Ashford Prime Reports Second Quarter 2017 Results

DALLAS, Aug. 2, 2017 /PRNewswire/ -- Ashford Hospitality Prime, Inc. (NYSE: AHP) ("Ashford Prime" or the "Company") today reported the following results and performance measures for the second quarter ended June 30, 2017.  The performance measurements for Occupancy, Average Daily Rate (ADR), Revenue Per Available Room (RevPAR), and Hotel EBITDA are comparable assuming each of the hotel properties in the Company's hotel portfolio as of June 30, 2017 were owned as of the beginning of each of the periods presented.  Unless otherwise stated, all reported results compare the second quarter ended June 30, 2017, with the second quarter ended June 30, 2016 (see discussion below).  The reconciliation of non-GAAP financial measures is included in the financial tables accompanying this press release.

STRATEGIC OVERVIEW

• Focused strategy of investing in luxury hotels and resorts
• Targets conservative leverage levels of 45% Net Debt to Gross Assets
• Highly-aligned management team and advisory structure
• Dividend yield of approximately 6%

FINANCIAL AND OPERATING HIGHLIGHTS

• Net loss attributable to common stockholders for the quarter was $2.6 million or $0.09 per diluted share
• Comparable RevPAR for all hotels increased 0.4% to $223.24 during the second quarter 
• Comparable RevPAR for all hotels not under renovation increased 2.7% to $235.54 during the second quarter 
• Comparable Hotel EBITDA Margin for all hotels not under renovation increased 109 basis points for the quarter
• Comparable Hotel EBITDA flow-through for all hotels not under renovation was 80% for the quarter
• Adjusted funds from operations (AFFO) was $0.50 per diluted share for the quarter as compared with $0.60 per diluted share from the prior-year quarter
• Adjusted EBITDA was $30.8 million for the quarter
• During the quarter, the Company completed the acquisition of the 80-room Hotel Yountville in Yountville, California for $96.5 million.  Concurrent with the completion of the acquisition, the Company financed the hotel with a $51.0 million non-recourse mortgage loan. The loan is interest only and provides for a floating interest rate of LIBOR + 2.55% with a five-year term.  
• During the quarter, the Company announced that at its Annual Meeting of Stockholders, its stockholders approved the Company's amended and restated advisory agreement with Ashford Inc. (NYSE American: AINC) with over 95% of shares voted approving the amendment. The amended agreement significantly lowers the termination fee and addresses other investor feedback.
• During the quarter, the Company announced that it entered into an agreement with Marriott to convert its Courtyard Philadelphia Downtown hotel to an Autograph Collection property 
• During the quarter, the Company reached an agreement with the City of San Diego for an extension of the ground lease at the Hilton La Jolla Torrey Pines hotel.  The lease, which was scheduled to expire in 2043, was extended by 24 years and will now expire in 2067.  Additionally, the Company has options to further extend the ground lease by either 10 or 20 additional years depending on the amount of capital expenditures invested in the hotel during the term.  
• Capex invested during the quarter was $12.5 million

UPDATE ON ACQUISITIONS

On May 11, 2017, the Company completed the acquisition of the 80-room Hotel Yountville in Yountville, California for $96.5 million.  Concurrent with the completion of the acquisition, the Company financed the hotel with a $51.0 million non-recourse mortgage loan.  The loan is interest only and provides for a floating interest rate of LIBOR + 2.55% with a five-year term. The property will be managed by Remington Lodging. 

UPDATE ON ASSET MANAGEMENT INITIATIVES

On June 19, 2017, the Company announced that it had reached an agreement with the City of San Diego for an extension of the ground lease at the Hilton La Jolla Torrey Pines hotel.  The lease, which had an expiration of 2043, was extended by 24 years and now expires in 2067.   Through this agreement, the Company was also able to secure options to further extend the ground lease by either 10 or 20 additional years depending on the amount of capital expenditures invested in the hotel during the term.  

UPDATE ON NON-CORE HOTELS STRATEGY

Consistent with the announcement of its refined strategy of focusing on luxury hotels and resorts, the Company has been exploring opportunities to either reposition its non-core hotels to better fit that strategy or to opportunistically sell them if conditions warrant.

