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Ashford Hospitality Trust Inc. Reports Operating Results (10-K)

February 28, 2012 | About:
10qk

10qk

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Ashford Hospitality Trust Inc. (AHT) filed Annual Report for the period ended 2011-12-31.

Ashford Hosptly has a market cap of $590.5 million; its shares were traded at around $8.6 with a P/E ratio of 4.6 and P/S ratio of 0.7. The dividend yield of Ashford Hosptly stocks is 4.6%. Ashford Hosptly had an annual average earning growth of 5.8% over the past 10 years.

Highlight of Business Operations:

Acquisition of Hotel Properties Securing Mezzanine Loans Held in Unconsolidated Joint Ventures In July 2010, as a strategic complement to our existing joint venture with Prudential Real Estate Investors (PREI) formed in 2008, we contributed $15.0 million for an ownership interest in a new joint venture with PREI. The new joint venture acquired a portion of the tranche 4 mezzanine loan associated with JER Partners 2007 privatization of the JER/Highland Hospitality portfolio (the Highland Portfolio). The mezzanine loan was secured by the same 28 hotel properties as our then existing joint venture investment in the tranche 6 mezzanine loan. Both of these mezzanine loans had been in default since August 2010. After negotiating with the borrowers, senior secured lenders and senior mezzanine lenders for a restructuring, we, through a new joint venture, the PIM Highland JV, with PRISA III Investments, LLC (PRISA III) (an affiliate of PREI), invested $150.0 million and PRISA III invested $50.0 million of new capital to acquire the 28 high quality full and select service hotel properties comprising the Highland Portfolio on March 10, 2011. We and PRISA III have ownership interests of 71.74% and 28.26%, respectively, in the new joint venture. In addition to the common equity splits, we and PRISA III each have a $25.0 million preferred equity interest earning an accrued but unpaid 15% annual return with priority over common equity distributions. Our investment in the PIM Highland JV is accounted for using the equity method and the carrying value was $179.5 million at December 31, 2011. The PIM Highland JV recognized a gain of $82.1 million related to a bargain purchase and settlement of a pre-existing relationship, of which our share was $46.3 million. The purchase price allocation has been finalized as of December 31, 2011. See Note 5 of Notes to Consolidated Financial Statements in Item 8.

Acquisition of Hotel Properties Securing Mezzanine Loans Held in Unconsolidated Joint Ventures In July 2010, as a strategic complement to our existing joint venture with Prudential Real Estate Investors (PREI) formed in 2008, we contributed $15.0 million for an ownership interest in a new joint venture with PREI. The new joint venture acquired a portion of the tranche 4 mezzanine loan associated with JER Partners 2007 privatization of the JER/Highland Hospitality portfolio (the Highland Portfolio). The mezzanine loan was secured by the same 28 hotel properties as our then existing joint venture investment in the tranche 6 mezzanine loan. Both of these mezzanine loans had been in default since August 2010. After negotiating with the borrowers, senior secured lenders and senior mezzanine lenders for a restructuring, we, through a new joint venture, the PIM Highland JV, with PRISA III Investments, LLC (PRISA III) (an affiliate of PREI), invested $150.0 million and PRISA III invested $50.0 million of new capital to acquire the 28 high quality full and select service hotel properties comprising the Highland Portfolio on March 10, 2011. We and PRISA III have ownership interests of 71.74% and 28.26%, respectively, in the new joint venture. In addition to the common equity splits, we and PRISA III each have a $25.0 million preferred equity interest earning an accrued but unpaid 15% annual return with priority over common equity distributions. Our investment in the PIM Highland JV is accounted for using the equity method and the carrying value was $179.5 million at December 31, 2011. The PIM Highland JV recognized a gain of $82.1 million related to a bargain purchase and settlement of a pre-existing relationship, of which our share was $46.3 million. The purchase price allocation has been finalized as of December 31, 2011. See Note 5 of Notes to Consolidated Financial Statements in Item 8.

Revenue. Room revenues from comparable hotels increased $40.3 million, or 6.3%, during the year ended December 31, 2011 (2011) compared to the year ended December 31, 2010 (2010). The increase in room revenue was primarily due to the continued improvements in occupancy coupled with the increase in average daily rate. During 2011, we experienced a 183 basis points increase in occupancy and a 3.6% increase in room rates as the economy continues to improve. Food and beverage revenues from comparable hotels experienced a similar increase of $6.8 million, or 4.5%, due to improved occupancy. Other revenue from comparable hotels experienced a decrease of $45,000. Rental income of $5.3 million was recognized through December 1, 2011 for a hotel property that was leased to a third-party under a triple-net basis. Effective December 2, 2011, we were assigned the remaining 11% ownership interest in the joint venture which previously held a hotel property under a triple-net lease. The lease agreement was canceled and the operating results of this hotel property have been included in our consolidated statements of operations, which accounted for a total of $2.5 million of room, food and beverage, and other hotel revenues. The remaining increase in total hotel revenue of $4.3 million is attributable to the acquisition of the WorldQuest condominium properties in March 2011.

Equity in Earnings (Loss) of Unconsolidated Joint Ventures. We recorded equity in earnings of unconsolidated joint ventures of $14.5 million and equity loss of $20.3 million for 2011 and 2010, respectively. Included in the 2011 period was a gain of $82.1 million recognized by the PIM Highland JV at acquisition, of which our share was $46.3 million, and $17.6 million of transaction costs recorded for the acquisition. In addition, the PIM Highland JV incurred contract termination costs of $2.9 million for 2011.

Investments in Unconsolidated Joint Ventures Investments in joint ventures in which we have ownership interests ranging from 14.4% to 71.74% are accounted for under the equity method of accounting by recording the initial investment and our percentage of interest in the joint ventures net income (loss). We review the investments in our unconsolidated joint ventures for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. Any impairment is recorded in equity earnings (loss) in unconsolidated joint ventures. No such impairment was recorded in 2011, and $27.1 million and $5.5 million of impairment charges were recorded in 2010 and 2009, respectively. We adopted the equity accounting method for our investment in the PIM Highland JV due to the fact that we do not control the joint venture. Although we have the majority ownership of 71.74% in the joint venture, all the major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs, incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of four persons with us and our joint venture partner each designating two of those persons. Our investment in the PIM Highland JV had a carrying value of $179.5 million at December 31, 2011, which was based on our share of PIM Highland JVs equity.

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