AINC - Ashford Reports Third Quarter 2019 Results

DALLAS, Oct. 30, 2019 /PRNewswire/ -- Ashford Inc. (NYSE American: AINC) ("Ashford" or the "Company") today reported the following results and performance measures for the third quarter ended September 30, 2019.  Unless otherwise stated, all reported results compare the third quarter ended September 30, 2019, with the third quarter ended September 30, 2018 (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 business model
• Diversified platform of multiple fee generators
• Seeks to grow in two primary areas:
• Grow our existing REIT platforms accretively and create new platforms; and
• Grow our service businesses via increased AUM and third-party business
• 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 common stockholders for the third quarter of 2019 totaled $9.4 million, or $3.94 per diluted share, compared with net income of $1.4 million, or $0.18 per diluted share, in the prior-year quarter. Adjusted net income for the third quarter was $7.0 million, or $1.58 per diluted share, compared with $2.6 million, or $0.75 per diluted share, in the prior-year quarter.
• Total revenue for the third quarter of 2019 was $56.9 million, reflecting a growth rate of 36.9% over the prior-year quarter.
• Adjusted EBITDA for the third quarter was $8.4 million, reflecting a growth rate of 104.1% over the prior-year quarter.
• At the end of the third quarter of 2019, the Company had approximately $8.1 billion of gross assets under management.
• During the quarter, the Company closed on the acquisition of Sebago for $7 million, which equates to an implied trailing 12-month Adjusted EBITDA multiple of 4.4x.
• During the quarter, the Company formed Ashford Securities LLC, a dedicated platform to raise retail capital through financial intermediaries and the broker-dealer channel.
• Subsequent to quarter end, the Company repurchased stock from Ashford Trust and Braemar Hotels & Resorts that represented approximately 16% of its common shares outstanding.
• Subsequent to quarter end, the Company announced it had obtained stockholder approval for the proposed acquisition of Remington Holdings' Hotel Management business.
• As of September 30, 2019, the Company had corporate cash of $33.2 million.

AGREEMENT TO ACQUIRE REMINGTON'S HOTEL MANAGEMENT BUSINESS
On June 3, 2019, the Company announced that it had signed a definitive agreement to acquire the Hotel Management business of privately-held Remington Holdings, LP ("Remington"). The proposed acquisition of Remington's high-margin, low-capex Hotel Management business is expected to be immediately accretive to adjusted net income per share and will immediately add scale, diversification and an enhanced competitive position for Ashford. It will also expand the breadth of services the Company offers to its advised REITs. Additionally, the Company believes the transaction represents a compelling opportunity to further diversify its earnings stream and, moving forward, the potential to expand business to other third-party clients.

Remington is an independent hotel management company with over 40 years of experience in the hospitality business. Remington's Hotel Management business currently provides comprehensive and cost-effective hotel management services for both Ashford Hospitality Trust, Inc. (NYSE: AHT) ("Ashford Trust" or "Trust") and Braemar Hotels & Resorts Inc. (NYSE: BHR) ("Braemar"). Remington's portfolio consists of almost 90 hotels with over 17,400 rooms of full-service and select-service properties representing over a dozen brands across 28 states as well as the District of Columbia. Remington's Hotel Management business currently has very little third-party business outside of the Company's advised REITs, which will be an immediate growth opportunity and area of focus for the Company going forward.

On October 24, 2019, the Company announced the final results of the Special Meeting of Stockholders held October 24, 2019, during which Ashford stockholders overwhelmingly approved the proposal in connection with the transaction.  Holders of approximately 92% of Ashford shares present and voting at the meeting voted in favor of the proposal, including a majority of shares, excluding shares owned by Ashford Trust, Braemar, the Bennetts, and management, present and voting at the meeting voted in favor of the proposal.  The Company also announced that it has received the final, official private letter ruling from the Internal Revenue Service related to the transaction.

The proposed acquisition is expected to close on or around November 6, 2019.

