Ashford Results

Ashford Reports First Quarter 2017 Results

Assets Under Management $6.3 Billion at Quarter End - Adjusted EBITDA Increased 68% - Adjusted Net Income Per Share Increased 83%

Ashford

Ashford (NYSE MKT: AINC) last week reported the following results and performance measures for the first quarter ended March 31, 2017.  For the first quarter, the Company has consolidated the financial position and operating results of the private investment funds managed by Ashford Investment Management.  The financial impact from this consolidation is adjusted out of the Company's financials through the noncontrolling interests in consolidated entities line items on the Company's income statement and balance sheet.  Unless otherwise stated, all reported results compare the first quarter ended March 31, 2017, with the first quarter ended March 31, 2016 (see discussion below).  The reconciliation of non-GAAP financial measures is included in the financial tables accompanying this press release.  

STRATEGIC OVERVIEW

  • High-growth, fee-based, low-capex business model 
  • Diversified platform of multiple fee generators 
  • Seeks to grow in three primary areas: 
    • Expanding the existing platforms accretively and accelerating performance to earn incentive fees 
    • Starting new platforms for additional base and incentive fees 
    • Investing in or incubating businesses that can achieve accelerated growth through doing business with our existing platforms.
  • Highly-aligned management team with superior long-term track record 
  • Leader in asset and investment management for the real estate & hospitality sectors

FINANCIAL AND OPERATING HIGHLIGHTS

  • Net loss attributable to the Company for the first quarter of 2017 totaled $2.4 million, or $1.18 per share, compared with a net loss of $1.7 million, or $0.86 per share, in the prior year quarter. Adjusted net income for the first quarter was $4.4 million, or $1.92 per diluted share, compared with $2.4 million, or $1.05 per diluted share, in the prior year quarter, reflecting a growth rate of 83% over the prior year. 
  • Total revenue for the first quarter of 2017 was $13.0 million
  • Adjusted EBITDA for the first quarter was $5.1 million, reflecting a growth rate of 68% over the prior year 
  • At the end of the first quarter of 2017, the Company had approximately $6.3 billion of assets under management 
  • As of March 31, 2017, the Company had corporate cash of $35.4 million

UPDATE ON PROPOSED TRANSACTION WITH REMINGTON

On March 28, 2017, the Company announced that it has been unsuccessful in receiving an acceptable private letter ruling from the Internal Revenue Service and has decided to cease its efforts in completing the proposed transaction as originally contemplated with Remington Holdings, LP ("Remington"). The Company has begun the process of evaluating the purchase of just Remington's project management business, which would not require a private letter ruling, and has formed a Special Committee of its Board to evaluate a possible transaction. Neither the Special Committee nor the Board has set a definitive timetable for the completion of its evaluation of the proposed transaction. Additionally, there is no assurance that a transaction involving Remington's project management business will materialize.

INVESTMENT IN OPENKEY

As previously announced, the Company has made an investment in OpenKey. OpenKey is the universal, industry-standard smartphone App for keyless entry in hotel guestrooms.  By creating an open platform solution, OpenKey seeks to make mobile key technology more accessible and convenient, streamlining the process for hotel owners and guests.  OpenKey's powerful software has a secure interface with lock companies that represent a majority of the digital installed guest room locks globally.  There is significant growth potential for OpenKey given there are nearly 18 million hotel rooms globally, many of them independent hotels that need a mobile key solution. Not only are there millions of rooms globally that need a mobile key solution, but OpenKey currently has little competition in this space.

OpenKey has made significant traction in deploying its technology and has grown its hotel subscriber base over 300% year over year. During the first quarter of 2017, OpenKey contracted 1,287 rooms, entered into an exclusive agreement with Preferred Hotels to become the preferred mobile key provider to over 650 hotels worldwide and launched its technology at hotels in Australia and Canada.  Furthermore, OpenKey opened a sales office in Mexico this quarter and is working on opening sales offices in the Middle Eastand China.

