DALLAS—Ashford Hospitality Trust’s decision to scrap its previously announced plan to have an ownership platform focused specifically on select-service assets will help investors and investment analysts better understand its strategy, intentions and value proposition, according to its CFO and treasurer Deric Eubanks.
Ashford Hospitality Trust, a real estate investment trust that trades on the New York Stock Exchange under the symbol “AHT,” will predominantly focus on upper-upscale, full-service hotels in geographically diverse U.S. markets after announcing Friday that it is reversing a decision announced in January to launch Ashford Hospitality Select during 2015. The company had planned to spin off 16 of its 60-plus select-service hotels to get Select up and running.
The announcement will not affect the standing of Ashford Hospitality Prime, a spin-off REIT formed in 2013 to focus on luxury resorts in gateway markets, Eubanks said. AHP’s strategy focuses on high-end hotels in the top six or seven markets in the U.S. AHT is more geographically diverse and focuses on full-service properties in the U.S.
According to the Baird/STR Hotel Stock Index, AHT closed trading on Thursday down 3.15% to $8.30 per share. The Stock Index itself was down 0.5%.
“We made an announcement in January that we wanted to form a select-service strategy, and initially we thought we could do it a few different ways,” Eubanks said during an exclusive interview with Hotel News Now on Thursday. “We ultimately concluded, and after visiting with shareholders as well, it doesn’t make sense to spin those hotels off into a separate REIT. We think the market was a little concerned we might do that.
“We’re trying to define the investment strategy a little bit better,” he added. “Investors really wanted us to clarify our strategy going forward. … With the announcement that we’re no longer focused on select assets, it’s a significant change in strategy.”
The intent of the shift in strategy is not to put AHT in a position to merge with or acquire another REIT, nor is it to position itself for a sale, Eubanks said.
“The intent was to clarify to the market our strategy,” he said. “Trust is not going to pursue a select-service strategy.”
AHT has 116 hotels comprising more than 25,000 rooms in its portfolio.
As part of the revised plan, the company will sell 23 select-service hotels. AHT owns 68 select-service properties. The portfolio being marketed does not include any of the eight select-service hotels AHT announced it was acquiring in May and closed on 18 June.
There is no timetable for selling the hotels, Eubanks said. Because the environment is ripe for premium pricing on larger portfolios, AHT would prefer to sell them in one transaction.
Attractive valuations
The attractive hotel transactions environment was a factor in the decision to kill the select-service plan, according to Eubanks. With many assets fetching record sales prices, the timing is right to market select-service product to a sector that’s flush with capital for acquisitions.
“We feel Ashford Trust today is being undervalued by the market,” Eubanks said. “By selling these hotels, hopefully at an attractive valuation, it will show the market where the value of Ashford trust is.”
Ashford Inc., the external advisor to AHT that is run by the same management team, could still develop a select-service hotel ownership platform, but it will not involve the REIT, according to the CFO.
“There are a lot of different ways that Ashford Inc. could go forward with launching a platform like that,” Eubanks said.
Competitive advantage
The 23 select-service hotels Ashford plans to sell are all managed by brands.
“We’re not interested in assets encumbered by brand management,” Eubanks said. “This portfolio, we feel we’ve gotten a lot of the value out of it … We can’t change the manager.”
Because law prohibits REITs from both owning and operating hotels, the company prefers to have its hotels managed by Remington Hotels. Remington Hotels was founded in 1968 by Archie Bennett—one of the principals that launched AHT in 2004—and manages approximately half of the hotels in the Ashford Trust portfolio and one hotel in the Prime portfolio.
“It’s a huge competitive advantage for us because we do have a third party affiliated with us,” Eubanks said. “We can have a little more control over the operations.”
The arrangement allows AHT to acquire assets that its executives believe are under-managed, install Remington as the operator and create more value for the investment, he said.
Trust will continue to take an opportunistic approach to holding or disposing the balance of its select-service portfolio, he said. Proceeds from the sale of any assets will be redeployed into hotels that fit the revised strategy.
“I suspect over time we will get out of that business and sell (all of) those assets,” Eubanks said.