Ashford Hospitality Trust (NYSE:AHT) claims to be “well-positioned to capitalize on the lodging recovery” its investor presentation. But judging by the price action of AHT stock, the shareholders have definitely not been capitalizing as they’ve struggled to get back to break even.
Regardless, the company claims to have a “clear path forward to capitalize on the recovery.” Ashford also purports to have “significant balance sheet & liquidity enhancements.”
The company bore $3,673,734 in net debt as of June 2021, as opposed to $3,863,000 on March 31, 2020. To me, that sounds more like barely making a dent than a significant enhancement.
But as always, I’ll let you decide what’s real and what’s not. At the very least, I hope you’ll understand the risk-versus-reward if you plan to wager your hard-earned capital on this erratic race horse of a company.
A Closer Look at AHT Stock
So let’s talk about the value to shareholders.
At the end of March, 2020, when the broader stock market was bottoming out, AHT stock was trading at around $65. That’s after the share price had already declined precipitously since 2018.
Over the past year and a half, Covid-19 vaccines have been distributed to the public. Many lockdowns have been lifted, and businesses are, generally speaking, getting back on their feet.
Meanwhile, the real estate market has largely thrived — some folks would even say it’s in a bubble phase now.
Yet Ashford has been just surviving instead of thriving. To quote InvestorPlace contributor Chris MacDonald, “the company did avoid Chapter 11 bankruptcy this past year. Ashford was able to negotiate forbearance from its lenders to do so.”
Of course, barely avoiding bankruptcy isn’t something that any long-term investor should really celebrate.
And despite what appears to be a Reddit-fueled run-up in June, AHT stock still slipped to a gut-wrenching close of $16.20 as July came to a close.
At the same time, Ashford had trailing 12-month earnings per share of -$151.99. That’s pretty horrendous when the share price is around $16.
Not to “split” hairs (that’s a spoiler alert), but there’s another point that needs to be addressed in regard to AHT stock. But I’ll save the best for last.
Read the Fine Print
At first glance, it might seem that Ashford had a terrific second quarter this year.
After all, the company reported an increase of 372% in comparable revenue per available room (RevPAR) for all hotels, along with a 287.5% increase in occupancy.
That sounds great, so far — but if you read the fine print, you’ll see some unsettling developments.
For one thing, Ashford reported a quarterly net loss attributable to common stockholders of $69.5 million, or $4.35 per diluted share.
And here’s an eye-opener: “At the end of the quarter, approximately 98% of the company’s hotels were in cash traps under their respective loans.”
“Cash traps”? Apparently, this means that “any excess cash flow generated by those hotels will be held by the lender and will not be available for corporate purposes.”
Will this be resolved anytime soon? Evidently not: “the company expects many of these hotels to remain in cash traps for the foreseeable future.”
Just Split and Never Look Back
Finally, I must address the elephant in the room.
On July 16, 2021, Ashford Hospitality Trust announced that it had enacted a 10-for-1 share split.
With no exceptions that I can think of, reverse stock splits are a bad sign. They’re often an act of desperation.
They can lead to further declines in the share price, followed by more reverse stock splits — it’s an awful, vicious cycle.
Ashford spun this event as a positive development for the company. Thus:
“By implementing a reverse stock split, the Company and its Board of Directors believes it can realize increased incremental demand for both its common stock and its options while also making the Company’s shares more attractive to a broader range of potential long-term institutional investors, individual investors, and buy-side analysts.”
None of this will actually happen. No “long-term investors” will come calling. No respectable “buy-side analysts” will heartily recommend Ashford Hospitality Trust.
There will be no demand, whether “increased” or “incremental,” unless Reddit users come and save the day.
And that, I suspect, would only provide a brief share-price pop before gravity and reality set in once again.
The Bottom Line on AHT Stock
So there you have it: “cash traps” confirmed, and “increased incremental demand” not confirmed at all.
Don’t get me wrong — I’m perfectly okay with putting a few dollars into AHT stock as a potential meme-stock gamble.
Just don’t count on Ashford to “capitalize on the recovery” — or reward long-term shareholders — in this lifetime.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.