This Hotel REIT For Long Term Appreciation

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  1. Although hotel REITs have been out of favor, several stocks failed to approach their real share value. FelCor Lodging Trust is a great example.
  2. FelCor management is actively engaged in selling non-core hotels and using the proceeds to repurchase stocks.
  3. Moreover, although being an activist target doesn’t necessarily lead to gains, the company has worked cooperatively with activists in an effort to improve governance.
  4. Finally, the company is actively looking to reduce its leverage level and improve its debt profile.
  5. May and June’s share dip was a great opportunity to buy.

That hotels, one of 2016’s poorest REIT performers, are out of favor is not news. Recent chase for yield have not propelled hotel REIT share price performance. Although dividend yields have been the highest among equity REITs, share price performance has been flat all year. This is because many believe hotel REITs have either already reached or are currently reaching their peak in the real estate cycle.

A promising hotel REIT that has failed to realize its value so far in FelCor Lodging Trust. FelCor’s share price has been 40% below its 52 week high and 20% below its 2016 high. While hotel REIT shares dropped by 0.4% this year, shares of FelCor dropped by 12%. The strongest activity has been in May, when its share dropped by 8%.

One good thing is that management is focused on propping up shares by selling 5 of its 41 hotels and using the cash to repurchase stocks and redevelop several hotels. Also, the sale of non-core assets will raise FelCor’s portfolio profile, improving hotel metrics, such as RevPAR, Hotel EBITDA per key, and hotel EBITDA margins. The company’s core assets have been in gateway urban markets and resort locations that can be more difficult to break into.

In addition, the company has also been the target of activist Land and Buildings, which owns approximately 4% of its shares. Although being an activist target doesn’t necessarily lead to future gains, they did make the management improve its governance by including two independent directors. In the end, the company seems to be working cooperatively with the activist, something that is positive in itself.

Finally, the company is actively looking to reduce its leverage level and improve its debt profile. The company doesn’t have any major debt maturity in the next two years as interest expense has decreased over time and debt metrics have improved.

If you buy FelCor, you’re buying it for long term appreciation, not for dividend yield, which has been one of the lowest among its peer group. Since the company is only reserving 43% of its AFFO to fund dividends, the company is concentrating its efforts on internal growth.

In summary, FelCor demonstrates the chance to be a good opportunity, but I’d limit its exposure in the portfolio because FelCor performance has been conditioned to the successful hotel sales.

Source: FelCor Lodging Trust Incorporated (NYSE: FCH)

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.

This Hotel REIT Advisor Receives Underwhelming Shareholder Support

chart01After all the pressure from the activist Sessa Capital, Ashford Prime advisors received underwhelming support from shareholders at the annual shareholders meeting last Friday, June 10. Approximately 30% of the voting shares were cast in favor of the slate of directors recommended by the advisor. Running unopposed, Monty Bennett, founder, CEO and chairman of both Ashford Prime and the external advisor, remains in control of the company.

Monty now sees a minority investor base that is sympathetic to his stewardship. The percentage of votes in favor of the advisor were way lower than the previous year’s votes. Last year, Monty Bennett was able to gather the support of about 78% of the voting shares. Ashford Prime’s seven board members, including non-independent Monty and Douglas Kessler, remain in place for another tenure.

chart02The Ashford board also gave the green light to initiate discussions with The Wiseman Group on their “soft” and unsolicited bid to purchase the company for $20.25 a share. The bid is not binding and the potential buyer has clearly stated their intention to continue further discussions.

The market has received the offer with skepticism. The post announcement share price has yet to reach the full bid, with the price jumping from $11 to $14 a share. The truth is that the share price hasn’t even come close to the bid.

I understand the market skepticism stems from several reasons. The main one being that the advisor will not walk away without a good offer for its advisory contract. Even with a questionable confidence from shareholders last Friday, it is unlikely that the advisor will let go without driving a hard bargain.

The negotiations with The Wiseman Group can go either way. However, the majority of the market seems to be placing bets against it. After looking at the post announcement reaction, I would say the likelihood of a successful sale are about a third.

Source: Ashford Hospitality Prime, Inc. (NYSE:AHP)

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.

