Ashford Hospitality Explores Strategic Alternatives

Ashford Hospitality Prime may be for sale.

Ashford Hospitality Prime Inc., a REIT that specializes in hotel properties, may be for sale. The company’s directors have tapped Deutsche Bank Securities to explore “strategic alternatives,” which always includes the possibility of a sale.

Investors are certainly interested in hotels these days. “The consensus outlook for strong near-to-medium term lodging fundamentals and widespread debt capital availability for hotels — particularly in the form of large loan/single borrower CMBS transactions — set the table for hotel LBOs, generally,” Fitch Ratings director-U.S. REITs and Lodging Steve Boyd told Commercial Property Executive.

Boyd added that Ashford’s discounted valuation (relative to net asset value) could facilitate a privatization.
“However, existing mortgage encumbrances on select properties and the company’s related-party management contracts are considerations that could turn off private equity players, given the potential for reduced operating and financing flexibility,” he noted.

As of the end of the second quarter of 2015, the company reported assets of $5 billion, with mortgage debt of $3.7 billion. Ashford Trust’s total combined debt has a blended average interest rate of 4.96 percent.

The company focuses mostly on upper upscale, full-service hotels. As of the second quarter of 2015, the company owned 127 hotels, though the company plans to sell 23 select-service properties, the better to focus on the balance of its properties, which are upper upscale.

Dallas-based Ashford reported a solid second quarter overall. For all of its properties, RevPAR increased 6.6 percent to $122.46 for 2Q15, compared with the same quarter a year earlier. ADR experienced a 5.5 percent increase year-over-year, and occupancies were up portfolio-wide for the year by 1 percent.

The company has also been active in acquisitions lately. In June, it closed on the 266-key La Pavillon Hotel in New Orleans for $62.5 million, which represents a 7.8 percent cap rate. In July, it closed on the 237-key W Atlanta Downtown for $56.8 million, a 7.2 percent cap rate. Ashford also inked a deal recently to buy the 229-room W Minneapolis Hotel-The Foshay and the Le Meridien Chambers Minneapolis for $101 million, and will assume $56 million in mortgage debt on the W Minneapolis.