As a result of poor investor reaction to a drop in dividend, Ashford Hospitality Trust has put the brakes on buying hotels, President and CEO Douglas Kessler said on the company’s second-quarter earnings conference call.
DALLAS—A June reduction in the company’s cash dividend sparked a drop in Ashford Hospitality Trust’s stock price, and the real estate investment trust’s President and CEO Douglas Kessler said he doesn’t expect his company to be acquisitive until share prices bounce back.
Speaking during the company’s second-quarter earnings conference call, Kessler said his company has been very thoughtful about its approach to acquisitions.
As of press time, Ashford stock was trading at $2.6 a share, down 34.1% year to date. The Baird/STR Hotel Stock Index was up 16.1% for the same period.
“We’re prepared to be patient given our new stock price compared to where we traded (during earlier transactions),” he said.
The company has spent $406 million in transactions since it announced its enhanced return funding program with external advisor Ashford Inc. Kessler said company officials still expect to see solid earnings from recently acquired properties like the Embassy Suites by Hilton New York Manhattan Times Square and the Hilton Santa Cruz/Scotts Valley, both purchased in February using the ERFP program.
Kessler said the company is more closely looking at asset dispositions for the time being, and the returns on possible sales would be dedicated to paying down debt and possibly stock buybacks under the right conditions.
Kessler noted the decision to cut back the dividend that ultimately sparked the drop in stock price was driven by the fact the market wasn’t giving Ashford “credit for an outsized dividend.”
“We realized we had been paying well in excess of the required distributions to meet REIT rules,” he said. “We’ve always been opportunistic with our cash, and we realized we could use that cash for more opportunistic purposes.”
He told analysts his company continues to underwrite deals because executives “want to stay in the flow of transactions activity” but they plan to remain on the sideline until conditions change.
“Given where our stock is trading and given the desire to not increase leverage, we think it’s best to stand on the sidelines until we find transactions that are both accretive and don’t negatively impact our leverage,” he said.
The company is also expected to spend significantly less on capital expenditures in 2019 among its portfolio than in 2018, when more than $200 million was spent on various projects. Kessler said 2019 CapEx spending will be “more in line with long-term historical levels” for the company.
COO Jeremy Welter said the company is now poised to enjoy the benefits of a wave of ROI projects. He noted seven hotels with renovations in 2018 saw double-digit revenue per available room increases in Q2 2019.
He noted the Courtyard Denver Airport completed a renovation in the first quarter of 2018 and saw 17.5% RevPAR growth in Q2 2019.
RevPAR grew 2.8% year over year across Ashford’s portfolio during the second quarter to $140.58, according to the company’s Q2 news release.
Adjusted earnings before interest, taxes, depreciation and amortization was up 5.8% for the quarter to $132.1 million.