 

Checkmate, Monty Bennett?

chart01.pngWhile Ashford Prime has been embroiled in a proxy fight with major shareholder and activist, Sessa Capital, this Wednesday morning the company finally received a decent buy proposal from Weisman Group, a California based real estate investor. The company offered $20.25 a share, although the share was trading at $11.32 the day before. This offer comes just before the annual meeting of shareholders scheduled to take place this Friday, June 10. Ashford Prime has stated they plan to study the offer.

The offer is less than what Ashford believed was the fair value of the company. Last August, the company said the NAV was approximately $28, but that was before they sold a Courtyard hotel in Seattle. Currently, they are marketing another hotel in San Francisco. Also, Sessa Capital has tried in court to have the right nominate candidates for their board. If I were Monty Bennett, CEO and Chairman of Ashford Prime, I would certainly sit down at the table with these folks and make a counteroffer.

Additionally, the offer comes at a time when lodging REITs have fallen out of favor. Several stocks have plummeted more than 30% from the previous year. Although several quality lodging REITs have demonstrated great results lately, they have not been able to get closer to their fair value. In fact, investors are afraid that lodging’s cycle peak has passed, but it does look as if there are some investors (like Weisman) willing to cover the gap between NAV and share price.

Ashford Prime saw a quick spike this morning, but trading has been interrupted at just under $15. Weisman already owns 5% of the company. This offer is certainly very timely and provides as honorable exit strategy for clumsy activist Sessa and greedy advisor Monty Bennett. Not only will it allow him to save face with the activists, but shareholders will gain a whopping premium and Weisman will be buying quality assets that are consistently highly rated.

Source: Ashford Hospitality Prime, Inc., (NYSE: AHP)

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.

Nothing is Going This REIT Activist’s Way

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Ashford Hospitality Prime’s chairman and CEO Monty Bennett had a reason to smile last week. A legal dispute in Dallas, TX between Ashford Prime and Sessa Capital, a major shareholder and an activist hedge fund, favored Ashford. The Court decision prevents Sessa from potentially seizing control of the company’s board of directors. The Court stated that “Sessa’s slate of candidates is invalid and ineligible to stand for election to Ashford Prime’s board at the 2016 annual meeting.”

If nothing changes, Ashford Prime will be electing its nominees for board of directors next June 10 and Sessa will have no right to solicit proxies. Both are looking for strategic ways to eliminate share price discount, but they don’t agree in how to fix it.

Obviously, nothing is going Sessa’s way. It is not clear if they are willing to wait to gain from Ashford Prime investment, and this is why they are demanding a quick sale of the company. All that is clear is Sessa interests are not aligned to Ashford Prime interests.

The fight hasn’t been good for the business. The stock has been affected negatively. Just last week, it had a drop of 10%.

This leaves Sessa with two basic options, to back out or stay fighting. If they back out, they will not be able to realize an investment gain that is long gone. This is because since last year the stock has been down by more than 30%, meaning they will experience a huge loss.

A third option is Sessa may decide to negotiate with Ashford Prime to come up with a reasonable deal. It is likely that Ashford will agree to the idea, because as long as they at war, loss will be inevitable. Ashford even posted a draft confidentiality agreement on the company’s website to begin the settlement discussions.

Sessa announced they will appeal the Court’s decision.

Source: Ashford Hospitality Prime, Inc(NYSE:AHP), Fast Graphs

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.

This Speculative Hotel REIT Needs a Positive Agenda

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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

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.

 

Hotel REIT Investors Turn Eyes to Management’s Actions

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Speaking bluntly, Ashford Prime is currently in a bad situation. For example, its 6 times AFFO is below that of its peers. Furthermore, its current share price is $11, which is well below the expected share price of $27 based nothing but the value of its net assets estimated by its management.

These problems can be partially traced to the fighting between the management of Ashford Prime and the activist hedge fund Sessa Capital. Both sides have been locked in the struggle ever since Sessa Capital came in with the intention of rushing the sale of the company and making a profit on its investment, but the result has been nothing but bad for the stakeholders.

