S-11/A: Ashford Hospitality Trust, Inc. Files for Offering of Up To $400 Million in Preferred Stock

Ashford Hospitality Trust, Inc. has filed an amended S-11 registration statement with the SEC to offer up to $400 million in Series L and Series M Redeemable Preferred Stock.

Summary

• Ashford Hospitality Trust, Inc. is a real estate investment trust (REIT) that primarily invests in upscale full-service hotels in the United States.
• The company has filed an amended S-11 registration statement with the SEC to offer up to $300 million in its primary offering consisting of 8,400,000 shares of Series L Redeemable Preferred Stock and 3,600,000 shares of Series M Redeemable Preferred Stock at $25.00 per share.
• An additional $100 million, consisting of 2,800,000 shares of Series L Preferred Stock and 1,200,000 shares of Series M Preferred Stock, is being offered pursuant to a dividend reinvestment plan (DRP) at $25.00 per share.
• The company's common stock and several series of preferred stock are listed on the New York Stock Exchange (NYSE).
• The offering is being conducted on a 'reasonable best efforts' basis through the company's affiliated dealer manager, Ashford Securities LLC.
• The primary offering is scheduled to terminate on the earlier of the third anniversary of the effective date of the registration statement or the date all shares are sold, unless extended or earlier terminated.
• The company intends to use the net proceeds from the offering for general corporate purposes, which may include repayment of debt, financing future hotel-related investments, redemption of outstanding preferred stock, capital expenditures, and working capital.
• As of September 30, 2024, the company owned interests in 69 consolidated operating hotel properties, representing 17,051 total rooms.
• The company's total indebtedness as of September 30, 2024, was approximately $2.7 billion, including approximately $2.5 billion of variable interest rate debt.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company is raising capital and has a clear investment strategy, the significant debt, lack of recent profitability, and the complex nature of the offering with its associated risks contribute to a cautious sentiment. The absence of a public market for the Preferred Stock and the company's reliance on an affiliated dealer manager further dampen the sentiment.

Positives

• The offering provides an opportunity for investors to earn a potentially attractive dividend yield through the Series L and Series M Preferred Stock.
• The Preferred Stock ranks senior to the company's common stock, providing a degree of priority in dividend payments and liquidation.
• The company has a diversified portfolio of hotel properties across the United States.
• The company's management team has experience in the hospitality industry.
• The company is externally advised by Ashford LLC, a subsidiary of Ashford Inc., which provides asset management and other services.

Negatives

• There is no public market for the Preferred Stock, and one is not expected to develop, limiting liquidity for investors.
• The Preferred Stock is subordinated to the company's existing and future debt, which could impact the company's ability to pay dividends or redeem shares.
• The company had a deficit in stockholders' equity of approximately $288.4 million as of September 30, 2024.
• The company has not generated current earnings from which a dividend is potentially payable since the year ended December 31, 2015.
• The dealer manager, Ashford Securities LLC, is an affiliate of the company's advisor, Ashford LLC, which may create a conflict of interest.
• The offering is not conditioned upon the closing of any specific property acquisitions, and the company has broad discretion in the use of proceeds.
• The company's ability to pay dividends and redeem shares may be limited by Maryland law and the company's financial condition.

Risks

• The hotel industry is highly competitive and subject to economic cycles, which could impact the company's performance.
• The company faces risks related to its significant level of indebtedness, including interest rate fluctuations and potential foreclosure by lenders.
• Changes in governmental regulations, tax laws, and accounting rules could adversely affect the company.
• The company's relationship with its advisor, Ashford LLC, and other related parties may create conflicts of interest.
• The company's ability to qualify and maintain its REIT status depends on various factors and compliance with complex tax rules.
• The ongoing conflict between Russia and Ukraine, the Israel-Hamas war, and other geopolitical conditions could negatively impact the travel industry and the company's operations.
• Extreme weather conditions and natural disasters may cause property damage or interrupt business at the company's hotels.
• The company faces competition from other hotel operators, ownership companies, and alternative accommodation providers.
• The company's properties are subject to various federal, state, and local regulations, including the Americans with Disabilities Act (ADA), zoning regulations, and environmental laws.
• Noncompliance with regulations could result in fines or other penalties.
• The company may be liable for the costs of removal or remediation of hazardous substances on its properties.
• The company's insurance coverage may not be adequate to cover all potential losses, including those from catastrophic events or certain types of uninsurable risks.

