On October 29, The Wall Street Transcript interviewed William J. Zaiser, Chief Financial Officer, Executive Vice President and Treasurer of MHI Hospitality Corporation (MDH). Key excerpts follow:
TWST: Please begin with a brief historical sketch of the company and a picture of the things you are doing presently.
Mr. Zaiser: MHI Hospitality is a real estate investment trust. It became a public company in December 2004. Prior to that, it was a private company owned by the Sims family begun in 1957. The company's first property was a 12-room motel in College Park, Maryland. I'm currently the Chief Financial Officer and have been with the company full time since 1986. Prior to that, I was a consultant to the company for its IT issues.
TWST: I understand that your strategy is very often to acquire underperforming assets and then do something with them.
Mr. Zaiser: That is correct. We look for an underperforming asset that is essentially closed, perhaps completely closed or just underperforming and renovate it. It can either be a shallow turn or a deep turn opportunity for the company. In a shallow turn situation, we buy an operating hotel and change the brand, change the management, upgrade the facilities and amenities, thereby creating value. A deep turn opportunity can be as much as taking a property all the way down to the studs so that there is basically the concert floor and the steel girders; we then rebuild the hotel. Such a turnaround would also accompany not only new management, but also an entirely new staff, as well as a brand change.
TWST: Would you give us an example of a typical situation where you bought something and you fixed it up?
Mr. Zaiser: We have two examples. The Louisville property is an example of a deep turn opportunity. It was a Ramada that we believed was underperforming. We purchased it in 2006, closed it for extensive renovations and will open it as a Sheraton in spring 2008. At the time we went public in December 2004, the company purchased the Best Western in Laurel, Maryland, and planned to convert it to a Holiday Inn. We did a renovation lasting approximately eight months during which time the hotel remained open. This is considered a shallow turn, whereby we changed the management and the brand. We put in new case goods and a new lobby. We renovated the restaurant and leased it to Outback Steakhouse. At the end of 2005, we rebranded it as the Holiday Inn Laurel West.
TWST: What is the picture that you would expect to see for the company in about three years?
Mr. Zaiser: I expect the way we do things in the next few years to be relatively similar to the way we do them now. As far as our goals and how we acquire properties — the sizes of the properties and the markets may be different. We may be looking more at some of the larger cities where opportunities present themselves. I think all of that is very reasonable to expect. As an opportunity becomes available in our geographic area, I believe we would pursue it. We are not hesitant about going into a larger city; we are not married to staying in smaller secondary and tertiary markets although we are comfortable in that setting. As far as the growth of the company in general, I would expect us to accelerate our overall asset base growth.
TWST: What would be the two or three best reasons for the long-term investor to look very closely at MHI Hospitality?
Mr. Zaiser: One reason is we have historically paid an above market dividend. I think our stock price is discounted by approximately 25% and, again, I say that's part of being small. As we continue to grow and our market cap increases, I believe that the stock price will stabilize closer to our net asset value. In terms of long-term appreciation, I'm hopeful that in the next two years, both our FFO and stock price will begin to reflect the positive effects of some of the projects that we have been working on as they come online.