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Ashford Hospitality Trust Inc. (AHT - Snapshot Report) (Ashford Trust) has decided to spin off a cluster of its high-end hotel properties as Ashford Hospitality Prime Inc. (Ashford Prime). These properties, consisting of 8 hotels generate high revenue per available room (RevPAR) and comprise 3,146 rooms in total of which 2,912 rooms are owned.

Ashford Prime plans to operate as a real estate investment trust (REIT) and file for its listing on the New York Stock Exchange under the symbol "AHP." These high-end hotels are spread in key markets across the U.S. and generated RevPAR of $140 in 2012 compared to the remaining of Ashford Trust’s 115 hotels’ RevPAR of $95 in 2012.

The list includes biggies like Marriott Plano Legacy Town Center in Plano, Texas, Courtyard San Francisco Downtown and The Capital Hilton in Washington, DC. The list also boasts other high-end hotels located in Seattle, Philadelphia and Tampa.

Transaction Details

In particular, Ashford Trust will spin off its 80% ownership stake in this high-end portfolio and the company has already received the board of directors’ nod. As a result, in the form of a taxable special distribution, Ashford Trust’s common stockholders will receive common stock in the newly formed Ashford Prime Inc. This distribution is expected to occur toward the end of the third quarter.

The Rationale

The stockholders of Ashford Trust who will receive stock in Ashford Prime stand to benefit from this deal with Ashford Prime targeting investments in high-end properties that would help in generating RevPAR at least twice the national average (around $130 and higher).

Moreover, Ashford Prime plans to operate at a lower leverage level that would help tap opportunistic acquisitions and investments. On the other hand, post spin-off the leverage level of Ashford Trust is projected to lessen to some extent.

Ashford Trust currently has a Zacks Rank #5 (Strong Sell). However, a number of REITs that are performing well and deserve a look include CommonWealth REIT (CWH - Snapshot Report) and Sunstone Hotel Investors Inc. (SHO - Snapshot Report), both carrying a Zacks Rank #1 (Strong Buy) as well as CubeSmart (CUBE - Snapshot Report) that has a Zacks Rank #2 (Buy).

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