Investors reacted well to Ashford Prime’s Q1 performance and the company’s share price rose by 9% last week. For a stock that has been one of 2016’s worst performers among equity REITs, the stock jump should not come as a surprise. Its multiple has been low compared to peers and shares are down 23% from its 52-week high.
The stock is clearly undervalued. When the company went public in late 2013, it enjoyed a multiple close to 20 times AFFO; currently, the multiple hovers around 7. Not that the stock will climb up to that level, but it has room to approach the hotel REIT average, which is around 10. This makes a potential rally of 40%.
The issue lies on what is holding back the investors, so I’m going to offer some thoughts for a positive agenda:
Management should move past the spat with Sessa Capital, a major shareholder – It is beneficial for shareholders that the company settles any legal disputes with Sessa Capital, even if the company manages to elect its slate of directors in June’s annual meeting of stockholders. Judicial disputes can be full of surprises and hidden costs, which will ultimately impact this small cap REIT’s funds from operations.
Management should bring down termination fee – Blatant signs of greed grab investors’ attention and create a negative sentiment against the company. The agreement between Ashford Prime and its external advisor includes a high termination fee that should be brought down to market standards. The estimate fee of $5-6 a share is preposterously high compared to the share price of $13.This harms Ashford as whole, even if its major hotels, located in competitive markets, have been well rated.
Management should improve governance – As Sessa Capital hammered over and over again, the company should improve its standards of governance. They should take this opportunity in which they’ve been under scrutiny and address major issues.
Source: Ashford Hospitality Prime, Inc(NYSE:AHP), fixashfordprime.com, Fast Graphs
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