Ashford seeks to outperform REITs in slow environment
Ashford seeks to outperform REITs in slow environment
18 FEBRUARY 2020 9:16 AM

Though the macroeconomic picture is difficult for hotel real estate investment trusts, Ashford Hospitality Trust President and CEO Douglas Kessler said his company is doing everything it can to ensure it outperforms competitors.

LOS ANGELES—As hotel real estate investments trusts face challenges such as flattening revenue growth and increasing expenses, Ashford Hospitality Trust President and CEO Douglas Kessler said his company is focusing on being dynamic and innovative to outperform the competition.

“Every day it excites me to try to figure out how we can make a difference relative to our REIT peers,” he said. “Given the dynamic nature of our platform, we are always evaluating approaches, ideas, capital strategies to really try to make a difference and deliver that relative outperformance.”

A weak microenvironment
Kessler acknowledged the current market outlook on hotel REITs is tepid, with some outside stimulus needed to drive a resurgence in investor interest. The Baird/STR Hotel Stock Index’s Hotel REIT sub-index was down 10.8% in January, while the MSCI US REIT Index was up 1% for the same month.

“The industry really could benefit from some type of performance catalyst at a macroeconomic level to drive investor interest back into lodging. When there is uncertainty, there are challenges for investors to re-engage. Right now, there’s just enough uncertainty, whether it’s about politics or the true economic direction of GDP growth.”

He said he remains hopeful, though, that the good days aren’t over.

“The fact that we’re long in the cycle doesn’t mean it can’t be a reinvigorated cycle,” he said.

Kessler pointed to a number of factors that could drive greater investor interest in hotel REITs.

“Strong GDP numbers could be a catalyst,” he said. “Depending on how the 2020 election turns out, that could impact the economy. A reacceleration of RevPAR and stronger business transient demand would be a catalyst. It’s been a little bit weaker in this cycle than other cycles. A downturn in the supply pipeline would be a catalyst, but right now that doesn’t necessarily appear to be the case in the near term.”

Weak stock prices like those seen across the hotel REIT landscape drive down transactions, he said.

Kessler added his company doesn’t go in to the year with any specific targets in terms of acquisitions or sales, but it is always on the lookout for transactions that could be “accretive to our stock price.”

“Because of the variables that go in to that decision, we think it’s best to evaluate on a dynamic basis rather than preload the year with anticipated transaction activity,” he said.

Select-service strategy
Kessler said his company re-evaluates its strategies as cycle dynamics shift.

One example of this is Ashford’s outlook on its select-service hotels, although the company describes itself as “focused on investing predominantly in upper-upscale, full-service hotels.” The company once sought to exit the select-service segment completely, but readjusted that strategy to sell off some of the lower-performing properties while holding others to diversify its portfolio.

“We believe, currently, that having those properties in the cycle that we’re in right now does add some balance to the portfolio,” he said. “These are high-margin assets in locations where the supply coming in hasn’t been as large of a percentage as the top urban markets. So they add some geographic breadth to our portfolio and some operational benefits to our portfolio.”

Structural benefits
Kessler said the company’s affiliation with external advisor Ashford Inc. and REIT Braemar Hotels & Resorts is unique in the hotel REIT space.

One benefit of that partnership has been the deployment of an enhanced returning funding program, under which Ashford Inc. committed to cover 10% of acquisitions made by Ashford Trust.

He called that program a “significant catalyst to performance returns.”

“I’m still bullish on the opportunity,” he said, noting there are limitations both in timing and total amount spent that both Ashford Trust and Ashford Inc. could be open to extending.

Ashford Inc. also recently acquired the hotel management operations of Remington, the affiliated operating partner for the Ashford REITs, and created a “dedicated capital raising platform” called Ashford Securities to raise alternative capital for its existing and future platforms.

“The steps we have taken have been purposeful to create this very unique family of companies, which we think do create win-win situations for shareholders,” Kessler said.

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