Calendar shifts and hurricane-related disruptions led to RevPAR dipping in the third quarter for Ashford Hospitality Trust, but executives remained optimistic about their ability to get deals done with their enhanced return funding program.
DALLAS—The third quarter was a difficult one for Ashford Hospitality Trust when looking at the key performance indicators.
Revenue per available room was basically flat, up just 0.2% year over year across the real estate investment trust’s portfolio to $125.15, as modest rate increases were not enough to overcome a drop in occupancy related to a shift in timing for Rosh Hashanah and Independence Day, tough comparisons from 2017 fueled by hurricanes affecting Houston and Key West, Florida, or poor performance in 2018 due to Hurricane Florence.
Signs are pointing to a difficult fourth quarter to close the year, but Ashford executives are decidedly more optimistic about their prospects for 2019.
“Going into 2019, the group positioning we have within the portfolio is strong,” said Co-President and COO Jeremy Welter during the company’s third-quarter call with analysts. “The RFP process that we’re going through right now with special corporate negotiated rates is strong. We expect to have some decent ADR increases. We are seeing growth in business transient.”
If there’s a silver lining for the company, it’s the $50-million acquisition of La Posada de Santa Fe, a 157-room hotel that is part of Marriott International’s Tribute portfolio. Ashford executives noted that deal, which closed on 31 October, is the second they’ve closed involving their enhanced return funding program with Ashford Inc., the company that externally manages the REIT.
Through that deal, Ashford Inc. will cover $5 million in “the future purchase of hotel furniture, fixtures, and equipment at Ashford Trust properties.”
The first ERFP-related transaction technically happened at the beginning of Q3, when the company closed on the 252-room Hilton Alexandria Old Town for $111 million on 2 July.
Ashford executives said the ERFP structure makes it easier to pencil deals and driver higher returns.
“I think we are looking to enhance the returns of our portfolio by buying high-quality, strong RevPAR, strong-returning assets,” President and CEO Douglas Kessler said, noting his company is now able to actively buy at lower share prices than before. “The (ERFP’s) additional capital really sort of changes the economic model for us.”
Kessler said the ERFP will continue to pay dividends for the company in what he described as “a very competitive environment today for hotel transactions.”
“We are mining the market,” he said. “We are looking for accretive value-added opportunities to enhance the performance of our portfolio.”
Ashford’s properties in the quarter saw a 2.1% year-over-year drop in occupancy to 78% as average daily rates increased 2.3% to $160.36, combining for the roughly flat RevPAR numbers.
The company reported a net income loss for the quarter of $34.3 million and total revenue of $355.9 million.
While executives noted they expect similar performance in the fourth quarter, one sign of hope is that the company is wrapping up a big wave of renovations across the portfolio.
“I think that we have done a good job of investing in our portfolio over the last several years,” Welter said. “We have done a lot of the shower upgrades that had been required by the full-service brands. A lot of that work is behind us. We still have some hotels that we need to continue to kind of do that and make that investment.”
Kessler said he’s proud of how his company has managed its wave of CapEx.
“I will make the point that in spite of all the renovation activity that we have had going on, we basically maintain the same market share this quarter, which I think is a very strong positive indication of our capabilities of managing the renovation process and making it as least disruptive as possible,” Kessler said.
As of press time, Ashford’s stock was trading at $5.33 a share, a 20.8% decrease since the start of the year. The Baird/STR Hotel Stock Index is down 9% for the same period.