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Hotelier Finds Market Challenging as It Tries To Refinance, Sell Off Properties

Ashford Hospitality Trust's Ritz-Carlton Atlanta, a 444-room luxury hotel along Peachtree Street, is getting a new lobby and bar. (CoStar)

Ashford Hospitality Trust, a U.S. hotel owner that has been grappling with financial troubles since the onset of the pandemic, is seeking to hold debt on its portfolio as executives negotiate with lenders on two loan maturities this year.

The commercial real estate industry faces a glut of loans coming due, and analysts have forecast a growing number of defaults in an environment where refinancing with high interest rates has proved difficult.

The Dallas-based real estate investment trust with 100 hotels and 22,316 rooms throughout the United States has been marketing a number of undisclosed hotels to would-be buyers for months. But without access to debt markets and with few buyers, CEO Rob Hays told investors the REIT is unable to trade under current market conditions.

“Capital recycling remains an important component of our strategy and we continue to pursue opportunities to sell certain noncore assets,” Hays told investors Tuesday during an earnings call. “We’ve identified several assets that we may bring to market for sale if market conditions warrant. The proceeds of those sales would go towards paying down debt.”

Even with plans to sell hotels, Hays admitted to investors it wasn’t an easy proposition in this debt-challenged market.

“The transaction market out there is pretty soft with where debt markets are,” he added. “In terms of where values are on assets, it’s kind of hard to say. You definitely don’t want to be in a position where you are focused to market an asset, but, at the same time, there’s a lack of transaction market. Hopefully, as we are negotiating with lenders, those factors are taken into account.”

Ashford reported a $64.6 million loss for the first quarter ending March 31, with total loans of $3.8 billion with a blended interest rate of 7.1%. At the end of the first quarter, about 40% of the REIT’s hotels were 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. This continues a downward trend from the fourth quarter, for which Ashford reported 79% of its hotels were in cash traps.

Ashford’s tax team was able to find $1.6 million in property tax savings in its portfolio, including saving more than $600,000 of taxes proposed for The Ritz-Carlton Atlanta. The luxury hotel along Peachtree Street is also in the process of getting a new lobby and bar, with other upgrades coming to select hotels in Ashford’s portfolio in the year ahead. In all, the REIT has earmarked $110 to $130 million for capital expenditures this year.

The REIT has $442 million of working capital, Hays said, adding it successfully extended two of its loans — thanks to paydowns totaling $95 million — through next year. He said he’s in ongoing negotiations on two additional loan maturities this year.

“The challenging debt financing markets for hotels have been around for months now and they are not getting any better,” he told investors. “The spreads are historically wide and I’m hopeful we are getting to the end of the Fed raising rates. It’s a weird dynamic. Hotels are performing well, but there’s a disconnect between the capital markets and the underlying fundamentals.”

Ashford is working with a lender to refinance La Posada de Santa Fe and the Hilton Alexandria loans, which are the REIT’s only final debt maturities in 2023. In the deals, Ashford isn’t expected to pay down the outstanding balances on the loans, with Hays telling investors, “My goal is to keep the debt in place for as long as we can.”

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