Ashford Hospitality Trust (AHT), a real estate investment trust (REIT) focused on upscale full-service hotels, has been facing a challenging period, grappling with the impact of the pandemic and a hefty strategic financing loan. However, a closer examination of their recent earnings call transcript reveals a fascinating trend that might be overlooked by casual observers: the strategic revitalization of their food and beverage (F&B) operations. While analysts are focused on asset sales and debt refinancing as the primary paths to AHT's recovery, could this renewed emphasis on F&B hold the key to a faster turnaround and even a potential dividend resurgence?

The hospitality industry often views F&B as a supplementary revenue stream, secondary to room revenue. However, AHT appears to be bucking this trend, transforming F&B into a powerful profit driver. In Q1 2024, F&B revenue per occupied room increased by a remarkable 4%, while banquet revenue, a key indicator of group business profitability, saw a substantial rise across their portfolio. This focus on F&B is not a new phenomenon for AHT. In 2023, they implemented a strategic shopping initiative across their portfolio, optimizing menu pricing and increasing minimum spending requirements on catering contracts. The results were striking: an 18% increase in F&B revenue and a 227 basis point improvement in F&B margin for the year.

This emphasis on F&B aligns perfectly with the broader trends in the hospitality industry. Consumers are increasingly seeking unique and high-quality F&B experiences, often willing to pay a premium for them. AHT's recognition of this trend and their proactive efforts to cater to this demand are likely to yield significant benefits, particularly as they focus on attracting more group business.

The success of their F&B revitalization is evident in the performance of individual properties. Take, for example, the Embassy Suites in Las Vegas, where Q1 2024 saw a 29% increase in F&B department profit per occupied room. The team's proactive approach during the high-demand Super Bowl period, by strategically increasing F&B requirements for group bookings and encouraging similar menu selections, showcases their adeptness at maximizing profitability.

Another stellar example is the Hyatt Regency Savannah, which benefited from the aforementioned portfolio-wide shopping initiative, achieving a 34% increase in banquet revenue for the year. This demonstrates how AHT's strategic approach to F&B can be successfully implemented across diverse properties, even in markets with distinct demand drivers.

The data speaks for itself: AHT's commitment to F&B is translating into tangible financial gains. But how does this translate into their broader recovery plan and the potential for a dividend return?

Hypothesis: F&B as a Dividend Catalyst

AHT's increased focus on F&B could contribute significantly to their goal of paying off the strategic financing loan and reinstating a dividend. Here's how:

Increased Profitability: Higher F&B margins directly contribute to overall profitability, boosting cash flow and providing more capital to pay down debt. This, in turn, could accelerate the timeline for clearing the strategic financing loan. Enhanced Attractiveness for Asset Sales: By showcasing strong F&B performance, AHT can attract higher valuations for their assets during sales. This could lead to higher net proceeds, further accelerating debt reduction. Improved Group Business: A robust F&B program makes AHT's properties more attractive to group bookings, which are typically associated with higher spending and extended stays. Increased group business can lead to more stable revenue streams and stronger financial performance, supporting dividend reinstatement.

F&B Revenue Growth The following chart illustrates the growth in AHT's F&B revenue, based on data from their earnings calls.

Ashford Hospitality Trust's journey to financial recovery is a complex one, with numerous moving parts. While asset sales and refinancing are crucial steps, their strategic focus on F&B is a hidden gem that could be the catalyst for a faster turnaround and a brighter future, potentially paving the way for a dividend comeback.

"Fun Fact: The hotel industry's reliance on F&B is shifting. While traditionally seen as a supplementary revenue stream, F&B is increasingly becoming a key profit driver for hotels that prioritize unique and high-quality dining experiences. AHT's strategic focus on F&B is a prime example of this trend in action."