Prosperity in the hotel sector as a whole is largely determined by that of the economy. While there are many possible reasons for this, two of the largest factors are business travel and increased individual incomes.
- Business travel: During strong economic conditions more business travel is necessary to maintain higher productivity.
- Higher personal incomes tend to make people more willing and able to travel, and spend more money while travelling.
This economically driven demand directly affects RevPAR which is recovering from the devastating decline of the recession. While the sector's average RevPAR has been increasing steadily over the past few years, it is still well below its statistical mean which indicates continued growth as the economy recovers.
Market price (3/30/12)
Dividend Yield %
Next 12 mos. Est. P/FFO
Ashford Hospitality Trust (AHT)
Chatham Lodging (CLDT)
Chesapeake Lodging (CHSP)
Diamond Rock Hospitality (DRH)
FelCor Lodging Trust (FCH)
Hersha Hospitality (HT)
Hospitality Ppts (HPT)
Host Hotels & Resorts (HST)
LaSalle Hotel (LHO)
Pebblebrook Hotel (PEB)
RLJ Lodging Trust (RLJ)
Strategic Hotels (BEE)
Summit Hotel Ppts (INN)
Sunstone Hotel Invt (SHO)
Since the hotels sector got hit particularly hard by the recession, investors have the opportunity to capitalize on the low prices as the sector recovers. A company of particular interest is Ashford Hospitality Trust with high yields, strong performance from management and exceptionally low price/FFO per share.
Annual dividend $ per share
High yields: These yields are well above the market average, but It should be noted that series A is redeemable presently and the call dates for D and E are 7/18/12 and 4/18/16 respectively. As Series A and D are priced well below the redemption price of $25.00 and the call date for E is so far off, they should be considered as options for investors seeking yield. The common stock also offers sturdy yield with the added benefit of growth potential.
Management performance: With 19% insider ownership, management is strongly aligned with the investor. Over the past few years AHT management has made some impressive financial maneuvers. One particularly notable one was in the aftermath of the financial crisis of 08. While other companies were issuing shares as extremely low prices, Ashford bought back nearly half of outstanding shares at an average price of $3.26. In July of 2011 new common stock was issued accretively for $12.50 per share. Ashford also bought back much of Series D at opportunistic prices: In 2008 1,606,000 shares at an average price of $5.72 and in 2009 727,000 shares at an average price of $7.31. Shares of series D were reissued in September of 2010 at a price of $23.178 per share. While buying low and selling high is the goal of astute investors, it is truly rare to see management do it with their own company in times of such extreme duress.
Price/FFO per share: AHT's exceptionally low price/FFO shows how underpriced the common stock is. The strong revenue of Ashford facilitated the reinstatement of dividends in 2011 as well as the 10% increase to dividends in 2012.
RevPAR of AHT has been increasing at a rate of approximately 6% annually and is projected to continue growing. With the RevPAR of AHT at $93.76 it is significantly above the sector's average, ($65.00) but it must be taken into consideration that Ashford consists mainly of upscale brand name hotels. Naturally, high end hotels will charge a higher price per room.
In an already appealing sector (hotels), AHT seems to be a top performer. With the recent price decline AHT appears to be significantly underpriced in comparison to its value. In fact, Montgomery Bennett (CEO of AHT) made 5 recent purchases of AHT between 02/27/12 and 03/02/12 each of over $100,000. Nothing shows confidence in a company like the CEO purchasing shares with his own money.
Disclosure: 2nd Marker Capital and its affiliated accounts are long AHT, AHT-A, AHT-D, and AHT-E.