STOCK REPURCHASE FROM ASHFORD TRUST AND BRAEMAR
On October 2, 2019, the Company announced that it acquired an aggregate of 412,974 shares of its common stock owned by Ashford Trust and Braemar for $30 per share, resulting in a total cost of approximately $12.4 million. This stock purchase represented approximately 16% of the Company's common shares outstanding.  Due to the parameters of the private letter ruling received from the Internal Revenue Service ("IRS"), the Company was only able to acquire the shares held by Ashford Trust's and Braemar's taxable REIT subsidiaries. Ashford Trust has announced that it intends to distribute its remaining 205,086 shares of Ashford common stock to its shareholders and unitholders in a pro-rata distribution. Braemar has also announced that it intends to distribute its remaining 174,983 shares of Ashford common stock to its shareholders and unitholders in a pro-rata distribution.  Both distributions are to occur prior to the Remington closing.

CREATION OF ASHFORD SECURITIES  
On September 25, 2019, the Company announced that it had formed Ashford Securities LLC ("Ashford Securities") to raise capital in order to grow its existing and future platforms. Following registration with the Financial Industry Regulatory Authority and other regulatory authorities, Ashford Securities will be a dedicated capital raising platform to fund investment opportunities sponsored and asset-managed by Ashford. Types of capital raised may include, but are not limited to, preferred equity, convertible preferred equity, mezzanine debt, or non-traded REIT common equity (for future platforms).

Ashford Securities is not raising common equity for the Company nor for its existing advised platforms of Ashford Trust and Braemar. Ashford Securities expects to begin raising capital late in the first half of next year. Competitors in the space have been able to raise hundreds of millions of dollars annually.

PREMIER PROJECT MANAGEMENT UPDATE
In August 2018, the Company completed the acquisition of Premier Project Management ("Premier") for $203 million.  Premier provides comprehensive and cost-effective architecture, design, development, and project management services. It provides project oversight, coordination, planning, and execution of renovation, capital expenditure or ground-up development projects. Its operations are responsible for managing and implementing substantially all capital improvements at Trust and Braemar hotels. Additionally, it has extensive experience working with many of the major hotel brands in the areas of renovating, converting, developing or repositioning hotels. Premier generated $7.9 million of revenue and $3.7 million of Adjusted EBITDA in the third quarter, including $422,000 of revenue from its new architectural services initiative.

JSAV UPDATE
The Company owns a controlling interest in a privately-held company that conducts the business of JSAV in the United States, Mexico and internationally ("JSAV"). JSAV provides an integrated suite of audio visual services, including show and event services, hospitality services, creative services, and design and integration, making JSAV a leading single-source solution for their clients' meeting and event needs.  In the first quarter of 2019, JSAV completed the acquisition of BAV.  During the third quarter, JSAV had revenue growth of 54% compared to the prior-year period.  Additionally, at the end of the third quarter, JSAV had multi-year contracts in place with 93 hotels and convention centers, in addition to regular business representing over 2,700 annual events and productions, 500 venue locations, and 750 clients. 

RED HOSPITALITY & LEISURE UPDATE
RED Hospitality & Leisure ("RED Hospitality") is a leading provider of watersports activities and other travel and transportation services in the U.S. Virgin Islands. RED Hospitality has several potential avenues for future growth including opportunities to expand into other hotels at Ashford-advised REITs or non-Ashford hotels in the USVI, the Caribbean, and the U.S. To that end, with the commencement of ferry transportation services and beach and watersports services to the Westin St. John in January, continued beach and watersports services to the Ritz-Carlton St. Thomas Club - the timeshare and rental property adjacent to the Ritz-Carlton St. Thomas hotel - and increased direct bookings and private charter business, in the third quarter, RED Hospitality generated $1.7 million of revenue and $419,000 of Adjusted EBITDA. Third quarter revenue growth was 526% compared to the prior-year period.

ACQUISITION OF SEBAGO
On July 23, 2019, the Company announced that RED Hospitality completed the acquisition of substantially all of the assets of Sebago, a leading provider of watersports activities and excursion services based in Key West, Florida for approximately $2.5 million in cash and $4.5 million of Ashford common stock (excluding transaction costs and working capital adjustments). Based on unaudited financials provided by the seller, Sebago's Adjusted EBITDA for the trailing twelve-month period ended April 30, 2019 was $1.6 million. The implied Adjusted EBITDA multiple based on the total purchase price is 4.4x which the Company believes represents an attractive potential return on investment. After giving effect to the transaction, Ashford will own an approximately 84% interest in the common equity of RED Hospitality.

