6/27/2018 | By Sarah Borchersen-Keto
Ashford Hospitality Trust, Inc. (NYSE: AHT) says a new funding program with its external advisor, Ashford Inc., should give the REIT an enhanced competitive edge when it comes to bidding for hotel acquisitions.
Under the newly launched Enhanced Return Funding Program (ERFP), Ashford Inc. has committed to fund amounts equal to 10 percent of the purchase price of Ashford Trust hotel acquisitions, up to $50 million. The program would initially enable Ashford Trust to make up to $500 million in new acquisitions.
Ashford Trust is wasting no time in implementing the program. The REIT said it has agreed to pay $111 million to acquire the Hilton Alexandria Old Town in Alexandria, Virginia. Ashford Inc. has committed to provide Ashford Trust with approximately $11.1 million for the deal, in return for receiving all the hotel’s project management work, on which it earns fees.
“We saw the opportunity to create a unique alignment between Ashford Inc. and Ashford Trust that is undoubtedly mutually beneficial,” said Ashford Inc. Co-President and Chief Strategy Officer Rob Hays.
Hays pointed out that the new funding program will turn a forecasted 18 percent leveraged internal rate of return (IRR) at the Hilton Alexandria to almost 30 percent. “That’s probably the highest underwritten IRR we’ve maybe ever had at Ashford Trust…it turns really good deals into outstanding deals,” he said.
Ashford Trust currently holds $286 million of excess corporate cash, which could be available in conjunction with the program for hotel investments, Hays said. “We’re ready to go, we’ve got the capital to do it, and we’re now out on the hunt for accretive deals to execute on this program,” he added.
Hays said there are currently many attractive acquisition targets across various geographic markets, for which the ERFP can be deployed.
“We’re seeing a lot of fairly attractive deals out in the market, along with a change in sentiment. We’re bullish on the economy and the length of the cycle,” Hays said.
Hays stressed that the funding program is likely not replicable elsewhere in the real estate industry. “It’s just this very unique convergence of corporate structure and asset type that’s never been attempted before. We think fundamentally and economically it’s a superior structure.”
Ashford Inc. says the ERFP has the potential to improve five-year IRR for new hotel acquisitions made by Ashford Trust by up to 700 to 1,200 basis points. “That’s a huge impact on return for investors,” Hays said. At the same time, Ashford Inc. expects to boost five-year IRR for its invested capital by more than 35 percent.
“We think the structure really can redefine what best-in-class investing in real estate means,” Hays said.