Ashford Hospitality Will Benefit from Strong U.S. Tourist Industry

| About: Ashford Hospitality (AHT)

While the US is experiencing growing pains with the birth of the full-fledged global marketplace, it's important to take a global perspective in looking at what the US has that separates it from the rest of the world. What with Las Vegas, New York, Los Angeles, and other world-class cities here in the United States, the tourist industry here in the US will continue to be strong. I've grown-up near Disneyland and have friends that have had their families set for life through investments in hotels close to Disneyland, with international clientele worldwide.

Ashford Hospitality Trust (NYSE:AHT) currently owns 103 hotels with 96% brand affiliations and 22,913 rooms. As opposed to the market, I'm in favor of its decision to cut dividend payments. Its credit facility modification plan is a solid one and the board's decision to move with it was thoughtful. Obama's tax policies will favor long term capital gains at an even more aggressive degree.

At year end Ashford had total assets of $4.3 billion, including $311 million of cash. We had $2.8 billion of mortgage debt with a blended average interest rate of 3.35%. Including the $1.8 billion interest rate swap, 95% of our debt is now floating. For the quarter, the interest rate swap allowed us to save $3.9 million in interest costs, which resulted in a $10.2 million savings for the year.
- Ashford COO

The market has indicated that they feel that commercial real estate deserves a haircut. At a market cap of about $100MM, it's getting its head lopped off. Given the decisive use of swaps by sophisticated financial management combined with their hard asset investments, I like its staying power

Additionally, we owned a position in 9 mezzanine loans, with total principal outstanding of $232 million with an average annual unleveraged yield of 16.2% With two notable exceptions representing a combined $23.6 million loan exposure, all of the loans are current.
- Earnings Call

In this interest rate market, it appears that these investments were excellent plays. I'm not concerned about the nonperforming assets for the short term.

The changes we agreed to include reducing the fixed charge coverage ratio to 1.25 times until March of 2011, reducing the commitment level from $300 million to $250 million, reducing the maximum leverage ratio from 75% to 65%.
- Earnings Call

Third party valuations has a $2.62B enterprise on the $4.3B the company has in real estate. It has a higher debt exposure level, especially on its San Francisco property, than I'm thrilled about, but I feel that once the capital markets open up to a more acceptable level that lenders will bend over backwards to work with their portfolios to find agreeable solutions.

Disclosure: Long AHT.