Ashford CEO: FelCor said ‘no’ to the better deal
Ashford CEO: FelCor said ‘no’ to the better deal
08 MAY 2017 8:28 AM

Ashford Hospitality Trust President and CEO Douglas Kessler told analysts and investors that there wasn’t much to learn from FelCor Lodging Trust opting to merge with RLJ Lodging Trust because he believed Ashford had a clearly superior offer.

DALLAS—Ashford Hospitality Trust officials aren’t happy that they weren’t successful in their pursuit of FelCor Lodging Trust, but they also don’t think they erred in their pursuit of the company that recently agreed to merge with RLJ Lodging Trust.

Speaking during Ashford’s first-quarter earnings call with investors, an analyst asked President and CEO Douglas Kessler what lessons his company learned from the failed attempt to buy FelCor, but Kessler said there doesn’t seem to be much to take away.

“I don’t think there’s anything we would’ve done different,” Kessler said. “We’re disappointed. We put a deal on the table that we felt was a better offer, and they decided to go in a different direction. I don’t know what you can take away when your deal is a better deal.”

When an analyst suggested that the deal might not have happened because Ashford might be perceived differently than other lodging real estate investment trusts, Kessler said the company’s track record should speak for itself.

“I think our currency has to reflect the fact that this management team has outperformed peers in terms of total shareholder return,” Kessler said. “At the end of the day, I think that’s really what matters in the eyes of shareholders.”

Ashford and FelCor officials had spent a matter of months in a public back-and-forth. FelCor executives pushed for more cash in a proposal and Ashford officials argued they could bring better performance through better management of the FelCor portfolio before FelCor officials ultimately opted to take an all-stock deal from RLJ.

Ashford officials announced earlier this week that they were forgoing plans to run a slate of directors for the FelCor Board of Directors that would’ve been more amenable to a possible sale, and Ashford also plans to sell off its ownership stake in FelCor that enabled it to nominate the slate of directors.

Ultimately, Kessler said he hopes shareholders came away from the process with greater faith in Ashford’s determination to drive returns.

“We hope that investors recognize the financial and strategic discipline that we showed through the entire process in order to maximize value for our shareholders,” he said.

Other paths to growth
Kessler noted during the call that Ashford officials kept their eyes on possible single-asset acquisitions even throughout the company’s pursuit of FelCor, and they will continue to look for deals they believe can be accretive.

He said there appears to be deals to be made in today’s climate, but it might not be as easy as some would have hoped.

“The pipeline for transactions today has been active but still somewhat soft relative to some folks’ expectations to how 2017 would get off,” he said.

The company will continue to focus on full-service hotels in the upper upscale and upscale segments, Kessler said.

“We’re looking for deals that are right in our strike zone from a (revenue per available room) standpoint, but also balancing it with the yield that we can acquire them for,” he said. “So there’s a tradeoff that we view between the current yield and the impact that the higher RevPAR will have on our multiples.”

Kessler noted the company is “sitting on a significant amount of capital” and expects to enter a period of heightened activity as the NYU International Hospitality Industry Investment Conference approaches in early June.

“That generally is a point in the cycle where more deals come to market,” he said. “We have meetings set up with all the appropriate brokers.”

Q1 performance
The company saw RevPAR increase 3.4% across its portfolio during the first quarter. Adjusted earnings before interest, taxes, depreciation and amortization was $100.8 million for the quarter.

Jeremy Welter, the company’s EVP of asset management, said performance was spurred by a strong January for Ashford’s hotels in Washington, D.C. That market is the Ashford’s largest, he said, and saw a boost in performance due to the inauguration of President Donald Trump.

The company reported a net loss for the quarter of $33.2 million.

As of press time, the company’s stock was trading at $6.19 per share, a year-to-date drop of 20.2%. The Baird/STR Hotel Stock Index was up 23.8% for the same period.

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