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Alpine Global Premier Propertie Message Board

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  • mdenn101 mdenn101 Oct 7, 2011 10:32 AM Flag

    why should i buy AWP ?

    You mentioned that you are interested in new longs in real estate. Take a look at AHT, which is a hotel reit. It trades at exactly half of book value and pays a 5.5% dividend yield. They recently bought the 24 hotel portfolio of Highland Hospitality for a total of 128 hotels and are bringing the new hotels up to speed. Their hotels are a mix from Hampton Inn on the low end all the way to a single Ritz-Carlton, but most are Embassy Suites, Marriotts, Hiltons, Sheratons and other mid to upper-mid range US hotels. Like other Hotel REITs they have been beaten down on recession fears. Hotels are always the most sensitive to economic concerns, due to their ultra-short (one night) leases and hotel REITs will bounce back more than other REIT classes. AHT has a high but manageable debt load and yesterday they provided 3rd quarter AFFO (adjusted funds from operations) guidance of $0.36 to $0.40. If you take the midpoint of $0.38, AHT is currently trading an price/AFFO ratio of 4.8. In a normal economy, anything under 10 is cheap, but currently fear trumps greed. If the US experiences a deep recession, AHT will go much lower. If we have a moderate recession, the share price already reflects that probability. A more positive scenario would result in a much higher share price. Personally, I would hold out for $15-$20 a share.

    Disclosure: Own and adding to AWP and AHT

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    • AHT looks intersting. I got into HPT just a short while ago.
      Do you think the discount is because investors feel the highend nature of their hotels might cause them to become victim of a bad economy?
      However they didn't seem to be hurt by the 2008 recession and came out of it even stronger.

      • 1 Reply to patroutman
      • The management of AHT performed well during the 2008-9 meltdown, although the stock still collapsed, due to indiscriminate selling. I was lucky enough to buy some at $0.99/share at the bottom of the abyss and continued to buy more as the REIT rebounded. I think that the big discount on AHT is due to recession fears and the high debt load (which they manage well). There is a very positive article on Starwood (HOT) in this week's Barron's. Many of the positive points also apply to AHT, with the largest exception concerning the fast growth in Chinese domestic tourism. AHT has no foreign exposure, while HOT is expanding in China. However, by any measure AHT is much cheaper than HOT. I own AWP for foreign RE exposure and have been attracted by the large discount to NAV.

        The Barron's article takes at stab at valuing HOT, based on sales this year of 17 full service hotels (sold by various sellers) at an average cost per room of $425K. AHT bought the Highland 28 hotel portfolio for $158K "per key", which is their parlance for "per room". Now, I admit that the Highland hotels are not worth $425K/room, but a reasonable value would be in the $250-$300K/room range, so as far as I can guesstimate they got a great deal. Add to this that REVPAR (revenue per available room) continue to rise. Also, nobody in their right mind is building hotels (or building much of anything for that matter) in the USA. That bodes well for future supply/demand balance.

        When eventually the market looks favorably on hotels, AHT will rebound strongly. I can afford to wait patiently while collecting the dividend.

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