Ashford Hospitality Trust, Inc. (AHT - Free Report) recently completed the previously announced acquisition of the 252-room Hilton Alexandria Old Town in Alexandria, VA, for total purchase price of $111 million.
Notably, the acquisition marks the first transaction to be executed under the Enhanced Return Funding Program (ERFP), announced on Jun 26. Per the agreement, Ashford Inc. (AINC - Free Report) — advisor to the lodging real estate investment trust (REIT) — will fund 10% of the purchase price of all acquisitions made by the latter, up to $50 million in aggregate funding.
Accordingly, the $11.1-billion cash funding comes in the form of the future purchase of hotel furniture, fixtures and equipment to be used at the newly acquired or existing hotels of Ashford Trust.
The ERFP is designed to improve five-year internal rate of return on Ashford’s hotel acquisitions by 700-1200 basis points. It will enable the company to grow assets by nearly $500 million. Further, the company will require lower equity capital for hotel buyouts.
Further, the company has financed the hotel with an interest-only, non-recourse mortgage loan worth $73.5 million. The five-year loan carries an interest rate of LIBOR +2.45%. Notably, the company also entered into a management agreement with Hilton, per which the hotel will continue operating under its own name.
Moreover, the acquisition is expected to be accretive to the company’s portfolio. The property will likely enjoy high demand being in close proximity to office and retail hubs. Further, limited supply and existing metro station adjacent to the property will drive demand and occupancy. The asset has a trailing 12-month occupancy and RevPAR of 85% and $161, respectively. In fact, with nearly $9.6 million invested in the hotel since 2013, the property has no near-term capital needs.
The strategic acquisition coupled with the ERFP arrangement will likely boost shareholder returns. Further, the funding arrangement sets the company apart from its lodging peers and offers significant competitive advantage in markets bids for other acquisitions. This is beneficial for Ashford as it aims to expand portfolio.
Encouragingly, in the past six months, this Zacks Rank #3 (Hold) stock has gained 27.7%, significantly outperforming the industry's 1.6% rise.
Stocks Worth a Look
A couple of better-ranked stocks from the same space are PS Business Parks (PSB - Free Report) and Columbia Property Trust, Inc. (CXP - Free Report) . Both stocks carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PS Business Parks’ Zacks Consensus Estimate for 2018 funds from operations (FFO) per share has been revised 0.3% upward over the past month. Its shares have returned 15.1% in the past three months.
Columbia Property Trust’s FFO per share estimates for 2018 remained unchanged at $1.46 in the past month. The stock has gained 12.1% during the past three months.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs
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