To that end, on June 20, 2017, the Company announced that it had entered into an agreement with Marriott to convert its Courtyard Philadelphia Downtown hotel (the "Courtyard Philadelphia") to an Autograph Collection property.  The agreement with Marriott calls for the Courtyard Philadelphia to be converted to an Autograph hotel by June 30, 2019 pursuant to a conversion Product Improvement Plan ("PIP") currently estimated to involve approximately $23 million of capital expenditures - including updates to the guestrooms, guest bathrooms, corridors, lobby, restaurant, and meeting space – which will create a distinctive theme and style for the property that is commensurate with the Autograph Collection product.  Marriott will continue to manage the property after the conversion.

AMENDED ADVISORY AGREEMENT WITH ASHFORD INC.

On June 12, 2017, the Company announced that at its Annual Meeting of Stockholders, held on June 9, 2017, its stockholders approved the Company's amended and restated advisory agreement with Ashford Inc. with over 95% of shares voted approving the amendment. The amended agreement significantly lowers the termination fee and addresses other investor feedback. Highlights of the amended agreement include the following:

• Removal of the tax gross-up provision and the 1.1 times multiple from the calculation of the termination fee.
• The revenues and allocated expenses of Ashford Inc. used to calculate the termination fee will be publicly disclosed on a quarterly basis.
• The termination provisions of the advisory agreement have been amended and, specifically, a change in a majority of the Company's incumbent directors no longer triggers a termination fee.
• The advisor's right under the existing advisory agreement to appoint a "Designated Chief Executive Officer" has been eliminated. The role of the current CEO of Ashford Prime, Richard Stockton, is not impacted by the removal of this provision, and he will continue to serve as CEO in the same capacity as he has since his appointment on November 14, 2016.
• In addition to the termination fee, a payment of $45 million would be owed to Ashford Inc. in the event the amended agreement is terminated prior to any incremental growth in the hotel portfolio. This amount will reduce ratably to zero over time based on incremental asset growth.  Currently, with the completion of the two acquisitions this year, this potential payment has been reduced to $35.9 million.

CAPITAL STRUCTURE

At June 30, 2017, the Company had total assets of $1.5 billion.  As of June 30, 2017, the Company had $915 million of mortgage debt of which $48 million related to its joint venture partner's share of debt on the Capital Hilton and Hilton La Jolla Torrey Pines.  The Company's total combined debt had a blended average interest rate of 4.1%.

PORTFOLIO REVPAR

As of June 30, 2017, the portfolio consisted of thirteen properties.  During the second quarter of 2017, eleven of the Company's hotels were not under renovation.  The Company believes reporting its operating metrics for its hotels on a comparable total basis (all 13 hotels) and comparable not under renovation basis (11 hotels) is a measure that reflects a meaningful and focused comparison of the operating results in its portfolio.  Details of each category are provided in the tables attached to this release.

• Comparable RevPAR increased 0.4% to $223.24 for all hotels on a 0.6% increase in ADR and a 0.2% decrease in occupancy
• Comparable RevPAR increased 2.7% to $235.54 for hotels not under renovation on a 2.3% increase in ADR and 0.4% increase in occupancy

HOTEL EBITDA MARGINS AND QUARTERLY SEASONALITY TRENDS

The Company believes year-over-year Comparable Hotel EBITDA and Comparable Hotel EBITDA Margin comparisons are more meaningful to gauge the performance of the Company's hotels than sequential quarter-over-quarter comparisons.  Given the substantial seasonality in the Company's portfolio, to help investors better understand this seasonality, the Company provides quarterly detail on its Comparable Hotel EBITDA and Comparable Hotel EBITDA Margin for the current and certain prior-year periods based upon the number of hotels in the Company's portfolio as of the end of the current period.  As the Company's portfolio mix changes from time to time so will the seasonality for Comparable Hotel EBITDA and Comparable Hotel EBITDA Margin.  The details of the quarterly calculations for the previous four quarters for the thirteen hotels are provided in the table attached to this release.

COMMON STOCK DIVIDEND

On June 14, 2017, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.16 per diluted share for the Company's common stock for the second quarter ending June 30, 2017.  The dividend, which equates to an annual rate of $0.64 per share, is payable on July 17, 2017, to shareholders of record as of June 30, 2017.

