Die another day: Ashford gets $350M to survive pandemic

Hotel REIT gets expensive loan from Oaktree Capital, reflecting high risk

Oaktree Capital Management CEO Jay Wintrob and Ashford Trust CEO Rob Hays (iStock)
Oaktree Capital Management CEO Jay Wintrob and Ashford Trust CEO Rob Hays (iStock)

The price is high, but one of the nation’s largest hotel investment trusts will live to be hospitable another day.

Ashford Hospitality Trust secured a $350 million loan facility to see it through the pandemic, which has decimated the travel and leisure industry. It will pay 16 percent interest in the first two years and 14 percent in the third, plus exit fees that could bring the total payback cost to nearly $600 million.

With a national vaccination effort underway, Oaktree Capital Management agreed to supply Ashford, owner of more than 22,500 hotel rooms, an initial $200 million and up to $150 million more, according to a disclosure statement filed with the Securities and Exchange Commission.

“The funds will be used primarily for operating shortfalls at our hotel properties,” Ashford CEO Rob Hays told The Real Deal via email. The money will also service company debt and help maintain a cash reserve.

Ashford had disclosed that without new financing it might be insolvent by early 2021. The company burned through more than $100 million from April to September and faces operating losses in excess of $500 million this year.

Digging itself out won’t be cheap.

Were Ashford to draw all its new credit while deferring interest payments — the company is in forbearance with nearly all its property mortgage lenders, according to Hays — it could cost $589 million to exit the Oaktree loan.

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“That amount of interest is consistent with the amount of risk associated with hospitality right now,” said Yariv Ben-Ari, a hospitality real estate advisor at Herrick. “The credit facility will be used to ramp up funds over the next three years, which is the right window for hotel recovery following the pandemic.”

Ashford could save between $50 and $80 million, per the deal’s terms, by offering to sell Oaktree 20 percent of the company’s outstanding stock. Investors cheered news of the loan, boosting Ashford’s share price by 25 percent the day it was announced.

Marc Magazine, director at Savills Hospitality Group, expects leisure travel to begin returning to pre-pandemic levels by mid-2021.

Limited-service hotels within driving distance should recover fastest, he said. “Maybe people won’t want their sheets changed every day, because just getting out of the house is going to be a good experience,” said Magazine.

Urban markets often reached by plane face a longer road toward recovery, he said.

Ashford’s CEO doesn’t disagree — before Hays took the reins, the company sold its only Manhattan hotel at $80 million below its purchase price — but aims to not just survive, but grow.

“Ashford Trust plans to be active on the acquisition front over the next several years,” said Hays. “Our focus will be on domestic, full-service assets and resorts in top 25 markets.”