DALLAS—Driven by a desire to simplify its platform for investors, as well as a stock that was not performing up to the company’s expectations, Ashford Hospitality Trust, Inc. (AHT) recently revealed that it plans to sell its select-service portfolio and focus solely on upper-upscale, full-service assets.
Earlier this year, the publicly traded REIT had stated its intention to spin off its select-service assets into a dedicated platform, similar to Ashford Prime, a separate hospitality REIT formed in 2013 that focuses on luxury properties in gateway and resort markets. But, while AHT reversed course on its select-service strategy and publicly stated that it’s not planning any future platform spinoffs, Ashford Chairman and CEO Monty Bennett told Hotel Business that the company is strongly considering rolling its privately held management firm Remington Hotels into Ashford Inc.
Remington manages more than 90 hotels, the majority of which are for AHT. Bennett further noted that such a move is the only transaction that Ashford Inc., which provides asset management services and serves as an advisor to both AHT and Ashford Prime, is currently considering. “A number of investors have indicated that they would like to remove Remington as a potential conflict of interest and simplify the structure. So, we are discussing that potential transaction,” he said.
Bennett talked about the decision by AHT—which has a total collection of 129 hotels in its portfolio—to divest its select-service assets. “We had intentions of starting a select-service platform at some point out of AHT, but we received a lot of feedback from investors who wanted greater simplicity in the platform. So, we listened to our investors and adjusted our strategy. AHT planned on getting out of the select-service business at some point; we just decided to go ahead and do it sooner rather than later so that we could provide greater clarity for our investors,” he said.
According to Bennett, that clarity has already paid dividends as the company’s stock has surged this summer. At press time, it was trading at a little more than $8.50 a share. “During the spring, it had not performed as well we had hoped, in part leading to the decisions about getting out of the select-service business and focusing the strategy on upper-upscale, full-service assets. About five weeks ago, we made an announcement regarding the company’s renewed focus and, since then, our stock has outperformed the industry fairly meaningfully,” he said.
Bennett noted the company would prefer portfolio deals for its select-service assets as opposed to one-offs for more favorable pricing. As such, the company has already begun marketing a 23-hotel select-service portfolio totaling more than 4,300 rooms. The remainder of the select-service portfolio includes some 45 properties.
Bennett asserted that AHT has already received inquires on the 23-property portfolio. He said some of the proceeds will be used to pay off debt associated with those specific assets, and the balance will be redeployed “if we can continue to find full-service accretive opportunities to buy.”
Bennett elaborated on why the company sees so much opportunity in the upper-upscale, full-service sector, particularly as it relates to competition and, ultimately, the prices of the assets. “Most of our REIT competitors will only focus on certain markets, and we find quite a number of markets where our REIT competitors will not target and will not focus. We might run up against some private equity buyers, but at least it cuts the field down as far as the competition,” he said.
Bennett also touted the potential of the sector based on the ability to enhance the value of assets through a number of initiatives such as re-concepting the food and beverage, adding meeting space, rebranding the hotel and revamping the cost structure.
“The upper-upscale, select-service [sector]many times has the most opportunity for repositioning and for value add. Select-service is a great sector, but many of those assets are already running fairly well because it’s a relatively simple model. The full-service assets that are out there, many of them are not being run as well as they could. So, not only can you buy the asset at a fairly decent cap rate many times, but there’s more value add that can increase the profitability of the asset,” he asserted.
Nevertheless, Bennett insisted that, despite the planned divestiture and the company’s stated preference for upper-upscale, full-service hotels, he is bullish on all sectors at the moment, including select-service. Bennett further added that could represent opportunity as well. “There’s a good chance that Ashford Inc. will advise a select-service platform, but it won’t be one that comes out of AHT. It will be some other enterprise,” he said.
Meanwhile, Bennett was asked if Ashford Prime—which now includes 11 properties after its recent acquisition of the Bardessono Hotel and Spa in Yountville, CA—has met expectations thus far. “In some regards yes, and in some regards no. We’ve been able to focus the platform on luxury hotels in gateway markets and resort areas, which we’re very happy about. The stock has not performed as well as we had hoped, and what we’re finding is discounts to our stock related to the trading volume and liquidity of our common shares. So, that’s something that we will just have to grow out of over time,” he said.
Bennett highlighted the deal to acquire the Bardessono, which is located in the Napa Valley and cost some $85 million. He noted the property maintains ADR in the $700 range. “We’re very excited about it. It’s a beautiful asset in the Napa Valley. We see some great upside and some great revenue growth opportunities,” he said.
Despite the fact that the $85 million price tag equates to some $1.3 million per key, Bennett is confident the deal will pencil for the company. “There’s no question we can get the ROI. Furthermore, it is extraordinarily difficult and it takes a long time to build up there. So, when looking at price per key, you’ve got to look at the cost to build, as well as the ability to build. With many of those assets in many areas of the Napa Valley, there’s just no ability to build. If there is, it takes a decade or more,” he said.
AHT’s most recent acquisition was the W Atlanta Downtown for $56.8 million, which followed closely the purchase of the 226-room Le Pavillon Hotel in New Orleans for $62.5 million. Bennett noted the company, which has already acquired roughly $1 billion worth of assets in 2015, still has an appetite for acquisitions if they make sense. “We remain on the lookout for additional opportunities, and we think there will be additional opportunities. We’ll continue to look and acquire them if we see them, but we are very cautious with our capital,” he said.