What happened

Shares of hotel real estate investment trust (REIT) Ashford Hospitality Trust (AHT -6.73%) Were higher by nearly 14% at one point during the trading day on Oct. 27. However, by the close, they had given back some of that advance, and were up about 9% or so. The big news was the company's third-quarter earnings release, which hit the market after the close of trading on Oct. 26.

So what

Revenue per available room night was up 166% on a 100% increase in hotel occupancy in the third quarter of 2021 compared to the third quarter of the prior year. The company's revenue, which includes both room rents and hospitality income, was roughly $93 million in the third quarter of 2020 but was $247 million in the same period of the current year. Clearly, Ashford Hospitality's business is on the mend, with management noting particular strength in "weekend leisure demand."

A hotel employee greeting a customer in a hotel lobby.

Image source: Getty Images.

Investors clearly rewarded the real estate investment trust for this strong performance today, though management had actually provided some advance warning of the improvements on Oct. 5. So today's results shouldn't have been a complete surprise. That said, there's a bigger picture that needs to be taken into account, as well. Notably, while revenue rose to $247 million in the third quarter of 2021, that number is still below the $347 million it brought in the door in the third quarter of 2019. So while things are improving, the recovery from the pandemic hit is far from complete. And, while management is working hard to deal with a debt-heavy balance sheet, leverage remains an ongoing concern. Notably, shareholder equity was positive this quarter, thanks to improved results, but the debt-to-equity ratio was a frightening 98.5%. 

Now what

Clearly, Ashford Hospitality Trust's business is in recovery mode, along with the broader economy. However, it is nowhere near back to pre-pandemic levels and it is still carrying a lot of leverage. This isn't a great option for risk-averse investors, even noting the business upturn. 

Those seeking a turnaround play might find it of interest, but should note that the stock has gotten caught up in the meme stock craze over the past year and has seen some pretty dramatic price spikes and similarly harrowing declines. So the price action may not be completely rational right now. Basically, if you decide to step in here, do so with an abundance of caution.