For example, the management of Ashford Prime has taken serious blows to their reputation because of their evident greed and entrenchment, while Sessa Capital has been pulled into an uncertain and exhaustive legal battle even though their intention was to make a profit. Finally, the investors have lost most of all because of the plummeting share price, which is particularly concerning because the REIT’s current situation makes it an excellent choice for speculative investors rather than their long-term counterparts, suggesting that its share price will continue to be volatile for the foreseeable future.

At the moment, the future of Ashford Prime remains uncertain. The REIT will be holding its annual shareholders’ meeting on June 10, which will include the election of the members of its board of directors. Already, there are complications, seeing as how the management of Ashford Prime has stated that they will be ignoring Sessa Capital’s slate of five candidates while it remains to be seen whether Sessa Capital has convinced enough of the institutional investors, who make up about 62 percent of the shareholders, to reject its rival’s recommendations.

Things should be particularly interesting because while the management of Ashford received full support from the shareholders at the last annual shareholders’ meeting, that was before the 30 percent fall in the REIT’s share price. Similarly, Sessa Capital has a hard time backing out, seeing as how it stands to lose at least $8 million (from its 31 December 2015 position) if they decide to sell right now, which is not an insignificant sum considering their portfolio of hundreds of millions of dollars.

With that said, the management of Ashford Prime has been making efforts to raise its share price, with examples ranging from increasing its dividend yield to 4.4 percent, repurchasing shares, and selling a handful of its hotels to raise more funds. As a result, it might have some potential for speculative investors who are willing to take a small chance on them.

Source:Ashford Hospitality Prime, Inc(NYSE:AHP)

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.

Dead End Fight Drags Down These REIT Share Prices

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The battle between Ashford Hospitality Prime’s external advisor (AINC) and activist Sessa Capital is getting uglier and just reinforces the speculative situation of the stock at this moment. Unfortunately, this hasn’t helped the share price. Last week, the shares of both hotel REITs managed by AINC, Ashford Hospitality Prime (AHP) and Ashford Hospitality Trust (AHT), trailed our roster or equity REITs once again.

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Ahead of AHP’s 2016 shareholder meeting in June, both sides have filed lawsuits against the other and made their case to shareholders through presentations and press releases. Sessa, the third largest shareholder of AHP, even created a website, www.FixAshfordPrime.com.

In the latest developments, AINC announced they were suing Sessa Capital for tortious interference for $200 million (AHP’s market cap is under $300 million). In a recent press release, they also argued that Sessa failed to propose a plan that maximizes shareholder’s value. They went on to say that Sessa and its director nominees don’t have the necessary experience in lodging, so they aren’t going to simply hand over the keys to them. They even tried to disqualify Sessa’s director choices, while accusing a director nominee of “blatant resume padding.” The management filed a compelling investor presentation to showcase their credentials and performance as managers on ahpreit.com.

Sessa, who is coming from the other perspective, reproves Ashford Prime’s underperformance by saying it is the result of bad governance. The slate of directors that Sessa picked leans toward corporate governance. On numerous occasions, they have brought up the controversial terms of the advisory agreement between AHP and AINC, as well as the conflict of interests.

The change of directors that Sessa is proposing could lead to hefty termination fees (“proxy penalty”), for which they criticize AINC heavily. They say the penalty could be in the range of hundreds of millions of dollars and make up for a significant portion of AHP’s share price.

Since it’s currently unclear how Sessa will be able to get around the termination fee, it looks like their inexperience has put them in the midst of a dead end legal fight. First-time activist, Sessa Capital is learning that external managers don’t release their bones easily. If the solution to the termination fees must be found through a legal battle, the outcome will probably not be positive for shareholders. And, of course, the legal fees can be astronomical.

Sessa Capital has already made it clear that they want to clear the way for the company to sell their assets. This way, they can take full advantage of the discrepancy between share price and asset value in private markets. Indeed, like many hotel REITs, Ashford Prime share price dropped 40% over the past twelve months. Sessa Capital has made white proxy cards available to Ashford shareholders, so they could vote for the slate of directors they recommend.

Ashford Prime, like the name suggests, has assembled the most luxurious assets (high RevPAR) that Ashford Trust previously had.

Due to deep undervalue, I still see some upsides to AHP, but I’d only invest in the company for speculative purposes. I feel that, due to inexperience, Sessa Capital will not be able to be successful.

