Ashford Hospitality Sails Through First Earnings Call

The execs in charge of the Dallas-based REIT weren't saying much beyond what's already been reported: four hotels will close this month in a $33.9 million purchase from Atlanta-based Noble Investment Group and five hotels were bought in October for $50 million from FelCor Lodging Trust Inc. of Irving, TX. By year's end, Ashford's team expects to close its first mezzanine deal, the details of which won't come to light until the deal's done.

For the lodging pros, the question of the day was the fate of $450 million of under-contract hospitality product that Ashford aired on its road show to raise its IPO capital, a pool that's projected to be fully invested in 12 months. At that time, Ashford said 90% of the under-contract hotels would close in 90 days.

Monty J. Bennett, Ashford's president and CEO, said the reality is some remain under contract and some have fallen out during due diligence "at our election." Still, the majority of the capital will be invested long before August 2004, the REIT's one-year anniversary, he said.

"Our deal flow prospects are strong," emphasized Douglas Kessler, Ashford's COO and chief investment officer. A key part of the pipeline is the budding relationship with Noble Investment Group, a steppingstone in terms of "new markets, new brands and what we hope will be the beginning of a successful deal-sourcing relationship with one of the most active hotel companies in the country," he said. For previous story, click here.

Ashford has come to market as a buyer, lender and surveyor of "selective" product. "We are opportunistic not property aggregators," Bennett said. Ashford launched with six hotels in hand, all owned in various partnerships by Archie Bennett Jr., now the REIT's chairman of the board.

Financial comparisons of the predecessor's reign to the self-advised REIT's first quarter shows RevPAR was up 7.1% to $78.12; total revenues were 7.5% higher or $9.6 million versus $8.88 million; occupancy is 76.5% versus 70.2%; and NOI was up 37.4%. "It's a strong operational start to our start," Bennett said.

The belief is dividends could start flowing in the first or second quarter of next year, said Ashford CEO David Kimichik. Ashford posted a net loss of $298,000 or a penny per share; FFO of a negative $29,000; and EBITDA of a negative $42,000. He said debt strategies are being pursued, but for now "our primary objective is to invest the equity capital to get that working for the benefit of the shareholders."

In the fourth quarter, Ashford expects to close $36 million in mortgage debt on existing properties. It's also negotiating for a $60 million secured credit facility, aiming for a first quarter 2004 closing.

To meet the REIT eligible-income threshold for this year, Ashford reassigned asset management rights to an affiliate about three weeks ago. The asset management rolls back to Ashford Jan. 1, 2004, the execs said.

As the REIT leverages its play, weekend group sales and business travel are on the rise. "We believe the lodging cycle is at a point where demand is outpacing supply," Monty Bennett said. "We are seeing a market that has turned the corner." He said Ashford's "clean slate and diversified platform" puts it in a "unique position ... to seek out strong-yielding investments combined with capital appreciation opportunities." At yesterday's trading close, Ashford's stock was priced at $9.30 per share.