Jonathan Christopher

Ashford Hospitality Trust Remains on Stable Ground

While I generally agree that AHT has done an excellent job operationally and in managing their cash flow, I have a concern about their mezzanine loans.

The recent bankruptcy of Extended Stay was not a foregone conclusion, however the significant drop in REVPAR was foreseeable. However AHT made no attempt to protect themselves against that event - or at least there is no evidence that they made such an attempt. I consider that to be somewhat careless and raises concern about the rest of the portfolio.

Hotel REITs: The Most Contrarian Idea I Have

If you want to invest in REITS at the present time, I suggest that you look at the cumulative preferred stocks of the REITS. These preferreds pay an amount based on the issue price, nominally 7% on a share issued at $25 . (Though the is a wide range of rates). With many preferreds depressed in price, the current rates are very nice. A specific example is AHT, mentioned earlier. AHT, in a director's meeting specifically voted to buy bck their AHT C and AHT D at market, a wise investment. Since the shares currently sell at about $12 per, and pay 8+ % based on a $25 share price, the annual return is about 18%, and it is cumulative. If the company does not pay it for a quarter, it accumulates and the accumulation pays interest at the same rate (18% based on current prices.).

At current low rates of interest, you can bet that AHT will eventually buy back all of them, and you can, if you hold on long enough, double your capital investment while earning 18% while you wait. Not a bad deal.

There are a lot of these Preferreds around, though you need to be sure the Company will be able to continue to fund the payments.

An example of one which has not is Impac Mortgage Properties. Though not in Bankruptcy (they came close and their shares sell for about $0.50 per share) their preferred shares have also collapsed in price, and do not pay a dividend. I mentioned this company specifically because they have good, tough managers, and may still survive. In which case this would end up being a 10 banger from the present price.

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

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.