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

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 (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.

Comments

[biomedlives:]

At this point, I would rather take a chance on the Asford preferred than the common. (No position in common or preferred)

Mar 02 08:54 AM

[socphd71:]

Tourism has been going down all over. Cruise ships advertise specials 6 weeks prior to sailing. Hotels advertise specials.

The GWB administration has put up more and more barriers. Arduous searches; non-visa holders must provide information to the Dept of Homeland Security three days prior to departure; intrusive questionnaires. Disneyland is a special magnet; I believe that, even there, attendance is down.

Disclosure: no position is any "hospitality" company.

Mar 02 08:23 PM

[Big K:]

Mr. Market has taken a 90% bite out of this one already, so Mr. Market has spoken. From today's action, the bearish Mr. Market my be sharpening his teeth for yet another big bite out of AHT's backside. Despite prudent corporate governance in these trying times, the economy beyond the walls of AHT's boardroom continues its gradual shutdown. National hotel REITS are not the place to be when all the money disappears into the AIG and C holes. A return to hunter/gatherer 17th century style economy is in the offing. How many hotel REITS were in business when Jamestown was settled? So be it. It may be good for the American spirit to get back to nature again. Your best bet now is to buy some farmable land, stock up on supplies, food, guns, seed, etc. Learn how to raise chickens, dress hogs and grow crops. Take all your money out of the banks, mutuals, stocks, etc. Buy gold coins and keep all your cash and gold in a safe at home. Don't tell anyone you have it. When the bottom falls out this summer, and all the banks close up for good, all the money that's left in the world will be what is in your pocket. Use this to get your "livin' off the land" lifestyle kickstarted. Your mini economy will then continue only with industriousness. You can sell milk, eggs, chickens, and crops to have some income to pay the electric bill for your water well pump. A simpler and happier life will emerge.

Mar 03 12:58 AM

[DJOlde:]

You must be a schill for Ashford. Either that, or you have taken too many hits off your crack pipe...

"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".

So this makes you some kind of expert? Dude, have you seen Disney stock lately? What about Six Flags? In any case, the tourist industry is so low, you would have to look up to see down. Nobody is traveling right now.

"As opposed to the market, I'm in favor of its decision to cut dividend payments." Oh my god, how much did they pay you to say that? All your comments are very odd.

Mar 04 02:21 PM

[Jonathan Ch...:]

Ashford Pluses and Minuses:

PLUS:

Low interest Rates on financing.
Small amounts due in 2009 and 2010

MINUS:

Potentially high inflation due to increase in currency (M1, etc) in circulation
Potentially high interest rates if/ when Treasury has difficulty selling securities and must either: Increase rates (with resulting higher LIBOR) or buy the notes themselves (resulting in a n increase in the currency in circulation and higher inflation.) If occupancy remains low, AHT will not be able to raise rates to compensate for either higher interest or higher operating costs related to inflation. The decision to go with short-term loans is a bet-the-company decision that the common shareholders may come to regret.


Position: Long on AHT-D. No common shares.

Mar 06 12:18 PM