Ashford Hospitality Trust is focusing its efforts on full-service properties, and the real estate investment trust finds itself on track with its sale of noncore, select-service hotels.
DALLAS—Ashford Hospitality Trust has made headway on its disposition strategy of selling off noncore, select-service hotels, officials for the real estate investment trust said during a third-quarter earnings call, and it has closed on $218 million in asset sales as a result.
Monty Bennett, chairman and CEO of Ashford Hospitality Trust, said the REIT sold four qualifying properties during and after the third quarter for approximately $76 million. This approach will allow the REIT to focus its efforts on acquiring and owning upper-upscale, full-service properties to create shareholder value.
The plan should provide the REIT with an excess cash balance, he said, which “provides a hedge in uncertain economic times, as well as providing dry powder to capitalize on attractive investment opportunities as they arise.”
Comparable revenue per available room at all hotels increased 3.4% year over year in the third quarter, according to the company’s earnings release. Excluding hotels under renovation, comparable RevPAR increased 4.4% year over year. Adjusted earnings before interest, taxes, depreciation and amortization grew $5.6 million, or 5.3% over the same quarter in 2015.
As of press time, Ashford Hospitality Trust’s stock dropped 13.2% year to date. The Baird/STR Hotel Stock Index was down 0.02% for the same time period.
- For further coverage of hotel companies’ third-quarter 2016 earnings calls, click here.
Selling off select-service
The REIT announced its strategy to sell its noncore, select-service hotels through small portfolios or single asset transactions earlier this year, President Douglas Kessler said, as executives believe this will result in higher prices in the current market.
During the third quarter, Ashford Trust sold the 124-room Hampton Inn & Suites in Gainesville, Florida, for $27 million in cash. Early in the fourth quarter, the REIT closed on the sale of the 162-room SpringHill Suites Gaithersburg in Maryland for $13.2 million, which came as a combination of cash and about 2 million Class B common units of the company’s operating partnership. In October, Ashford Trust sold a two-hotel portfolio: the 151-room Courtyard Palm Desert and the Resident Inn Palm Desert for $36 million.
The REIT still has about 60 select-service hotels, Kessler said, and some are higher-RevPAR assets located well in urban areas.
While Ashford Trust has a clear desire to sell these assets, he said the company will be mindful of the market direction with prices. Executives feel comfortable with the prices they have obtained for the assets sold so far, he said.
Overall, values have come down, Kessler said, and the drop-off first occurred in the first part of the year. That’s continued to the point of valuations somewhat stabilizing, he said.
“There is clearly a bridging of the gap now between private market valuations and public market valuations,” he said. “And so that is an interesting dynamic that we’re keeping a close eye on.”
The REIT hasn’t disclosed the cap rates in those transactions, Kessler said, but it’s evidence that rates vary based on an asset’s type and location. If a select-service hotel is unencumbered by management, it will get a better cap rate because there are local operators who want to buy the asset and run it. Cap rates are wider on branded hotels, he added.
There hasn’t been much appetite from large private equity funds as previously seen, Kessler said. Buyer demand for large portfolios has dropped off as the result of large private equity funds and one of the large nontraded REITs no longer operating and buying these types of assets, he said.
“And so we made a strategic decision that we would maximize value for shareholders by selling single or small groups of assets, which we continue to do and continue to have some properties listed in the market today,” he said.