While Ashford Hospitality Trust is open to acquisitions, President and CEO Douglas Kessler said the pickings are slim.
DALLAS—Ashford Hospitality Trust continues to focus on its existing assets—through renovations and sales—rather than acquiring new ones in the near term.
When it comes to chasing new hotels, Ashford Trust President and CEO Douglas Kessler said on the company’s first-quarter earnings call with analysts Friday that the company is “active in seeking deals,” but has found that “the pipeline is thin and the market remains competitive.”
For the past few years, the company has been a net seller, which Kessler said has resulted in significant debt reduction and improvement of the overall quality of the company’s portfolio. As of 31 March 2018, Ashford Trust had 119 properties comprised of 24,922 guestrooms, according to its Q1 financial release.
During the first quarter the company sold two select-service hotels—the SpringHill Suites Richmond Virginia Center and the SpringHill Suites Centreville Chantilly, both in Virginia—for combined gross sales proceeds of $18.4 million.
Kessler said the company overall has a “wide appetite of properties that fit our investment profile,” but the pipeline is thin for available acquisitions.
“There’s no real motivation for sellers to sell now,” he said. “It’s a great market to refinance in and pull out proceeds and continue along for the ride if you’re a current owner of hotels. Still, people want to buy. There are folks on the sidelines looking to buy who can’t find the product.”
The company’s adjusted earnings before interest, taxes, depreciation and amortization for the quarter was $95.8 million, and during the quarter it refinanced a mortgage loan on eight hotels.
As of press time, Ashford Trust’s stock was trading at $7.02 per share, up 4.3% year to date. The Baird/STR Hotel Stock Index was down 2.2% over the same period.
Renovations have been a top priority for Ashford Trust, and in the first quarter the company noticed marked differences between performance at its hotels under renovation compared to those not under renovation.
Across the portfolio, comparable revenue per available room was flat, decreasing 0.2% to $119.92, while for the 100 hotels not under renovations, RevPAR was up 2.5% compared to the same quarter in 2017. Comparable occupancy for the entire portfolio in the quarter was 74% and comparable average daily rate was $162.02.
“The 270-basis-point gap (between RevPAR for two groups) represents a much larger renovation impact than we normally experience,” said Co-President and CEO Jeremy Welter, who went on to call the Q1 renovation volume “abnormally high” for the company.
For the rest of 2018, Welter said renovations will continue to happen, but the company expects it will have fewer hotels under renovation per quarter.
Still, capital-expenditure spending in the form of renovations remains a top priority. Welter said the company spent $64 million in CapEx in the first quarter, and will spend between $165 million and $185 million for the full year.
“We are constantly looking at ways to maximize the cash on our balance sheet and we’ve been a strong believer in refreshing our assets,” Kessler said. “We’re effectively bringing down the average age of them.”
Segmentation, market outlooks
Welter said the company is seeing a “strong pickup” in business transient business and group pace, particularly into 2019.
Kessler agreed, but reminded analysts that group business is a smaller percentage of the company’s business compared to some of its peers.
“This quarter we had group RevPAR down and transient was up slightly,” he said. “Going forward we feel there’s growth in business transient. Looking into 2019, we’re more bullish on group prospects, particularly when you look at some of our markets.”
He cited Minneapolis and Atlanta as examples, cities scheduled to host the NCAA Final Four and Super Bowl in 2019, respectively.