INVESTMENT IN PURE ROOMS 

Subsequent to quarter end, on April 13, 2017, Ashford announced it had acquired a controlling interest in a privately held company that conducts the business of Pure Rooms ("Pure Rooms") for approximately $97,000 in cash consideration.  Pure Rooms is a leading provider of hypo-allergenic hotel rooms in the United States. 

Pure Rooms utilizes state-of-the-art purification technology to create allergy-friendly guestrooms and currently has contracts in place with approximately 160 hotels (approximately 2,400 rooms) throughout the United States.  Pure Rooms' hypo-allergenic rooms are designed to provide a better night's sleep for all guests, especially allergy sufferers.  

Pure Rooms' patented 7-step purification process treats a room's surfaces, including the air, and removes up to 99% of pollutants.  Hotel rooms participating in this program typically achieve between a $20 and $30 premium per night.  Based on historical performance, initial hotels that have been included in the Pure Rooms program have experienced an internal rate of return of between 50% and 70% on the Pure Rooms investment.  

In addition to owning a 70% interest in the common equity of Pure Rooms, Ashford owns $300,000, or 50%, of the Series B-2 Preferred Equity of Pure Rooms. The total capitalization of Pure Rooms also includes approximately $475,000 of bank debt and $200,000 of Series B-1 Preferred Equity which will be senior to Ashford's investment. During the twelve months ended January 31, 2017, Pure Rooms had Net Income of approximately $11,000 and Adjusted EBITDA of approximately $472,000.  The implied total purchase price represents, as of January 31, 2017, a trailing 12-month Adjusted EBITDA multiple of 2.9x, according to the Company's preliminary estimates based on unaudited operating financial data provided by Pure Rooms.

After inclusion of all planned Ashford Hospitality Trust, Inc (NYSE:  AHT) ("Ashford Trust" or "Trust") and Ashford Hospitality Prime, Inc. (NYSE:  AHP) ("Ashford Prime" or "Prime") hotels in the Pure Rooms program over the next 24 months and without any additional growth, Net Income and Adjusted EBITDA are expected to increase by approximately $434,000 and $257,000, respectively. Ashford expects Pure Rooms to initially contribute approximately $0.07 to its Adjusted Net Income per share.   Pure Rooms should add approximately $0.15 to the Company's Adjusted Net Income per share after all planned Ashford Trust and Ashford Prime hotels are included in the Pure Rooms program.  

FINANCIAL RESULTS

Net loss attributable to the Company for the first quarter of 2017 totaled $2.4 million, or $1.18 per share, compared with a net loss of $1.7 million, or $0.86 per share, for the first quarter of 2016.  Adjusted net income for the first quarter of 2017 was $4.4 million, or $1.92 per diluted share, compared with $2.4 million, or $1.05 per diluted share, in the prior year quarter, reflecting a growth rate of 83%.  

For the first quarter ended March 31, 2017, base advisory fee revenue was $11.0 million, including $8.9 million from Ashford Trust and $2.1 million from Ashford Prime.

Adjusted EBITDA for the first quarter of 2017 was $5.1 million, compared with $3.0 million for the first quarter of 2016, reflecting a growth rate of 68%.

CAPITAL STRUCTURE

At the end of the first quarter of 2017, the Company had approximately $6.3 billion of assets under management from its managed companies and corporate cash of $35.4 million.  At the end of the first quarter of 2017, the Company had no debt, no preferred equity, 2.2 million fully diluted shares and a current fully diluted equity market capitalization of approximately $118 million.  

QUARTERLY HIGHLIGHTS FOR ADVISED PLATFORMS

ASHFORD TRUST HIGHLIGHTS

  • On May 3, 2017, Trust announced that it is no longer seeking to merge with FelCor Lodging Trust Inc. (NYSE:  FCH) ("FelCor"). In addition, Trust commented that it has withdrawn its preliminary proxy statement and proposed slate of seven independent directors for election to FelCor's Board of Directors.

