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.

It’s Not a Good Time to Own Lodging REITs

 

sample.pngI am surprised at the financial markets sudden pessimism at the beginning of 2016 after the markets ended 2015 on a positive note. The interest rate hike made the domestic economy more predictable, but concerns overseas have amplified losses in the S&P 500 and equity REITs. Suddenly I started to give Janet Yellen credit for being concerned about China.

In 2016, lodging and timber REIT stocks could be potential casualties. Two weeks into 2016, lodging is down by 17% and timber is down by 14%; this is already half the losses both sectors experienced in all of 2015. In 2015, infrastructure fell by 32%, lodging by 29%, and timber by 17%.

Lodging REIT stocks have had great growth rates, but now is not a good time to own these stocks. First, market sentiment is negative towards lodging due to their performance. Investors have assumed that they are at its peak and ready to go downhill. Investors have been so sensitive that every piece of bad news associated with lodging makes them dump the stocks.

In addition, market sentiment is negative towards REITs in general due to the interest rate hike. Whenever the Fed raises the yield on 10-year treasury notes, they become more competitive against REIT dividend yields. 10-year treasury notes are risk free which gives them a clear advantage over owning REITs.

In a statement last week, LaSalle Hotel Properties said they have revised down the metrics and don’t expect fourth quarter growth in RevPAR. They also will not provide forward looking statements for 2016 because the current environment has been too clouded. Their stocks have dropped by 11.4%. Largely because of the statement, lodging stocks, on average, have fallen by 10%.

Also, John Petry of Sessa Capital LP, which owns 8.2% of Ashford Hospitality Prime, is currently trying to remove the board and management after witnessing ‘one self-serving action after another.’ Petry wants to put it up for sale. I welcome a move to more transparency in the REIT space, but in this negative environment, I can only wish Petry good luck. Easy to play the hero role, but hard to execute it. The market seems to believe the same thing as Ashford’s stocks plummeted between 16%-18% last week.

Check the reports for Dividend Yield by Sector and Weekly Returns.

Heli Brecailo

Companies: Ashford Hospitality Prime, Inc. (NYSE:AHP), Ashford Hospitality Trust, Inc. (NYSE:AHT), LaSalle Hotel Properties (NYSE:LHO)

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 January 15, 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 December 31, 2015, 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.