Ashford Hospitality Trust (NYSE: AHT) is a self-administered Real Estate Investment Trust (REIT). The company makes money through its lodging investments in Ashford Hospitality Limited Partnership and its operating partnership, Ashford OP General Partner LLC. AHT operates in two business segments within hotel lodging, direct hotel investments and hotel financing. Through its 96 hotel properties and approximately 22,141 net rooms, the company is sensitive to the supply and demand of vacation and businesses, translating to an overall sensitivity to macroeconomic trends.[1] Furthermore, the current credit crunch has made it difficult for AHT to refinance its loans, forcing it to sell its own properties.

Business Growth

As a direct response to the financial crisis, the company has shifted its business growth strategy to business retention. In other words, AHT has been spending large amounts of resources protecting its own bottom line. AHT has for example, transferred some of its hotel properties to lenders in satisfaction of related debt, which resulted in impairment charges.[2] In 2010 for example, the company negotiated a consensual transfer of Westin O'Hare hotel property in Rosemont, Illinois that collateralized a non-recourse mortgage loan of $101 million to the lender.[3] By targeting hotels that are not generating sufficient cash flow to cover its debt service, AHT realized that those properties are better suited to pay down debt rather than continuously withdrawing capital from the firm.[4]

Key Trends and Forces

Volatility and Instability in Credit Markets bring High Barriers to Financing for REITS

Because REITS are obligated to pay out 90% of income to shareholders, which therefore allow it to become a pass-through entity, REITS such as AHT have difficulty simply retaining cash on hand. Without a large surplus of cash at hand to fund growth, AHT must resort to external financing from either credit or equity markets.[5] Equity markets tend to be dilutive to shareholders, and as such stable credit markets are necessary to insure a continuance of refinancing opportunities as REITS are traditionally unable to keep large amounts of cash at hand to pay off balloon payments. The recent examples of AHT forcing to sell its own properties is an example of this.[6]

Operating in the Hotel Industry, the Ability to Pay Rents is Highly Correlated with Macroeconomic Factors

The majority of AHT's properties operates through franchise licences with well-recognized brands such as Hilton Hotels, Marriott International (MAR), and Hyatt Hotels Corp (H). While these well-recognized brands bring in loyal customers, the hotel industry primarily appeals to two types of customers, business travelers and the vacation industry.[7] In both situations, an economic decline will severely punish the hotel business. For the corporate world, a downsizing of the economy translates to cheaper hotels or a cut-down in business travel overall. For the vacation industry, a downturn translates into decreased travel and thus declining revenues for hotel chains. Unfortunately, while vacancy rates increase, the hotel companies must continue to pay its employees and other fixed costs to upkeep the property.


As owners of hotels, AHT faces competition with other hotels, motels, bed and breakfasts, and other types of lodging that may steal competition away from its tenants. The failure for tenants to pay fees translates to lowered cash flow for AHT. These competitors include:

  • Wyndham Worldwide (WYN) is a hospitality company offering individual and business customers a range of hospitality services and products in lodging, vacation exchange and rentals and vacation ownership.
  • Red Lion Hotels Corporation (RLH) is a hospitality and leisure company primarily engaged in the ownership, operation and franchising of midscale and upscale, full service hotels under its Red Lion brand. The Red Lion brand is typically associated with three star full and select service hotels.


  1. FY2010 AHT Form-10K, Pg 2
  2. Ashford Hospitality Trust to Host Investor Day Meeting
  3. FY2010 AHT Form-10K, Pg 5
  4. Upgrades and Downgrades for Wednesday
  5. Ashford Hospitality Trust, Inc. Announces Offering Of 6.0 Million Shares Of Common Stock
  6. FY2010 AHT Form-10K, Pg 7
  7. Ashford Sees “Transient Business” Activity Pick Up
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