening is very short-term. We are not seeing anything really into 2026 at this time. I mentioned the government pullback. That is primarily impacting D.C. The good news is that as we are working to backfill that business, we are seeing strength in other segments, especially in the D.C. market. We are working very hard to go after new business transient accounts. We are revisiting some of the accounts that we were not interested in before. Business transient pace in D.C. is up significantly in Q2. We are being successful in kind of navigating those trends and backfilling that business. Our focus is heavily on labor and, as Stephen said, kind of controlling what we can control. Very happy with productivity. We saw enhancements over last year in our occupied room.

We're running much more efficient hotels still than we were in 2019. Our contract labor utilization is down. Hourly wages are stabilizing. A lot of those things are what drove and played a key role in our EBITDA gains, and we expect those to continue as we move ahead.

Jonathan Jenkins (Equity Analyst)

Okay, that's great color there, Chris. Maybe following up on that, and this might be difficult to quantify or estimate, but how much of the portfolio do you think is exposed to kind of international inbound travel and government demand? It sounds like more recent demand volatility is attributable to calendar shifts and the pause given the uncertainty versus any type of structural slowdown in demand. Is that a fair characterization of your comments?

Chris Nixon (EVP and Head of Asset Management)

Yes, it's definitely isolated in the short term. In terms of international, it's a very small percentage of this portfolio's demand. It's less than 5%. Government is a little bit larger, but far less than group or leisure, and it's particularly isolated to D.C. Again, where we're seeing declines in government outside of the D.C. market, it's more associated with government contractors, and that is such a small percentage of those hotels' business. Where we are seeing the declines in government in D.C., we've been able to backfill with other segments, and we're fairly confident that'll be the case as we move forward as well.

Jonathan Jenkins (Equity Analyst)

Yeah, that's very helpful. Maybe switching gears to the AHT GRO initiative, it's already delivering impressive results, almost 60% of the way to the target. Can you help us think about how much of that low-hanging fruit has been harvested and kind of your takeaways or areas of success, and then what kind of areas or potential opportunities remain in your confidence to get to that $50 million goal?

Deric Eubanks (CFO)

Yeah, sure. I think certainly the low-hanging fruit's always kind of the first to go. But we do still have some really chunky pieces of this. I think there's still $10 million-plus of improvement that we hopefully will be able to make at the corporate level. And then the other piece of it is going to play out over time. It's growing index, and it's very difficult for us to kind of report on, okay, where do we think this lands as a percent of the goal? So my expectation is that we've actually probably already achieved a little bit more than that. It's just hard to quantify exactly what that is, and we'll continue to make updates as we get further into the year, but still feel very good about our ability to deliver on that $50 million goal.

Jonathan Jenkins (Equity Analyst)

That's great color there. Switching gears into the Bamel Island loan, I'm sorry if I missed this. Is there any update there or update on conversation with lenders? How are you thinking about that maturity?

Deric Eubanks (CFO)

Yeah, so we do have a forbearance agreement in place. We've got an extension option to next month. We continue to work both with the existing lenders and other lenders on potential refinancing, but do expect that we'll come to a conclusion on that one that's favorable.

Jonathan Jenkins (Equity Analyst)

Okay, appreciate that. Then last one for me, if I could. The Morgan Stanley loan extension, in that press release, there was some commentary about the potential for asset sales. Any color about how you're thinking about potential dispositions just broadly and what the market's pricing currently? Any color would be helpful on that.

Deric Eubanks (CFO)

Yeah, yeah, absolutely. As it relates to sales, there have been two big developments lately that have allowed us to kind of shift our focus as it relates to sales. First, we paid off our Oaktree corporate strategic financing in February. That had us very focused on our biggest assets with the most equity because we were trying to generate cash proceeds to pay down that loan. Now that that's behind us, we've been able to shift that focus a bit. Secondly, as you mentioned with that particular loan pool, as we've negotiated extensions on a lot of our existing loans, we've been very focused on obtaining flexibility on asset release prices. A lot of these loans are from pre-COVID, and the portfolios have changed and the valuations have changed significantly.

Having flexibility to sell assets that is not necessarily tied to where their values were seven or eight years ago has considerably expanded our flexibility across the portfolio to explore assets and be more opportunistic in what we are looking to sell. We primarily are focused, I would say the high end of the range is probably $50 million-$75 million of equity value right now. Primarily select service and some of our underperforming assets in the full-service segment that we believe selling for relatively attractive cap rates, relative to the cash flow those things are throwing off, will allow us to continue to deleverage and continue to make significant improvements to our capital structure overall.

Jonathan Jenkins (Equity Analyst)

That's perfect. Thank you for all the color and for everyone's time today. That's all for me.

Operator (participant)

That will conclude our question and answer session. I'll hand the call back to management for any closing comments.

Deric Eubanks (CFO)

Thank you for joining today's call, and we look forward to speaking with you all again next quarter.

Operator (participant)

That will conclude today's meeting. Thank you all for joining. You may now disconnect.