A U.S. hotelier hit by the financial fallout from the pandemic is planning on selling two hotels by the end of the year in a move it could replicate as it works to deleverage its balance sheet.
Dallas-based Ashford Hospitality Trust has one hotel under contract and another on the market. Both are what the real estate investment trust calls non-core properties in its portfolio of 100 hotels with 22,313 rooms. More details about the two hotels were not immediately available.
President and CEO Rob Hays told investors Wednesday morning during a quarterly earnings call that the sale of the two hotels this year is expected to bring between $15 million and $20 million in proceeds that will go toward paying down debt and continuing to deleverage the company's balance sheet.
The move in selectively selling some of its real estate assets is one Ashford Hospitality will likely employ again, Hays told investors.
"There's a reason these assets are on the market or for sale," Hays said. "They either have lower [revenue per available room] on the full-service assets or they have [capital expenditure] needs, or they are select-service hotels that do not fit into our plans for long-term holds."
The REIT did not immediately respond to a request from CoStar News for more information. It is complex for Ashford Hospitality to sell some of its hotels since different types — some full service, some select service — are financed together, and in order to sell the two non-core hotels, Hays said the company would have to finance some of those loans.
Ashford Hospitality had funds from operations, a key performance metric for REITs, of $44.6 million in the second quarter, and reported a loss of $9.3 million for the quarter. This comes as the REIT chipped away at hotels in so-called cash traps under their loans, meaning any excess cash flow generated by the hotels would be held by the lender and not available for corporate purposes.
At the end of fiscal 2021, Ashford Hospitality's executives reported about 93% of the hotels in its portfolio were in cash traps. That number improved in the second quarter, down to 85%, executives said. The Renaissance Nashville Hotel, which has previously been marketed by the REIT, and the Hilton Boston Back Bay Hotel were two hotels exiting cash traps during the quarter, Hays said.
As of June 30, the company had $3.9 billion in loans with a blended average interest rate of 5.6%.
Meanwhile, the hotelier's properties continued to see performance climb throughout the quarter with the expectation that this will continue into the next quarter. During the second quarter, occupancy increased 28.8% compared with the same period last year, with the average daily rate also increasing by more than 34% year over year. The company has $615 million of working capital as of June 30.
"We've seen sequential RevPAR improvement as we have moved throughout the second quarter with every month getting better," Hays said. "June was our best RevPAR month thus far."
Ashford Hospitality also expects to benefit from issuing non-traded preferred equity during the third quarter, which Hays said could allow the company to grow its portfolio in the future and help improve the REIT's balance sheet. Citing a recent CBRE report, Hays, who recently spoke at a conference about potential investors looking at the hospitality sector, said the REIT, like other hoteliers, is able to adjust prices quickly to inflation unlike other property owners with yearlong leases for apartment tenants or yearslong leases for office tenants.
"While the macro-economic outlook is uncertain, we continue to be pleased with how our portfolio is performing and believe we are well-positioned for any economic scenario," Hays added.