Ashford Hospitality Trust officials updated analysts and investors on their asset strategy and what they’re seeing in the market.
DALLAS—Executives with Ashford Hospitality Trust are eager to get more deals done, especially as the company continues to sit on the last 20% of its Enhanced Return Funding Program with Ashford Inc.
But President and CEO Douglas Kessler cautioned analysts not to expect any big, sweeping portfolio deals, simply because those deals aren’t closing across the industry.
“I’d say that overall for the industry we’re seeing a decent flow of single assets,” he said during the company’s first-quarter earnings call with investors and analysts. “In fact, the data showed that volume was up about 1.5% for single assets but there are lot fewer portfolios out there in the market over the same time a quarter ago. It’s down substantially—almost 75%—and yet you know the total dollar volume this year over same quarter last year for the whole industry is down about 31% mainly due to the lack of portfolio activity.”
He also noted that on the whole cap rates are “down about 67 basis points,” and deals are taking longer to close.
The company’s big transaction of the quarter was the purchase of the 310-room Embassy Suites New York Midtown Manhattan for $195 million. The deal, which closed in January, marks Ashford’s first foray into New York, executives said.
Analysts asked whether the purchase marks the beginning of a wave of investment for Ashford in the country’s largest hotel market, but executives said this deal was driven more by its individual strength than the strength of New York overall. At the same time, they said they are believers in the fundamentals of the hotel industry in New York.
“This was a unique opportunity given it’s a brand new, fee-simple, very efficient box,” Kessler said. “It’s the only brand of this type in the market, with an opportunity for Remington (Hotels) to take over management. We thought that it would ramp up well, which the early performance indicators clearly highlight that. … We’re extremely pleased with this acquisition, and we’re looking forward to its continued performance, and a lot of that has to do with what we’re starting to see in New York.”
The company also completed the $50 million acquisition of the 178-room Hilton Santa Cruz/Scotts Valley in Santa Cruz, California, during the quarter.
Asked for an update on the company’s select-service portfolio, which the company had originally intended to sell off, first as a portfolio than as individual assets, COO Jeremy Welter noted there is a “pretty substantial disconnect between private and public market values” with properties in that segment.
He also noted the company isn’t singularly focused on its select-service properties in refining the portfolio.
“It could be other assets in our portfolio,” he said. “If you look at the history of what we sold over the past three years, it really has been a mix of both full-service and select-service hotels at cap rates that were materially better than where our portfolio overall traded. Yet if I recall correctly, I think the average (revenue per available room) on those hotels was around $80. … It was materially lower RevPAR than our overall portfolio.”
Ashford saw comparable RevPAR increase 1.9% to $122.10 during Q1, according to the company’s quarterly earnings news release. Occupancy for the quarter was down 1.2%, while average daily rate was up 3.1%.
The company saw a net loss for the quarter of $48.7 million.
Ashford stocks were trading at $5.59 a share as of press time, up 42.6% year to date. The Baird/STR Hotel Stock Index was up 18.7% for the same period.