Feel free to let us know which side you are on in the comments section below.

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on March 25, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of February 29, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report 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. 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.

Speculative REIT Stocks Jump Again

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CHECK THE REPORTS FOR DIVIDEND YIELD BY SECTOR AND WEEKLY RETURNS.

It was another great week for equity REITs this week as more than 85% of the stocks rose. Though January and February were bad months (January worse than February according to FTSE NAREIT All Equity REITs Index) last week was very encouraging with the stocks we track rising by 4.1%. There have been winning streaks for a few weeks in a row yet that could be ruined by another increase in interest rates.

It is no surprise at all that the most volatile stocks are back as the top performing ones. When the market is strong, these stocks markedly over perform. Conversely, when the market is down, these are the worst under achievers. Basically, when they are good they are really good and when they are bad they are really. The companies that can be included in the list of volatile stocks are the likes of the CorEnergy Infrastructure Trust, STAG Industrial, NorthStar Realty, as well as Ashford Hospitality Prime.

Although the speculative and volatile stocks have spent more time decreasing in value as opposed to increasing in value over the past several months they have become attractive investments. They don’t fit the mold of what a REIT is supposed to deliver in terms of dividends, but they should perform better by the end of this year.

Take Ashford Hospitality Prime as an example. The company’s stock has decreased by 23% in 2016, despite regaining 13% in the course of last week. That increase is quite surprising given that the company is involved in legal wrangles with one of its own important shareholders, Sessa Capital. Sessa has sued Ashford over governance issues and Ashford sued them back alleging false claims.

After Cushman & Wakefield assessed assets as been worth $18 a share, the price of NorthStar Realty Europe increased by 18% last week. By the end of trading last Friday, each share was worth $12. Although the company did not go into detail about how its assets had be given that value, if they were too optimistic then the stock would still be worth having.

STAG Industrial stock increased by 10% last week. Their investment strategy reminds me of the exact opposite of a famous real estate adage that states “buy the worst homes in the best neighborhoods.” Technically speaking there is nothing wrong with buying the best warehouses in under developed markets, it is simply a method to flee away from overcrowded markets, and avoid fighting other investors over a few good deals. However, this means additional risk.

On another note, two companies have ceased trading shares on the New York Stock Exchange. Campus Crest were taken over by Harrison Street Real Estate Capital, while American Residential Properties completed a merger with American Homes 4 Rent.

STAG Industrial, Inc.(NYSE:STAG), Northstar Realty Europe Corp.(NYSE:NRE), Ashford Hospitality Prime, Inc(NYSE:AHP), CorEnergy Infrastructure Trust(NYSE:CORR)

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on March 04, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of January 31, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report 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. 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.

This Healthcare REIT Share Price Hasn’t Taken Off Yet

chart02In hopes of a stock rebound, activist Levin Capital Strategies made an agreement with the externally managed healthcare REIT, New Senior Investment Group, last month. This is just another development by an activist in a market that has seen several stocks become underappreciated by sellouts in 2015 and has never recovered.

In addition to agreeing to add an independent board member, Levin Capital will not object to board director nominees at the next annual meeting. When Levin complained about New Senior’s stock performance last September, they owned 6.5% of New Senior; since then, they have likely not profited from them yet.

chart05New Senior Investment Group is externally managed. In November 2014, Fortress Investment Group LLC spun off New Senior Investment Group from one of its publicly traded funds, Newcastle Investment Group, hoping that the aggregate market value of both companies would be higher.

Nevertheless, the share price hasn’t taken off. In fact, last year the stock dropped by 40%, the worst performance among healthcare REITs. On the other hand, assets saw a 50% increase and debt level almost doubled. It appears that the management pushed the boundaries last year.

chart01Their share price performance has followed trends similar to other externally managed REITs, such as NorthStar Realty Finance and Ashford Trust. Interestingly, Levin also owns shares of NorthStar Realty Finance.

Despite its short history as a standalone company and being externally managed, New Seniors does have good things going for it. The defensive sector stock currently has the highest yield among healthcare REITs and its dividend payout to AFFO is below 90%.