ASHFORD PRIME HIGHLIGHTS

  • In the first quarter, Prime completed its underwritten public offering of 5,750,000 shares of common stock at a price of $12.15 per share for total net proceeds of approximately $67 million. 
  • Prime also completed its underwritten public offering of 2,075,000 shares of 5.50% Series B Cumulative Convertible Preferred Stock at a price to the public of $20.19 per share for total net proceeds of approximately $41 million. 
  • In the first quarter, Prime refinanced three mortgage loans with existing outstanding balances totaling approximately $334 millionwith a new loan totaling $365 million. 
  • In the first quarter, Prime entered into a definitive agreement to acquire the 80-room Hotel Yountville in Yountville, CA for $96.5 million ($1,200,000 per key). 
  • In the first quarter, Prime completed the acquisition of the 190-room Park Hyatt Beaver Creek Resort & Spa in Beaver Creek, Colorado for $145.5 million ($766,000 per key). Concurrent with the completion of the acquisition, Prime financed the hotel with a $67.5 million non-recourse mortgage loan. This loan is interest only and provides for a floating interest rate of LIBOR + 2.75% with a two-year initial term and three, one-year extension options subject to the satisfaction of certain conditions. 

"In the first quarter we continued to execute on our growth strategy with Prime raising capital and announcing the acquisition of two premier assets in attractive markets," commented Monty J. Bennett, Ashford's Chairman and Chief Executive Officer.  "While we were not able to complete the Remington transaction as contemplated, we are committed to maximizing value for our shareholders by finding opportunities to accretively grow our platforms.  To that end, we announced that we had made an investment in another hospitality-related service business, Pure Rooms, which we believe has significant growth prospects moving forward.  Additionally, we are exploring the purchase of Remington's project management business, as it would not require a private letter ruling, and would represent a significant addition to our platform.  With positive trends in the economy as well as the lodging sector, we remain excited about our ability to drive growth at Ashford and our advised platforms in 2017." 

Ashford provides global asset management, investment management and related services to the real estate and hospitality sectors.

ASHFORD INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share amounts)

March 31,

December 31,

2017

2016

ASSETS

Current assets:

Cash and cash equivalents

$                          40,094

$                          84,091

Restricted cash

13,178

9,752

Investments in securities

16

91

Prepaid expenses and other

1,236

1,305

Receivables

110

16

Due from Ashford Trust OP

12,587

12,179

Due from Ashford Prime OP

2,570

3,817

Total current assets

69,791

111,251

Investments in unconsolidated entities

500

500

Furniture, fixtures and equipment, net

12,194

12,044

Deferred tax assets

8,669

6,002

Total assets

$                          91,154

$                        129,797

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and accrued expenses

$                          16,213

$                          11,314

Due to affiliates

1,707

933

Due to Ashford Trust OP from AQUA U.S. Fund

2,579

Due to Ashford Prime OP from AQUA U.S. Fund

2,289

Deferred compensation plan

88

144

Other liabilities

13,178

9,752

Total current liabilities

33,765

24,432

Accrued expenses

46

287

Deferred income

5,249

4,515

Deferred compensation plan

12,218

8,934

Total liabilities

51,278

38,168

Redeemable noncontrolling interests in Ashford LLC

244

179

Redeemable noncontrolling interests in subsidiary common stock

1,427

1,301

Equity:

Preferred stock, $0.01 par value, 50,000,000 shares authorized:

Series A cumulative preferred stock, no shares issued and outstanding at

March 31, 2017 and December 31, 2016

Common stock, $0.01 par value, 100,000,000 shares authorized, 2,017,024 and

2,015,589 shares issued and outstanding at March 31, 2017 and December 31,

2016, respectively

20

20

Additional paid-in capital

239,761

237,796

Accumulated deficit

(201,904)

(200,439)

Total stockholders' equity of the Company

37,877

37,377

Noncontrolling interests in consolidated entities

328

52,772

Total equity

38,205

90,149

Total liabilities and equity

$                          91,154

$                        129,797

 

ASHFORD INC. AND SUBSIDIARIES

STATEMENTS OF OPERATIONS 

(unaudited, in thousands, except per share amounts)

Three Months Ended

March 31,

2017

2016

REVENUE

Advisory services:

Base advisory fee

$             10,827

$             10,565

Incentive advisory fee

771

319

Reimbursable expenses

2,116

2,154

Non-cash stock/unit-based compensation

(1,283)

