The Ashford Hospitality Death Spiral Continues

Lodging REIT Ashford Hospitality (AHT) continues down the road to insolvency.

It is likely many of you have followed this saga, but new twists and angles continue to be unveiled. I follow it a bit–not close as I have no dog in this fight.

AHT has 5 perpetual preferreds outstanding–which you can see here. Dividends have been suspended on the shares and each of the issues have tumbled another 25% in the last few days as survival seems bleak–all now trading in the $3’s.

AHT has offered an exchange of 5.58 common shares for each preferred share–or alternatively, for a very limited number of preferred holders, $7.75/share.

AHT currently has around 13 million common shares outstanding and the current offer on the table to the preferred holders would expand the number of common shares outstanding to a massive 140,000,000 shares.

Current common holders seem to be screwed no matter what they do. Common shares holders must be asked for approval to issue the new shares to the preferred holders–if they approve the exchange they will instantly be diluted into oblivion–if they don’t they can ride shares into Chapter 11 (maybe).

Preferred holders are pretty well screwed as well. They have been offered common shares which were trading higher when the exchange offer was made–but now are at $1.71/share today. If they do not exchange their shares the company is looking for approval to give them 1.74 common shares for each preferred share, instead of the 5.58 shares noted above.

Pile on top of this Cygnus Capital–a dissident holder has now come out against the exchange offer. Whether they have a clue as to what they are doing is anyone’s guess. Management obviously thinks Cygnus is clueless and has responded.

All I can say is ‘what a damned mess’. AHT now has a market cap of $24 million and debt of $4 billion — at least they had that debt before they turned over the keys on many of their hotels.

Regardless the saga may be drawing to a close soon.

12 thoughts on “The Ashford Hospitality Death Spiral Continues”

  1. SOHO is another circling the drain $1.72 – heading for a delisting at that rate, down about 8% today, SOHOO down 16% today, SOHOB down 15%.
    not long thank goodness

  2. I understand how the BK game is played but I seriously think it should be changed so that investors do not lose their investments. Rather than wipe out the common and preferreds, set up a game plan whereby the company works intensively under close supervision to improve their financials and wait for the markets to come back. Then resume the distributions. We should not be sacrificial lambs!

    1. jeff–in the case of AHT the writing of risk was on he wall for a long. long time and it is really about risk/reward–you get paid more for taking more risk. The company has been so poorly managed.

      1. Tim, I agree with you completely. However, management still gets a pass with Ch 11 BK while investors are sacrificed.

        1. Lee, we just have to remember that their are several parties always betting on/hoping for bankruptcy. In addition to the short sellers, there are many “vulture” investors looking to buy real estate on the cheap. Real estate investor Sam Zell has been labelled the “Grave Dancer” for buying distressed real estate. In addition the bankruptcy lawyers do not work for free. The main BK law firm for Lehman, Weil, Gotshal & Manges billed over $500 million for that case.

          I agree with you that AHT management has not been working for free. The question to ask is: “Is there any management team in the world that could come in and save AHT from bankruptcy?” My guess is NO. Companies get into this situation all of the time, sometimes it is beyond their control like the airline industry today. Without government handouts several of the major carriers if not all would be BK.

        2. It is way, way worse than management getting a “pass”. The operator of the AHT hotel portfolio is publicly traded AINC, which is essentially owned by the AHT management team and its CEO Monty Bennett.

          AINC has been sifting $10+ million in fees from AHT every quarter, including an $8.5 million quarterly management “advisory” fee from AHT when AHT’s REVPAR was $17 for 2Q 2020! AINC also received $1.5 million in “reimbursable” expenses during the 2nd quarter. Keep in mind many of the AHT hotels weren’t even open for much of the period 3/31/20 – 6/30/20.

          Management will likely continue to milk AHT dry.

  3. Tim, the AHT preferreds were hard hit in addition to all of the other hospitality REITS that have suspended dividends. Plus a few mall REITS thrown in for good measure. AHT-*, CBL-D, HT-*,MITT-*, PEI-*, SOHO* and a few others were all down more than 2.5%. And this was on a day when the median preferred was down 0.41%. The market seems to sell off issues with suspended dividends with a itchy trigger finger. . .

    1. Tex–was doing some reading tonight and the predictions of bk in the lodging and mall arena are getting more numerous and louder. I think the we are going to see many, many zombies go broke.

      1. Tim, this where the half assed balance sheet writers on SA get in trouble with this stuff. They look at various pieces of financial puzzle but dont know how to assimilate the info into an entire picture of financial health…They get stuck on things like non recourse debt, cash flow or access to revolver cash for liquidity, but have no clue to other things such as debt covenant violations.

      2. It seems odd that with this severe a downturn, you would think there would be a high profile bankruptcy at some point, like Lehman in 2008 and the automakers in 2009.

Leave a Reply

Your email address will not be published. Required fields are marked *