New Ashford Hospitality Prime CEO Richard Stockton said the company is considering the sale or conversion of the four hotels in the real estate investment trust that aren’t in the luxury segment.
DALLAS—Officials with Ashford Hospitality Prime have to figure out exactly what they want to do with a set of four hotels they’ve deemed to be noncore assets under their newly defined company strategy.
Speaking Thursday during the real estate investment trust’s fourth-quarter and 2016 full-year earnings call, new CEO Richard Stockton said those assets fall outside of the luxury segment, which will now be the company’s sole focus for assets.
Stockton then explained the reasoning behind the company’s newfound luxury-only focus.
“Empirical evidence has shown that the luxury segment has had greater (revenue per available room) growth over the long term,” he said. “And more clearly aligning with the luxury chain scale segment will help differentiate use relative to our REIT peers and should provide superior long-term returns for our shareholders.”
The assets under consideration are the Courtyard Philadelphia Downtown Hotel, Courtyard San Francisco Downtown Hotel, Renaissance Tampa Hotel and Marriott Legacy Center Hotel in Plano, Texas.
Stockton said there are two primary options for those assets: disposition or up conversion. He noted the company is already in negotiations with Marriott International on conversion possibilities.
Jeremy Welter, EVP of asset management for the company, said several of those hotels will be targets for the company’s upcoming $40-million to $50-million wave of capital improvements. Stockton said those improvements will be used either to convert the hotels into luxury brands or bring added value to any potential sale.
“In the context of a sale, we’d want to recapture or capture more than the amount we’ll spend” on renovations, Stockton said.
Overall, Stockton said he expects his company to be an active buyer in 2017, but he said executives will be judicious about what deals they chase.
“We have a very deep pipeline of opportunities,” Stockton said. “And there are opportunities out there that meet our investment criteria.”
Sessa settlement and corporate governance
Ashford Prime officials also discussed the settlement of ongoing litigation and general conflicts with activist shareholder group Sessa Capital, which was pushing for a change in the company’s governance and a sale of the company.
Part of the agreement is Ashford Prime will add three new independent directors to its board and Sessa has committed to not run a slate of candidates for board positions through 2018.
Ashford Prime officials also announced an amended advisory agreement with Ashford Inc., designed to decrease a potential termination fee and create greater transparency in the two company’s dealings.
Possibilities with Ashford Trust/FelCor?
During the call, analyst asked what, if any, roll Ashford Prime will have in Ashford Hospitality Trust’s proposed acquisition of FelCor Lodging Trust. Stockton said Prime would not be part of the deal, but he wouldn’t write off the possibility of picking up some of FelCor’s luxury assets in the event that an acquisition takes place.
This would be a relatively likely scenario, since Ashford Prime has a first right of refusal for properties sold by Ashford Trust.
“I haven’t been involved in those discussions, but if something arises in the future, I’d be happy to consider it,” Stockton said, noting there are some properties in FelCor’s portfolio that fit Ashford Prime’s investment criteria.
Q4/Full year performance
RevPAR for comparable hotels not under renovation increased 3.6% year over year to $199.95 during the fourth quarter and were up 2.4% to $216.34 for full-year 2016. Adjusted earnings before interest, taxes, depreciation and amortization increased 31% for the quarter to $21.6 million and was up 15% to $101.4 million for the full year.
The company’s stock was down 1.3% year to date to $13.47 per share as of press time. The Baird/STR Hotel Stock Index was up 18.6% for the same period.