Evaluating Ashford Hospitality Trust's 7.5% Preferred Series I in a Rising Rate Environment

In a world where central banks have signaled prolonged higher interest rates, income-seeking investors are increasingly scrutinizing high-yield preferred stocks. Ashford Hospitality Trust's 7.5% Preferred Series I (AHT.PR.I) has emerged as a tantalizing option, offering a forward dividend yield of 13.3% as of October 2025Ashford Hospitality Trust Inc 7.5 % Cum Conv Perp Red Pfd Registered Shs Series -I-^[4]. Yet, the question remains: Can this yield persist in a tightening monetary environment, or does it mask deeper financial fragility?

The Allure of the Dividend

The Series I preferred stock distributes $0.46875 per share quarterly, aligning with its 7.5% annual rateAshford Hospitality Trust Sets Q3 Dividends for Preferred Shareholders^[5]. This consistency has been a hallmark of the security, with cumulative dividends totaling $1.88 over the past yearAshford Hospitality Trust (AHT.PRD) Dividend History, Dates & Yield^[3]. For income investors, this represents a stark contrast to the 4.5% average yield of investment-grade preferred stocks in the S&P 500Ashford Hospitality Trust Earnings Q2 2025 | Ashford Hospitality ...^[1]. The cumulative nature of the dividend-requiring unpaid amounts to be settled before common shareholders receive payouts-adds a layer of priorityAshford Hospitality Trust Sets Q3 Dividends for Preferred Shareholders^[5]. However, this feature does not guarantee payments, as Ashford has not legally committed to future distributionsAshford Hospitality Trust Inc 7.5 % Cum Conv Perp Red Pfd Registered Shs Series -I-^[4].

Financial Strain and Liquidity Challenges

Ashford's recent financial results underscore the risks. For Q2 2025, the company reported a net loss of $30.4 million, a -160.48% year-over-year declineAshford Hospitality Trust Inc 7.50% Preferred Shares Series I^[2]. Its total equity stood at -$248.07 million, reflecting severe leverageAshford Hospitality Trust Inc 7.50% Preferred Shares Series I^[2]. While cash from operations surged 105% to $16.34 million, free cash flow plummeted by 90.63% to $9.09 million, highlighting operational inefficienciesAshford Hospitality Trust Inc 7.50% Preferred Shares Series I^[2]. These figures suggest a precarious balance between liquidity and solvency.

The company's debt structure exacerbates these concerns. With $2.7 billion in total debt and 76% of its portfolio at floating rates, Ashford faces mounting interest costs as the Federal Reserve maintains restrictive policyAshford Hospitality Trust Earnings Q2 2025 | Ashford Hospitality ...^[1]. A blended average rate of 8.1%, inclusive of interest rate caps, means even minor rate hikes could erode marginsAshford Hospitality Trust Earnings Q2 2025 | Ashford Hospitality ...^[1]. The recent $6.8 million in default interest on its Highland Loan further illustrates the fragility of its covenant managementAshford Hospitality Trust Inc 7.50% Preferred Shares Series I^[2].

Mitigating Risks: Deleveraging and Refinancing

Ashford has taken steps to stabilize its balance sheet. It extended $1.14 billion in mortgage loans, buying time to refinance at more favorable termsAshford Hospitality Trust Earnings Q2 2025 | Ashford Hospitality ...^[1]. A $212 million non-traded preferred stock offering and plans to sell four properties aim to reduce leverageAshford Hospitality Trust Earnings Q2 2025 | Ashford Hospitality ...^[1]. These measures, while prudent, may not offset the drag from rising interest expenses.

The absence of a credit rating for Series I adds uncertainty. Unlike investment-grade preferred stocks, which often benefit from issuer creditworthiness, AHT.PR.I's risk profile is opaqueAshford Hospitality Trust Inc 7.5 % Cum Conv Perp Red Pfd Registered Shs Series -I-^[4]. This lack of transparency could deter risk-averse investors, particularly as the hospitality sector remains sensitive to economic cycles.

Conclusion: A High-Yield Gamble

Ashford's 7.5% Preferred Series I offers a siren song for income investors: a 13.3% yield in a low-growth world. Yet, this yield comes with caveats. The company's negative equity, volatile cash flows, and heavy reliance on floating-rate debt create a volatile backdrop. While management's deleveraging efforts are commendable, they may not be sufficient to insulate the stock from broader macroeconomic headwinds.

For those willing to accept elevated risk, AHT.PR.I could serve as a speculative bet on Ashford's ability to navigate its challenges. However, in a rising rate environment, the line between yield and yield trap grows thin. Investors must weigh the allure of the dividend against the company's structural vulnerabilities-a calculus that demands both vigilance and diversification.