With over 25 years of operating history, Sebago provides watersports activities and excursion services in the Key West market. Sebago's watersports activities and excursion services include sunset sails, reef snorkeling, kayak tours, jet ski tours, and all-day adventure tours combining the best of all their excursion products. Sebago has a leading brand with 3 of the top 10 ranked tours on TripAdvisor.   Sebago's sales booths are well-located across the Key West market, and they have ideal dock locations for marketing and boarding the company's tours in the Key West Bight marina – a hub of tourism centrally located in Key West. Based on local regulations, significant barriers to entry exist for this competitive market including the transfer of boat slips, the supply of boat slips for commercial use, and physical limitations to expanding the Key West Bight marina. The Company believes the brand recognition, existing employee base, lead time to replicate existing assets, and other significant barriers to entry support Sebago's competitive advantage and future growth potential.

FINANCIAL RESULTS
Net loss attributable to common stockholders for the quarter totaled $9.4 million, or $3.94 per diluted share, compared with net income of $1.4 million, or $0.18 per diluted share, in the prior-year quarter.  Adjusted net income for the quarter was $7.0 million, or $1.58 per diluted share, compared with $2.6 million, or $0.75 per diluted share in the prior-year quarter.

For the quarter ended September 30, 2019, base advisory fee revenue was $10.6 million.  The base advisory fee revenue in the third quarter was comprised of $8.0 million from Ashford Trust and $2.6 million from Braemar.

Adjusted EBITDA for the quarter was $8.4 million, reflecting a growth rate of 104.1% over the prior-year quarter.

CAPITAL STRUCTURE
At the end of the third quarter of 2019, the Company had approximately $8.1 billion of gross assets under management from its advised platforms.  The Company had corporate cash of $33.2 million, 3.0 million fully diluted shares, and a current fully diluted equity market capitalization of approximately $56 million.  The Company's financial results include 1.45 million common shares associated with its Series B convertible preferred stock.  The Company had $28.9 million of loans at September 30, 2019, of which approximately $3.9 million related to its joint venture partners' share of those loans.

QUARTERLY HIGHLIGHTS FOR ADVISED PLATFORMS

ASHFORD TRUST HIGHLIGHTS

• During the quarter, Ashford Trust completed the sale of the Marriott Plaza San Antonio in San Antonio, Texas for $34.0 million.
• During the quarter, Ashford Trust completed the sales of the Courtyard Savannah Downtown in Savannah, Georgia and the Hilton Garden Inn in Wisconsin Dells, Wisconsin for $37.8 million.
• Subsequent to quarter end, Ashford Trust entered into a new franchise agreement for the Hilton Alexandria Old Town in Alexandria, Virginia that transitioned the hotel from being Hilton-managed to being managed by Remington Lodging.
• Subsequent to quarter end, Ashford Trust announced that it had entered into a new franchise agreement with Marriott International to convert its Crowne Plaza La Concha Key West Hotel in Key West, Florida to an Autograph Collection property.
• Subsequent to quarter end, Ashford Trust sold a 1.65-acre parking lot adjacent to its Hilton St. Petersburg Bayfront Hotel in St. Petersburg, Florida for $17.5 million in total consideration which will be paid over time.

BRAEMAR HOTELS & RESORTS HIGHLIGHTS

• During the quarter, Braemar opened The Notary Hotel, an Autograph Collection property, in downtown Philadelphia after a multi-million-dollar conversion of its Courtyard Downtown Philadelphia.
• During the quarter, Braemar announced the planned opening of The Clancy, an Autograph Collection property, in downtown San Francisco. The re-branded property is expected to open in early 2020 after a multi-million-dollar conversion of the Courtyard San Francisco Downtown.
• During the quarter, Braemar announced the extension of its mortgage loan for the Ritz-Carlton St. Thomas.
• During the quarter, Braemar refinanced its mortgage loan for the 142-room Pier House Resort & Spa in Key West, Florida.
• Subsequent to quarter end, Braemar announced the opening of The Maple Grove Presidential Villa at the Bardessono Hotel & Spa in Yountville, CA.