"Our second quarter RevPAR results for all hotels not under renovation were solid and outperformed the luxury segment as a whole," commented Richard J. Stockton, Ashford Prime's President and Chief Executive Officer. "With the recent acquisitions of the Hotel Yountville, the Park Hyatt Beaver Creek Resort & Spa and the announced upbranding of the Courtyard Philadelphia to an Autograph Collection property, we continue to successfully execute on our refined strategy to grow our portfolio within the luxury chain scale segment in a manner that we believe is accretive to long-term shareholder returns."

INVESTOR CONFERENCE CALL AND SIMULCAST

Ashford Hospitality Prime, Inc. will conduct a conference call on Thursday, August 3, 2017, at 11:00 a.m. ET.  The number to call for this interactive teleconference is (719) 325-4778. A replay of the conference call will be available through Thursday, August 10, 2017, by dialing (719) 457-0820 and entering the confirmation number, 9811300. 

The Company will also provide an online simulcast and rebroadcast of its second quarter 2017 earnings release conference call.  The live broadcast of Ashford Hospitality Prime's quarterly conference call will be available online at the Company's web site, www.ahpreit.com on Thursday, August 3, 2017, beginning at 11:00 a.m. ET.  The online replay will follow shortly after the call and continue for approximately one year.

Substantially all of our non-current assets consist of real estate investments secured by real estate.  Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time.  Since real estate values instead have historically risen or fallen with market conditions, most industry investors consider supplemental measures of performance, which are not measures of operating performance under GAAP, to assist in evaluating a real estate company's operations. These supplemental measures include FFO, AFFO, EBITDA, and Hotel EBITDA.  FFO is computed in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the NAREIT definition differently than us.  None of FFO, AFFO, EBITDA or Hotel EBITDA represents cash generated from operating activities as determined by GAAP and should not be considered as an alternative to a) GAAP net income (loss) as an indication of our financial performance or b) GAAP cash flows from operating activities as a measure of our liquidity, nor are such measures indicative of funds available to satisfy our cash needs, including our ability to make cash distributions.  However, management believes FFO, AFFO, EBITDA, and Hotel EBITDA to be meaningful measures of a REIT's performance and should be considered along with, but not as an alternative to, net income and cash flow as a measure of our operating performance.

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Ashford Hospitality Prime is a real estate investment trust (REIT) focused on investing in luxury hotels and resorts.

Ashford has created an Ashford App for the hospitality REIT investor community.  The Ashford App is available for free download at Apple's App Store and the Google Play Store by searching "Ashford."

Certain statements and assumptions in this press release contain or are based upon "forward-looking" information and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements in this press release include, among others, statements about the implied share price for the Company's common stock.  These forward-looking statements are subject to risks and uncertainties.  When we use the words "will likely result," "may," "anticipate," "estimate," "should," "expect," "believe," "intend," or similar expressions, we intend to identify forward-looking statements.  Such statements are subject to numerous assumptions and uncertainties, many of which are outside Ashford Prime's control.

These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated, including, without limitation:  general volatility of the capital markets and the market price of our common stock; changes in our business or investment strategy; availability, terms and deployment of capital; availability of qualified personnel; changes in our industry and the market in which we operate, interest rates or the general economy; our ability to successfully complete and integrate acquisitions, and manage our planned growth, and the degree and nature of our competition.  These and other risk factors are more fully discussed in Ashford Prime's filings with the Securities and Exchange Commission.  EBITDA is defined as net income before interest, taxes, depreciation and amortization.  EBITDA yield is defined as trailing twelve month EBITDA divided by the purchase price.  A capitalization rate is determined by dividing the property's annual net operating income by the purchase price.  Net operating income is the property's funds from operations minus a capital expense reserve of either 4% or 5% of gross revenues.  Hotel EBITDA flow-through is the change in Hotel EBITDA divided by the change in total revenues.  Hotel EBITDA Margin is Hotel EBITDA divided by total revenues.  Funds from operations ("FFO"), as defined by the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in April 2002, represents net income (loss) computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from sales of properties and extraordinary items as defined by GAAP, plus depreciation and amortization of real estate assets, and net of adjustments for the portion of these items related to unconsolidated entities and joint ventures.

The forward-looking statements included in this press release are only made as of the date of this press release.  Investors should not place undue reliance on these forward-looking statements.  We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or circumstances, changes in expectations or otherwise