For those who don’t like investments dependent on Medicaid and Medicare, New Senior sources their revenues primarily from private sources. They invest in independent living and assisted living/ memory care facilities. In a spectrum between minimal and intensive care, they are situated in the middle.

New Senior’s portfolio is composed of managed and triple net lease properties. In managed properties, the company has direct participation in the cash flow of the facilities. In Q4 2015, managed properties occupancy has advanced by 310 basis points year over year, and triple net lease properties occupancy has increased by 110 basis points. Like many, their triple net lease tenants don’t have much room to cover rental payments, EBITDARM is around 1.28x.

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Additionally, AFFO per share increased 58% in Q4 2015 year over year. Their AFFO multiple is around 8.4x, as opposed to the sector median of 16x.

What concerns us most is that their total debt to total enterprise has reached 71%, which is high. Management is well aware of the leverage level, but they don’t seem to be too concerned about it. While they are selling some properties, they prioritized stock repurchases for now, where they can extract higher cap rates (even more than buying properties, according to management). As of now, their debt hasn’t been rated by major credit agencies, so it’s difficult to know exactly where they stand.

chart04In conclusion, we believe that New Senior does have some very good qualities, but they also have very bad ones. Given its share price discount and the existence of an activist as a catalyst of change, we are placing this on our activist/speculative bucket.

Source: New Senior Investment Group (NYSE:SNR), SEC

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.

Hilton as a REIT & FelCor on a Roll

chart01Last Friday, Hilton Worldwide finally announced a plan to spin off its hotel and timeshare businesses and to create an REIT from the hotel assets. The new hotel REIT will encompass 70 properties and 35,000 rooms and will likely be one of the largest hotel REITs. The properties that are going into the REIT will be largely domestic, which according to the company will be more appealing to investors.

Although new legislation prevents an immediate tax-free spinoff into an REIT, Hilton should be exempted from such legislation because it had submitted a request to the IRS before December 7, 2015. The new legislation denies tax-free treatment to a spin-off in which either the distributing corporation or the spun-off corporation is an REIT. It also prevents a distributing corporation or a spun-off corporation from electing REIT status for a 10-year period following a tax-free spin-off.

FelCor

chart02Among all lodging REITs, FelCor Lodging Trust seems to be on a roll over the past weeks, especially after Land and Buildings made a series of proposals in late January. FelCor argued that they have already been pursuing the proposed initiatives. Land and Buildings cited an upside of 60% to NAV to justify a 2% ownership.

The first visible development is that FelCor and Land and Buildings have recently agreed to nominate two new independent directors to the board and reduce average board tenure. Two long-serving board members will step down by 2017. FelCor will also de-stagger the board, as proposed by Land and Buildings. This is what the board looks like today (Name, Position, Director Since):

Thomas J. Corcoran, Jr., Chairman of the Board and Co-Founder, 1994

Richard A Smith, President and Chief Executive Officer, 2006

Glenn A Carlin, Outside, 2009

Robert F. Cotter, Outside, 2006

Christopher J. Hartung, Outside, 2010

Charles A. Ledsinger, Outside, 1997

Robert H. Lutz, Jr., Outside, 1998

Robert A. Mathewson, Outside, 2002

Mark D. Rozells, Outside, 2008.

The decision to revamp the board seems to be in the right direction. FelCor also announced in its Q4 results that it is pursuing the sale of five hotels, including three in New York, to repay debt balances and repurchase stocks. Last April, Standard & Poor’s rated the company B, which is two notches below investment grade. The company posted a total debt to total capitalization of approximately 52%.

What is in the company’s favor is its portfolio composed of suburban, airport, and resorts, which is not one of the subsectors potentially affected by supply growth.

FelCor has come a long way before realizing its full NAV. Besides reducing leverage and renewing its board, FelCor is faced by the cyclical nature of the lodging industry. The possibility that hotels have reached its peak has scared off many investors.

FelCor stocks rallied by 34% from its 52-week low on January 19, but it still has to rally another 34% to reach Land and Buildings’ target of $10.50.

I’d place this stock in speculative/activist portfolio.

Source: Hilton Worldwide (NYSE:HLT), FelCor Lodging Trust (NYSE:FCH)

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.