Ashford JV buys US$1.3b Highland portfolio
 
Ashford JV buys US$1.3b Highland portfolio
14 MARCH 2011 8:18 AM

An introduction to new markets and exposure to the upper end of the chain scale led Ashford and an unnamed institutional partner to invest in the 28-hotel, 8,084-room portfolio.

 

DALLAS—A joint venture led by Ashford Hospitality Trust has closed on a US$1.277-billion acquisition of the 28-hotel portfolio of Highland Hospitality.

Ashford, along with institutional partner Prudential Real Estate Investors, paid US$158,000 per key for the portfolio of mostly higher-end hotels on the East Coast of the United States, a discount compared to the US$244,000 per key before capital improvement funding when the portfolio was acquired in 2007 in a privatization of Highland.

During a conference call with analysts on Friday, Ashford’s CEO Monty J. Bennett said the real-estate investment trust made the deal for several reasons, including the exposure to luxury and upper-upscale hotels and Ashford’s introduction to new markets in places such as Boston and San Antonio.

 

Monty J. Bennett
CEO
Ashford Hospitality Trust

 

 

Ashford owns 72% of the 8,084-room portfolio, but Bennett hinted the REIT might be willing to fully own the hotels.

“That’s definitely a possibility,” he said. “As a REIT, we are a long-term holder. … We would be happy with that outcome.”

In a research note, R.W. Baird analyst David Loeb said the deal is a positive one for Ashford.

“Going-forward yields appear attractive and significant asset management opportunities exist to improve the portfolio’s operations, in our view, which could provide significant upside,” Loeb wrote. “The acquisition increases Ashford’s exposure to East Coast and key gateway markets.”

Portfolio composition
The portfolio consists of brands such as Ritz-Carlton, Courtyard by Marriott, Hilton Garden Inn and Sheraton Hotels and Resorts. The size of the hotels in the portfolio ranges from the 109-room Courtyard Savannah Downtown/Historic District in Georgia to the 673-room Renaissance Nashville in Tennessee.

Three of the properties—the 173-room Churchill and the 196-room Melrose in Washington, D.C. and the 143-room Silversmith in Chicago—are independent hotels.

The independent properties could become a part of a brand family eventually, Bennett said.

“There are no specific plans to have flags there,” he said. “We are talking to the brands about possibilities.” Bennett also said the three hotels would do well as independents.

In addition to the Churchill and Melrose properties, the Courtyard Gaithersburg Washingtonian Center in Maryland and the Sheraton Annapolis also are located in the D.C. market. Ashford already has one hotel—the Capital Hilton—in D.C., in addition to properties in Baltimore and the nearby Virginia cities of Arlington, Crystal City, Falls Church and Herndon.

One analyst asked the Ashford officials during the call if the REIT is “overly weighted” in the D.C. market.

 

 

The 673-room Renaissance Nashville is the biggest hotel acquired by the Ashford-led joint venture.

Bennett indicated he is happy with the company’s presence around D.C.

“We were a little over-weighted in D.C. and this provides more weight in D.C.,” Bennett responded. “But D.C. seems to be a positive market, more stable than the rest.” He added the company has no plans to sell assets to even out its overall geographic presence.

According to data from STR, D.C. during 2010 recorded a 3.8% increase in occupancy to 67%, a 1.3% drop in average daily rate to US$143.39 and a 2.5% lift in revenue per available room to US$96.11.

Year-to-date through January, the market’s occupancy was up 1.7% to 49.1%, ADR declined slightly by 0.4% to US$131.96, and RevPAR was up 1.3% to US$64.80.

Renovations planned
The acquisition and restructuring of the portfolio were completed via a consensual foreclosure. Bennett said Ashford will now embark on a US$41-million capital investment plan. Renovations, which will be performed on 13 of the properties, will range from minor to major, he said.

The 10-month program will be funded by existing and ongoing reserves at the property level and US$32 million the company set aside for capital improvements.

Prior to the acquisition, the hotels had a 2010 earnings before interest, taxes, depreciation and amortization flow of 18%, as compared to Ashford’s portfolio EBITDA flow of 104%. This shows the hotels acquired have room to grow, Bennett said.

“There is big room to improve performance with an aggressive asset-management strategy,” he said.

 

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