AHT Stock: Ashford Hospitality Trust is Not the Best Hotel Stock

Earlier this yr, buyers piled into financial reopening and journey inventory names. This made sense. The media was enjoying up the “Roaring 20s” narrative because it was hoped that speedy vaccination charges and a surging economic system would result in a summer season of holidays, partying, and pent-up enthusiasm. Ashford Hospitality Belief (NYSE:AHT) inventory was one such winner amid this pleasure.


Supply: Marriott

Whereas 2021 was actually higher for journey firm operators than 2020, it has hardly been a golden age both. Vaccine charges have slowed down dramatically after a scorching begin. Politicians have put lockdowns and different Covid-19 restrictions again in place in some areas after illness variants have spiked. And many individuals stay afraid scared to journey given all of the uncertainty.

Not surprisingly, the rallies have fizzled out for the journey shares. They haven’t outright crashed once more, however they’ve badly lagged different sectors akin to know-how. Some journey shares look significantly better located than others to get via the present muddle. Sadly, AHT inventory is a type of that has a weaker outlook, as its debt and inventory dilution sap the fairness’s comeback potential.

The Money Isn’t as Significant as You Assume

Bulls love to notice that Ashford has practically half a billion {dollars} in money as of final quarter. That’s true. Nevertheless, it misses half of the stability sheet. The corporate additionally has $3.9 billion of internet indebtedness. In lots of instances, the debt is backed by lodges.

Ashford might want to both service that debt or it will lose management of lodges again to the mortgage lenders. In different phrases, with a view to preserve its lodges functioning, it might want to use a big portion of that money. Troublingly, the corporate at the moment has barely extra whole liabilities than belongings. This means that the fairness has minimal worth nowadays except it had been in a position to promote a few of its lodges at a revenue.

One other concern is that Ashford has delay a lot of its upkeep and enhancements spending on its lodges. That is smart. For one factor, there have been fewer shoppers, so modest points might be ignored for awhile given the dearth of demand. Additionally, with the corporate combating to get via the bust, even necessary repairs and renovations may be postponed so long as attainable. However sooner or later the invoice comes due.

Watch out for Money Traps

The corporate’s gigantic debt isn’t the one money problem that bulls have missed. There’s additionally the matter of so-called “money traps”. Ashford itself described what the time period signifies in a recent press release. A money lure “[M]eans any extra money circulate generated by these lodges might be held by the lender and won’t be accessible for company functions.” Ashford additional concedes {that a} gorgeous 98% of its lodges are at the moment money traps and that it anticipates lots of its lodges “to stay in money traps for the foreseeable future.”

Let’s be sure that’s crystal clear. Ashford’s lodges are considerably underneath the place they have to be by way of their loans. Which means incremental enchancment within the enterprise will profit the creditor primarily, as an alternative of going to Ashford. The charges of resort occupancy would wish to enhance markedly earlier than Ashford will attain a greater monetary outlook. And, extremely, that is affecting practically all of Ashford’s lodges proper now.

AHT Inventory Verdict

The financial restoration merely hasn’t been adequate to tug Ashford’s lodges out of misery. And, judging by the gradual restoration in enterprise journey – specifically – any potential comeback might take years. Airbnb (NYSE:ABNB) and different disruptive leisure vacation spot operations additionally proceed to select away on the vacationer facet of Ashford’s enterprise.

The corporate’s much-lauded money place is certainly sufficient to offer it some strategic choices. Ashford is unlikely to go bust within the close to future.

However there’s a giant distinction between merely surviving, as Ashford in all probability will, and making buyers complete on the present valuation. The corporate’s damaging tangible guide worth is a very cautionary signal so far as that goes.

There’s a gaggle of journey shares which merely have an excessive amount of debt and dilution to make it again to pre-Covid 19 ranges. AHT inventory falls into that class, and buyers holding on for a full restoration are sure to be upset.

On the date of publication, Ian Bezek didn’t have (both straight or not directly) any positions within the securities talked about on this article. The opinions expressed on this article are these of the author, topic to the Publishing Guidelines.

Ian Bezek has written greater than 1,000 articles for and In search of Alpha. He additionally labored as a Junior Analyst for Kerrisdale Capital, a $300 million New York Metropolis-based hedge fund. You’ll be able to attain him on Twitter at @irbezek. | AHT Inventory: Ashford Hospitality Belief is Not the Finest Resort Inventory


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