Bay Area hotel owner lands financing after bankruptcy warning

The owner of seven top-notch hotels in and near the Bay Area has warned regulators that it faces a severe cash squeeze and possible bankruptcy — but also says it hopes a financing package provided by a major investor could help ward off its money struggles.

The scramble by Ashford Hospitality to land financing in the wake of its warning that it was facing potential bankruptcy are the latest indicators of the coronavirus-linked financial and economic roller coaster that confronts the lodging and travel sectors.

Texas-based Ashford Hospitality Trust, which owns hotels in 27 states including California, warned in a Dec. 22 filing with the Securities and Exchange Commission that it is suffering liquidity problems that are serious enough to shove the company into a Chapter 11 bankruptcy filing.

However, in a Dec. 28 filing with the SEC, Ashford Hospitality stated that it had secured a financing commitment of at least $200 million from Oaktree Capital Management that could dramatically ease the lodging company’s financial squeeze.

“We believe this strategic financing commitment provides substantial capital and ample liquidity for Ashford Trust to capitalize on the upcoming recovery in the hospitality industry,” said J. Robison Hays, chief executive officer with Ashford Hospitality Trust.

Texas-based Ashford Hospitality’s lodging properties include six hotels in the Bay Area and one hotel in the Monterey Bay area, according to the company’s website.

The hotel owner said it believes it has enough cash to fund its operations “into the early part of fiscal year 2021,” Ashford Hospitality stated in a recent SEC filing Ashford’s fiscal year is identical to the calendar year.

The company owns the Courtyard Oakland Airport in Oakland; Courtyard Newark and Residence Inn Newark, both in Newark; Embassy Suites Santa Clara in Santa Clara; Marriott Fremont in Fremont; Embassy Suites Walnut Creek in Walnut Creek; and Hilton Santa Cruz/Scotts Valley in Santa Cruz.

“We will need substantial additional funding to continue our operating activities,”  Ashford Hospitality Trust stated in the SEC filing.

It’s possible that at least some of the additional essential financing is being provided by Oaktree Capital Management, a global investment firm with $140 billion in assets under management.

Oaktree Capital agreed to provide at least $200 million in funding and could provide another $150 million, for a package that could potentially reach $350 million.

Severe difficulties could arise without a cash infusion or other efforts such as hotel property sales, or initiatives to convince its lenders and creditors to restructure loans or halt collections of mortgage payments, Ashford Hospital warned in the regulatory filing on Dec. 22.

“Due to our current financial constraints, there is a substantial risk that it may be necessary for us to seek protection under Chapter 11 of the U.S. Bankruptcy Code,” Ashford Hospitality stated in the SEC filing.

Over the 12 months that ended on Sept. 30, Ashford Hospitality Trust lost $448.5 million and generated revenue of $772.2 million, according to the Yahoo Finance site. For the three-month period ending in September, Ashford’s revenue nose-dived by 75{d54a1665abf9e9c0a672e4d38f9dfbddcef0b06673b320158dd31c640423e2e5} compared to the same quarter the year before.

“Since late February 2020, we have experienced a significant decline in occupancy and revenue per available room,” Ashford Hospitality stated in the SEC filing.

Even worse, economic woes and customer fears connected with the coronavirus outbreak are continuing to affect the company’s hotels.

“We are recording significant reservation cancellations relative to prior expectations as well as a significant reduction in new reservations,” Ashford Hospitality stated.

The problems won’t end any time soon, Ashford warned in the SEC documents.

“The continued outbreak of the virus in the U.S. has and will continue to further reduce travel and demand at our hotels,” Ashford Hospitality Trust stated.

However, Ashford Hospital now sees some room for optimism with the propagation of vaccines to combat the coronavirus.

The lodging operator also said it is making some headway regarding multiple initiatives, including negotiations with its lenders.

“Ashford Trust now has a sound balance sheet and sufficient capital resources to successfully navigate the pandemic and pursue long-term growth,” Hayes said.