U.S. REITs – Which Ashford Hospitality is Better? (Part 2/2)

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See important notes below.

Click here to read Part 1

Ashford Hospitality Prime (NYSE:AHP) along with Ashford Hospitality Trust (NYSE:AHT), also known as the Ashfords, have been extremely conservative in distributing dividends. These lodging REITs are at the bottom of the list when it comes to dividend payout to Adjusted Funds from Operations (AFFO). Both companies pay less than 25 percent of the AFFO’s in cash dividends; however, the industry average is at 42 percent. The low dividend payout percent figures leave plenty of room for dividend increases in the future.

The two Ashfords are close to the smallest lodging REIT’s regarding market capitalization. Ashford Prime’s figure is around US$450 million, while Ashford Trust’s market capitalization is US$700 million. In terms of the number of properties each company owns, the figures do not follow the same proportion. Ashford Prime owns a total of 11 hotels, as opposed to Ashford Trust’s 130 hotels.

Ashford Inc (NYSE MKT: AINC), the advisor for both companies, has formulated long-term agreements with both businesses. They are compensated according to the share price performance and the amount of debt. They charge an advisory base fee of 0.7 percent of the total market capitalization with a minimum fee that is based on either the past fee payment or the peer benchmark. Please keep in mind that the Ashford’s have the largest total debt to total market capitalization in the entire lodging REIT sector. In addition, Ashford Inc. has a fee structure that includes an incentive fee, along with reimbursement for both internal audits, and some of the overhead costs.

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The two Ashfords show exciting second quarter results in regards to their pro forma Hotel EBITDA. This is a sign of strong internal growth, along with an AFFO per share growth rate. These factors could result in future dividend increases. Both companies enjoy hotel EBITDA growth that is in line with their peers. Ashford Prime is at 9.7 percent, while Ashford Trust is at 8.8 percent. Both companies had AFFO per share growth at the top of the sector. Ashford Prime increased by 33.3 percent, and Ashford Trust improved by 26 percent. Please see above for other comparison metrics.

In conclusion, Ashford Prime currently shows superior results when compared to Ashford Trust. Although both companies have demonstrated good results, Ashford Prime is the clear winner here.

Important notes about the first chart:
Given the differences in criteria among companies, we make best efforts to use comparable figures.
Occupancy and Total debt to total capitalization value are the actual percentages (not growth).
FFO figure used by company to track their performance; criteria may vary from company to company. We’re using AFFO in this case.
Dividend per share = Forward dividend per share.
Dividend payout ratio = Forward dividend divided by AFFO.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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