Ashford Moves to Enhance Dividend Coverage via Swap StrategyThe Company is including a graph (Exhibit A) which demonstrates the
March 13 2008 - 8:33AM
Business Wire
Ashford Hospitality Trust, Inc. (NYSE: AHT) today announced that it
has swapped $1.8 billion of its existing fixed-rate debt for
floating-rate debt, purchased a LIBOR cap and sold a LIBOR floor.
The strategic transaction positions Ashford to benefit from any
future drops in interest rates, until achieving the LIBOR floor
rate, while limiting its exposure to unexpected rate increases.
Given the $1.8 billion notional amount of the swap, every 25 basis
points drop in LIBOR, until achieving the floor, equates to an
annual net interest expense saving of approximately $4.5 million.
Ashford executed a five-year swap on $1.8 billion of fixed-rate
debt at a weighted average interest rate of 5.84% for a floating
interest rate of LIBOR plus 264 basis points, or an equivalent
savings of 34 basis points assuming yesterday�s LIBOR rate of
2.86%. In conjunction with the swap execution, Ashford sold a
five-year LIBOR floor notional amount of $1.8 billion at 1.25% and
purchased a LIBOR cap notional amount of $1 billion at 3.75% for
the first three years. The net upfront cost of the swap, LIBOR cap,
and floor transactions was approximately $5 million. The Company
will continue to monitor additional interest rate cap transactions
as conditions warrant. As a result of the interest rate swap and
hedge strategy, Ashford will have approximately 87% of its $2.7
billion of total debt floating-rate or swapped to floating at a
weighted average rate of LIBOR plus 241 basis points with 78% of it
capped at an average weighted LIBOR strike of 4.3%, with an average
maturity of 6.3 years including extensions. Ashford�s unswapped
fixed-rate debt amounts to approximately $340 million at an average
rate of 5.84%, with a weighted average maturity of 7.2 years.
Commenting on the announcement, Monty J. Bennett, President and CEO
of Ashford Hospitality Trust, stated, "Since our earnings call, we
have begun to see the very beginnings of softening RevPAR. It is
hard to know whether this short trend will continue. As a
precaution we wanted to hedge our asset cash flows by swapping our
debt to floating-rate. Looking back through the last two
recessions, we have noted a strong correlation between changes in
RevPAR and LIBOR. We have closely analyzed the potential trends in
LIBOR, RevPAR growth, as well as projected hotel supply. The
numerous analyses we completed led us to conclude that this
transaction should allow Ashford to lower its interest expense if
RevPAR growth softens due to economic weakness, which adds a
measure of protection to our cash flow and dividend. Simply put, we
feel this is an effective way to match the sensitivity of our
assets� cash flow to our liabilities� interest expense." The
Company is including a graph (Exhibit A) which demonstrates the
historical correlation between RevPAR and short-term interest
rates. The data tracks year-over-year changes in 30-day LIBOR and
compares it to trailing 12-month RevPAR growth in the United States
(with a five month lag) since January 1989. The analysis shows a
strong historical correlation between the two factors, with an
R-squared of .67 since 1989 and an R-squared of .91 since 2000.
Ashford Hospitality Trust is a self-administered real estate
investment trust focused on investing in the hospitality industry
across all segments and at all levels of the capital structure,
including direct hotel investments, first mortgages, mezzanine
loans and sale-leaseback transactions. Additional information can
be found on the Company's web site at www.ahtreit.com. 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," "projected," "may," "anticipate," "estimate,"
"should," "expect," "believe," "intend," or similar expressions, we
intend to identify forward-looking statements. Such forward-looking
statements include, but are not limited to the expected unleveraged
yield, the impact of the financing on our business and future
financial condition, our business and investment strategy, our
understanding of our competition and current market trends and
opportunities and projected capital expenditures. Such statements
are subject to numerous assumptions and uncertainties, many of
which are outside Ashford'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:
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; and the
degree and nature of our competition. These and other risk factors
are more fully discussed in Ashford's filings with the Securities
and Exchange Commission. 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.
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