(CBS News) - Hotel operator Ashford Inc., which owns or runs more than 130 properties around the country, has laid off or furloughed 95% of 7,000 workers to conserve cash in the wake of the growing novel coronavirus-driven economic swoon.
CEO Monty Bennett said the staff reductions started last week, but most of the company's employees were contacted on Monday and told they were either being let go or they wouldn't be receiving paychecks for the time being. Bennett said about one third of the company's salaried staff has been permanently let go.
“There is no money to make our debt service,” Bennett said. “We can’t make the numbers work. No one can.”
The share price of Ashford’s publicly traded real estate investment trust Real has dived 91% this year. On Wednesday, it hit an all-time low of 50 cents a share. A year ago the REIT’s shares were close to $5.00.
Bennett said he cut his own pay and the pay of his executives by 15%. He said numerous remaining employees have had to be quarantined. One Washington, D.C., employee, who has tested positive for the COVID-19 disease caused by the coronavirus, is in critical condition in a local hospital and on a respirator.
"We are wishing for the best," Bennett said. "We don't have the money set aside to get through this."
Ashford is far from alone. The hotel industry employs about 6 million workers in the U.S. and accounts for about 5% of GDP, generating some $650 billion in annual sales. And hotels were one of the first industries hit by the coronavirus downturn. Hotel industry revenue fell nearly 12% in the first week of March, according to loan tracking firm Trepp. The drop caused credit rating service Fitch to downgrade the hotel industry’s more than $300 billion in mortgage debt to negative from stable.
Few industries will be spared from the forced shutdown of the U.S. economy that health experts say is needed to stop the spread of the coronavirus. But there are few industries currently being hit worse than the hotel industry. On Tuesday, hospitality executives met with President Donald Trump in the White House to ask for a federally funded bailout. Industry executives are asking for as much as $150 billion in help.
American Hotel and Lodging Association President Chip Rogers said hotel owners hope about $100 billion of that can go to help support furloughed workers. The rest would be needed to help hotel owners make their debt payments.
How that would work hasn’t been determined. Rogers said the actual mechanics of a hotel bailout were not discussed at Tuesday’s White House meeting. One potential problem: The hotel industry is far less concentrated than the big banks were during the 2008 financial crisis or the airline industry is today. Getting assistance to thousands of smaller hotel operators or franchises may prove difficult.
Rogers said he has heard banks are working with hotel operators, but if relief doesn't come then more and more hotel operators will lose their properties.
“If decisions aren’t made soon, then hotel owners are going to take their keys and hand them back to the bank,” said Rogers, who added that owners are not going to keep making payments on properties they can’t afford to keep.
Ashford, which is based in Dallas, started as a family business. Bennett's father, Archie Jr., began acquiring troubled hotels back in 1968. Monty joined the business after graduating from Cornell University's hospitality school in 1989, and took it over in 1999 when his father retired.
The son took the company public a few years later and grew it from 6 hotels to an operator and manager of more than 130 properties around the country, many of which are franchises of national brands, including Hampton Inn and Courtyard by Marriott. Three years ago, the company was worth as much as $5 billion.
Bennett's most pressing problem now is negotiating with lenders. Ashford has cash. The company has drawn down its $75 million bank revolving loan and now has that sitting in its accounts. Bennett is reluctant to spend it, though, because the terms of the revolving loan require Ashford to hit a certain income level. If it doesn't deliver on the income level, it has to pay back the revolver immediately. Now that nearly all of his income has temporarily dried up, he could have to pay back the $75 million in full as soon as April 1.
Bennett said if he and other hotel operators got relief from their lenders they could start spending that money to continue to pay workers and keep their hotels out of foreclosure. Bennett said he has talked to one of his lenders, but hasn't had the terms of his loan changed yet. He says other lenders don't want to talk until he is officially behind on his payments.
According to Bennett, his furloughed workers are using up their vacation and sick days. Laid-off workers were given a week of severance for every year they were with the company. Hourly workers, who make up about a third of Ashford's staff, were told not to expect work for months.
Bennett said his first concern is that a government bailout would get cash to his workers. But he said the industry may need debt relief for as much as a year and a half. When the virus clears he thinks the government should offer tax breaks to the American public for vacation spending.
One hurdle to getting a hotel industry bailout done is the perception among some people that Mr. Trump is pushing through relief for his own company. The Trump Organization, like other hotel chains, is a member of the American Hotel and Lodging Association, the organization leading the lobbying effort for the industry bailout.
Hotel industry executives have been big donors to Mr. Trump's political campaign. In October 2016, Bennett donated $143,000 to the Trump Victory political action committee.
“Donald Trump has such a deep conflict of interest with respect to any possible `bailout’ of the hotel industry that the entire process is poisoned,” said Jeff Hauser, a government watchdog who is the founder and head of the Revolving Door Project. “A political process that features a president as both an architect and a recipient of a bailout is inherently illegitimate.”