287

Other

582

84

Total revenue

13,013

13,409

EXPENSES

Salaries and benefits

10,043

5,974

Non-cash stock/unit-based compensation

989

3,234

Depreciation

468

272

General and administrative

3,649

4,441

Total operating expenses

15,149

13,921

OPERATING INCOME (LOSS)

(2,136)

(512)

Realized gain (loss) on investment in unconsolidated entity

(3,601)

Unrealized gain (loss) on investment in unconsolidated entity

2,141

Interest income (expense)

33

13

Dividend income

93

13

Unrealized gain (loss) on investments

125

1,129

Realized gain (loss) on investments

(200)

(6,813)

Other income (expenses)

(8)

(128)

INCOME (LOSS) BEFORE INCOME TAXES

(2,093)

(7,758)

Income tax (expense) benefit

(630)

(640)

NET INCOME (LOSS)

(2,723)

(8,398)

(Income) loss from consolidated entities attributable to

noncontrolling interests

(25)

6,548

Net (income) loss attributable to redeemable noncontrolling interests

in Ashford LLC

4

3

Net (income) loss attributable to redeemable noncontrolling interests

in subsidiary common stock

359

115

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY

$              (2,385)

$              (1,732)

INCOME (LOSS) PER SHARE - BASIC AND DILUTED

Basic:

Net income (loss) attributable to common stockholders

$                (1.18)

$                (0.86)

Weighted average common shares outstanding - basic

2,015

2,008

Diluted:

Net income (loss) attributable to common stockholders

$                (1.34)

$                (1.51)

Weighted average common shares outstanding - diluted

2,046

2,218

 

ASHFORD INC. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA

(unaudited, in thousands)

Three Months Ended

March 31,

2017

2016

Net income (loss)

$       (2,723)

$       (8,398)

(Income) loss from consolidated entities attributable to noncontrolling interests

(25)

6,548

Net (income) loss attributable to redeemable noncontrolling interests in Ashford LLC

4

3

Net (income) loss attributable to redeemable noncontrolling interests in subsidiary common stock

359

115

Net income (loss) attributable to the company

(2,385)

(1,732)

Depreciation

465

267

Income tax expense (benefit)

630

640

Realized and unrealized (gain) loss on investment in unconsolidated entity (net of noncontrolling

interest)

1,328

Net income (loss) attributable to redeemable noncontrolling interests in Ashford LLC

(4)

(3)

EBITDA

(1,294)

500

Equity-based compensation

2,268

2,947

Market change in deferred compensation plan

3,340

(1,612)

Transaction costs

661

383

Software implementation costs

59

794

Reimbursed software costs

(55)

Dead deal costs

11

Realized and unrealized (gain) loss on derivatives

25

(9)

Severance costs

49

Adjusted EBITDA

$         5,053

$         3,014

 

ASHFORD INC. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME (LOSS)

 (unaudited, in thousands, except per share amounts)

Three Months Ended

March 31,

2017

2016

Net income (loss)

$       (2,723)

$       (8,398)

(Income) loss from consolidated entities attributable to noncontrolling interests

(25)

6,548

Net (income) loss attributable to redeemable noncontrolling interests in Ashford LLC

4

3

Net (income) loss attributable to redeemable noncontrolling interests in subsidiary common stock

359

115

Net income (loss) attributable to the company

(2,385)

(1,732)

Depreciation

465

267

Net income (loss) attributable to redeemable noncontrolling interests in Ashford LLC

(4)

(3)

Equity-based compensation

2,268

2,947

Realized and unrealized (gain) loss on investment in unconsolidated entity (net of noncontrolling

interest)

1,328

Market change in deferred compensation plan

3,340

(1,612)

Transaction costs

661

383

Software implementation costs

59

794

Reimbursed software costs

(55)

Dead deal costs

11

Realized and unrealized (gain) loss on derivatives

25

(9)

Severance costs

49

Adjusted net income (loss)

$         4,423

$         2,374

Adjusted net income (loss) per diluted share available to common stockholders

$           1.92

$           1.05

Weighted average diluted shares

2,309

2,266



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