Article Summary:

With heavy exposure in the U.S. capital, Ashford Hospitality Trust officials said they’ve seen continued weakness in Washington, D.C., first from the 2018 midterm elections then an even more pronounced drop-off from the government shutdown.

Primary Category: Earnings Recaps

Secondary Categories: News, Ownership, Transactions

DALLAS—The end of 2018 and the beginning of 2019 is a tough period to be a hotel owner with heavy exposure in Washington, D.C., and that’s exactly what Ashford Hospitality Trust is.

Speaking during the company’s fourth-quarter and full-year 2018 earnings call, executives with the real estate investment trust said their high concentration in D.C. and the surrounding areas pushed down overall portfolio performance in the quarter.

Co-President and COO Jeremy Welter said D.C. is Ashford’s top market both in number of rooms and earnings before interest, taxes, depreciation and amortization contribution, and the drags on that market were enough to push comparable revenue per available room growth negative (-0.6%) for the fourth quarter. Comparable RevPAR fell 6% in D.C. for the quarter.

“Excluding D.C., the entire portfolio’s RevPAR would be positive in Q4,” he said.

Two major factors play into the weakness in the market: The midterm elections slowed business during the end of 2018, and U.S. federal government shut down had a decidedly negative effect on hotels in January.

Welter noted the slowdown around elections, like the midterms, is a normal phenomenon in D.C., and the shutdown impact for the fourth quarter was “minimal in December.”

But the impact was decidedly more substantial in January, where comparable RevPAR for the market fell 12.3% at Ashford’s hotels. He said that equates to a loss of roughly $1 million for the company.

But Ashford officials remain optimistic on the market in general, especially considering the Crystal Gateway Marriott in Arlington, Virginia, recently completed a wide scale renovation, including work on the property’s ballroom, and should enjoy a performance boost with Amazon’s planned East Coast headquarters being built in nearby Crystal City, Virginia.

The renovations “position us well going forward, and the announcement by Amazon of (its second headquarters in) Crystal City has us even more excited about the future,” Welter said.

Transactions
Ashford closed on three acquisitions during the fourth quarter of 2018 and so far in 2019, all of which benefited from the Enhanced Return Funding Program with Ashford Inc. That program has Ashford Inc., which externally manages the Ashford REIT along with Braemar Hotels & Resorts, provide 10% of acquisition funding until Ashford Trust reaches a total of $50 million.

At the end of October, Ashford purchased the 157-room La Posada De Santa Fe in Santa Fe, New Mexico, for $50 million. In January, the company bought the 310-room Embassy Suites New York Midtown Manhattan in New York for $195 million, and February saw the purchase of the 178-room Hilton Santa Cruz/Scotts Valley in Santa Cruz, California for $50 million.

Altogether, the ERFP program contributed $29.5 million to those acquisitions.

While President and CEO Douglas Kessler noted $9 million remains in the ERFP, he said the company isn’t seeing many appealing transactions at the moment.

“As we look out to what’s out there now, there are a decent number of deals, but relative to what we’re looking for, we’re stretched to find the kind of things we’re looking for and what’s appealing to us,” Kessler said.

Performance metrics
Full-year RevPAR for Ashford’s portfolio grew 1% year over year in 2018.

The company posted a net loss for the year of $169.5 million.

Welter also noted on the call that 2018 was the first year in the previous five that the company lost market share among its competitive set. He attributed this to the impact of renovations, external headwinds and internal staffing changes as the company’s former head of revenue optimization Sloan Dean left the REIT to take over as COO at their affiliate management company, Remington Hotels.

As of press time, Ashford’s stock was trading at $4.81 a share, up 22.7% year to date. The Baird/STR Hotel Stock Index was up 13.2% for the same period.

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