Hurricanes and wildfires hurt the performance of some of Ashford Hospitality Prime’s properties, but the company also saw positive developments in the third quarter through property repositioning and a sale.
DALLAS—Four of Ashford Hospitality Prime’s 13 hotels “were significantly impacted” by Hurricane Irma and the California wildfires, President and CEO Richard Stockton said during his company’s third-quarter earnings call.
The Ritz-Carlton St. Thomas “received substantial damage” from Hurricane Irma, he said, and the Pier House Resort & Spa in Key West, Florida, sustained damage as well. Company officials said the real estate investment trust’s two properties located near the recent Northern California wildfires—the recently acquired Hotel Yountville and the Bardessono Hotel and Spa—avoided damage despite the devastation seen in the surrounding area.
In addition to challenges posed by the wildfires and hurricanes, the company also faced a difficult year-over-year comparison with its Courtyard Philadelphia Downtown Hotel, which benefited from the Democratic National Convention in July 2016, and also the disruptive renovation of the Courtyard San Francisco Downtown Hotel.
During the quarter, the company’s comparable revenue per available room for all hotels not under renovation (the Ritz-Carlton St. Thomas, the Pier House Resort & Spa and the Courtyard San Francisco) fell 2.9% to $204.72. Including those under renovation, RevPAR fell 5.3% to $211.36. However, adjusted earnings before interest, taxes, depreciation and amortization came to $26 million, an 18.3% year-over-year increase, according to the company’s release.
Three of the Ritz-Carlton St. Thomas’ six guestroom buildings received extensive damage, Stockton said, and only 73 of the hotel’s 180 guestrooms are currently available and in service. At the moment, those rooms are housing people helping in the recovery effort.
“We expect that the recovery at this property could take up to two years,” he said.
The Pier House in Key West also sustained damage, though not as severe as the Ritz-Carlton, he said. All of the guestrooms in the Pier House are in service.
“During the quarter, we booked insurance deductibles for both property and business interruption of $4.6 million, related to both Hurricane Irma and (Hurricane) Maria, that we have added back for purposes of our non-GAAP metrics,” he said.
While the wildfires did not injure guests or employees or cause any damage to the REIT’s two Napa Valley hotels, the fires have hurt demand in the market, he said.
“We will be claiming business interruption losses against our insurance policy due to this event,” he said. “Our uninsured losses for this event are not expected to exceed $500,000.”
Stockton said he was proud of the REIT’s asset-management team and property-management teams for how they’ve handled the storms and wildfires. The hotels remained open and operating throughout, and never closed, he said.
“They served as a refuge for displaced residents and provided lodging for first responders and recovery personnel,” he said.
Stockton reviewed how the company revised its strategic focus earlier in the year, choosing to target the luxury segment.
“Evidence has shown the luxury segment has had the greatest RevPAR growth over the long-term, which can translate into superior shareholder returns,” he said. “We believe (that) clearly aligning our platform with this segment will differentiate us relative to our REIT peers.”
The company identified four of its hotels as non-core to the portfolio: the Courtyard Philadelphia, the Courtyard San Francisco, the Renaissance Tampa and the Marriott Plano Legacy Towne Center, he said. The goal was to either reposition the properties or sell them, he said.
The company has since entered into an agreement with Marriott International to convert the Courtyard Philadelphia into the Autograph Collection by 30 June 2019, he said, and it will undergo a property improvement plan estimated to cost about $23 million. The repositioning should add a $25 RevPAR premium to the property and yield an approximate 19% unlevered internal rate of return, he said.
Similarly, the REIT will also convert the Courtyard San Francisco into an Autograph Collection hotel by December 2019, he said. The conversion process includes an improvement plan estimated to cost about $30 million, he said, which includes updates to the guestrooms, guest bathrooms, corridors, lobby, restaurant, façade and meeting space. Following the conversion, the property should see a $50 RevPAR premium, yielding an approximate 20% unlevered rate of return.
Ashford Prime has completed the sale of the Marriott Plano for $104 million, representing an all-in cap rate of 7.7%, Stockton said.
“Additionally, we have announced that we have begun marketing for sale of our Renaissance Tampa Hotel, we hope to have more news for you on that process in the near future,” he said. “We're pleased to announce this finalization of our strategy for our non-core hotels.”
The company also refinanced its mortgage on the Bardessono Resort, lowering its interest rate enough to result in about $1 million in expected annual savings. Along with the refinancing completed in January, he said, the company has achieved $13 million in annual interest and principal payment savings.
Ashford Hospitality Trust
Executives at Ashford Prime’s bigger sibling, Ashford Hospitality Trust, focused their attention on the REIT’s capital structure during the company’s third-quarter earnings call. The company refinanced a mortgage loan for 17 hotels that had an outstanding balance of $413 million, CFO Deric Eubanks said. The new loan comes to $427 million with a two-year initial term and five one-year extension options. Altogether, the refinancing should yield annual interest savings of $9.8 million.
The REIT maintained flat comparable RevPAR of $124.92 for its 120 hotels, according to its earnings release, but its 107 hotels not under renovation achieved comparable RevPAR growth of 0.4% to $126.64.
Ashford Trust’s hotels did not sustain any significant damage from Hurricanes Harvey and Irma, President and CEO Douglas Kessler said. All of its hotels remained open and operating, and the company had teams with supplies in place to respond quickly after the storms passed.
As of press time, Ashford Trust’s stock was trading at $6.31 per share and was down 18.7% year to date.