Although we are are not very keen on external management, we featured the Ashford REITs–Ashford Hospitality Prime (NYSE:AHP) and Ashford Hospitality Trust (NYSE:AHT)– a couple of weeks ago (Note: insider ownership for the Ashfords is between 14 and 15 percent). Eventually, Prime turned out to be better than Trust from a dividend generation potential. In fact, in Q2, Prime demonstrated one of the best performances among all hospitality REITs, which resulted in its inclusion on our watchlist. However, Prime’s performance took a dive in Q3 which caused us to take several steps back.
Pro-forma hotel EBITDA, which measures internal growth, went from 10 percent year-over-year in Q2 to -3 percent in Q3. Also, adjusted FFO dropped from 33 to -7 percent. Finally, although management targets high debt levels, total debt to total capitalization rose to 57 percent.
Management defends Q3 as an anomaly and things are going to get back to normal in Q4. Hotels under renovation and holiday mismatch between this year and last year have contributed to the drop. They even split pro forma figures between all hotels (11 hotels) and hotels not under renovation (9 hotels), but the results have not been encouraging. Regarding the holidays, this is what management said:
“Headwinds during the third quarter came from holiday changes including Labor Day falling a week later this year which extended the summer season and reduced business travel and the Jewish holiday of Yom Kippur, which fell in the third quarter this year and the fourth quarter last year, which also negatively impacted business in the third quarter.”
Despite a drop in share price following the release of the results, the valuation metric price-to-AFFO continues in line with the sector. Dividend yield continues low, but so does the dividend payout.
Source: Seeking Alpha, Ashfords
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