"We are very pleased with our third quarter results, which reflect the diligent execution of our operating strategy focused on accretively growing our advised platforms and acquiring growth-oriented, hospitality-related businesses," commented Monty J. Bennett, Ashford's Chairman and Chief Executive Officer. "To this end, the recent formation of Ashford Securities will provide Ashford and its advised platforms an additional source of capital that is not dependent on the traditional publicly-traded capital markets.  We are excited to pursue a fresh source of capital that will help us prudently grow all our platforms over the long term for increased shareholder value. We are also equally excited that the proposed acquisition of Remington's Hotel Management business will immediately add scale, diversification and an enhanced competitive position for Ashford in the hospitality industry. Looking ahead to the remainder of 2019 and 2020, we remain committed to maximizing value for our shareholders as we look to opportunistically grow our existing REIT platforms and create new platforms and grow our service businesses via increased AUM and third-party business."

INVESTOR CONFERENCE CALL AND SIMULCAST
The Company will conduct a conference call on Thursday, October 31, 2019, at 12:00 p.m. ET. The number to call for this interactive teleconference is (201) 493-6725. A replay of the conference call will be available through Thursday, November 7, 2019, by dialing (412) 317-6671 and entering the confirmation number, 13694099.

The Company will also provide an online simulcast and rebroadcast of its third quarter 2019 earnings release conference call.  The live broadcast of the Company's quarterly conference call will be available online at the Company's web site, www.ashfordinc.com on Thursday, October 31, 2019, beginning at 12:00 p.m. ET.  The online replay will follow shortly after the call and continue for approximately one year.

Included in this press release are certain supplemental measures of performance which are not measures of operating performance under GAAP, to assist investors in evaluating the Company's historical or future financial performance. These supplemental measures include adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA") and Adjusted Net Income. We believe that Adjusted EBITDA and Adjusted Net Income provide investors and management with a meaningful indicator of operating performance. Management also uses Adjusted EBITDA and Adjusted Net Income, among other measures, to evaluate profitability and our board of directors includes these measures in reviews to determine quarterly distributions to stockholders. We calculate Adjusted EBITDA by subtracting or adding to net income (loss): interest expense, income taxes, depreciation, amortization, net income (loss) to noncontrolling interests, transaction costs, and other expenses. We calculate Adjusted Net Income by subtracting or adding to net income (loss): net income (loss) to noncontrolling interests, transaction costs, and other expenses. Our methodology for calculating Adjusted EBITDA and Adjusted Net Income may differ from the methodologies used by other comparable companies, when calculating the same or similar supplemental financial measures and may not be comparable with these companies. Neither Adjusted EBITDA nor Adjusted Net Income 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. The Company urges investors to carefully review the U.S. GAAP financial information as shown in our periodic reports on Form 10-Q and Form 10-K, as amended and our Current Report on Form 8-K to reflect the acquisition of the Remington project management business.

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

Follow Chairman and CEO Monty Bennett on Twitter at www.twitter.com/MBennettAshford or @MBennettAshford.

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."

Forward-Looking Statements

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.  These forward-looking statements are subject to risks and uncertainties.  When we use the words "will likely result," "may," "can," "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 Inc.'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: adverse litigation or regulatory developments; 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; the degree and nature of our competition; risks related to Ashford Inc.'s ability to complete the acquisition on the proposed terms; the possibility that competing offers will be made; risks associated with the Remington Hotel Management business combination transaction, such as the risk that the Hotel Management business will not be integrated successfully, that such integration may be more difficult, time-consuming or costly than expected or that the expected benefits of the acquisition will not be realized.  These and other risk factors are more fully discussed in Ashford Inc.'s filings with the Securities and Exchange Commission (SEC) including Ashford Inc.'s definitive proxy statement filed with the SEC on September 23, 2019 and Ashford Inc.'s 10-K filed with the SEC on March 8, 2019.

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.