Future Outlook

The company intends to use the net proceeds from the offering for general corporate purposes, including payment of dividends, repayment of debt or other maturing obligations, financing future hotel-related investments, redemption of outstanding shares of preferred stock, capital expenditures, and working capital. The company will continue to seek ways to benefit from the cyclical nature of the hotel industry and may shift its investment strategy to take advantage of new lodging-related investment opportunities.

Industry Context

The announcement by Ashford Hospitality Trust to offer additional shares of preferred stock is a common strategy for REITs to raise capital. This comes at a time when the hospitality industry faces challenges from fluctuating interest rates, economic conditions, and geopolitical events. The company's focus on the upper upscale hotel segment positions it within a specific niche of the broader hotel market, which may be more or less resilient to industry headwinds compared to other segments.

Comparison to Industry Standards

• Ashford Hospitality Trust's focus on upper upscale full-service hotels with RevPAR generally less than twice the U.S. national average is a specific niche within the broader hospitality REIT sector. Other major hospitality REITs, such as Host Hotels & Resorts (HST) and Park Hotels & Resorts (PK), often focus on luxury and upper upscale properties in major urban and resort markets. For example, Host Hotels & Resorts reported a RevPAR of $215.65 for Q3 2024, significantly higher than Ashford's target.
• The company's total indebtedness of approximately $2.7 billion as of September 30, 2024, is a significant figure but needs to be evaluated in the context of its total assets and compared to its peers. For instance, as of their latest reports, Host Hotels & Resorts had total debt of approximately $4.5 billion, while Park Hotels & Resorts had total debt around $4.2 billion. These figures suggest that while Ashford's debt is substantial, it is not out of line with industry norms for large hospitality REITs.
• Ashford's offering of non-traded preferred stock is a less common capital-raising strategy compared to issuing common stock or debt. Other REITs like NorthStar Realty Finance Corp. have previously utilized non-traded preferred stock offerings, but the success and investor reception can vary widely.
• The dividend rates offered on the Series L and Series M Preferred Stock (7.5% and 7.7% initially, respectively) are competitive within the current market for REIT preferred stocks. However, the escalating dividend rate for the Series M Preferred Stock is a unique feature that is not commonly seen in similar offerings by other REITs.

Management Changes

Related Party Transactions

• The company is advised by Ashford LLC, a subsidiary of Ashford Inc., through an advisory agreement.
• Remington Hospitality, a subsidiary of Ashford Inc., manages 50 of the company's 69 operating hotel properties and three of the four Stirling OP hotel properties.
• Ashford Inc. provides other products and services to the company or its hotel properties through certain entities in which it has an ownership interest.
• The dealer manager for the offering, Ashford Securities LLC, is an affiliate of Ashford Inc.

Stakeholder Impact

• Shareholders: Potential dilution of common stockholders' interests if Preferred Stock is redeemed for common stock. Preferred stockholders will receive priority in dividend payments and liquidation preference.
• Employees: No direct impact mentioned, as the company does not have employees but relies on Ashford LLC for services.
• Customers: No direct impact mentioned.
• Suppliers: No direct impact mentioned.
• Creditors: The offering may be used to repay debt, potentially improving the company's financial position and reducing risk for creditors. However, the Preferred Stock ranks junior to all existing and future indebtedness.

Next Steps

• The company will continue with the offering process, working with its dealer manager to market and sell the Preferred Stock.
• The company will use the net proceeds from the offering for general corporate purposes as outlined in the prospectus.
• The company will monitor market conditions and adjust its investment strategy as needed.
• The company will continue to assess its existing hotel portfolio and make strategic decisions regarding acquisitions and dispositions.

Key Dates

Keywords

Ashford Hospitality Trust, REIT, Real Estate Investment Trust, Preferred Stock, Series L, Series M, Dividend, Redemption, Hotel Industry, Hospitality, Lodging, Full-Service Hotels, Upscale Hotels, Upper Upscale Hotels, RevPAR, Offering, SEC Filing, S-11, Ashford Securities, Dealer Manager, Underwriting, Dividend Reinvestment Plan, DRP, NYSE, AHT, Risk Factors, Liquidity, Indebtedness, Regulation, Compliance, Due Diligence