Should You Buy Anadarko Petroleum (APC) Ahead of Earnings?
Ashford Hospitality Trust, Inc. AHT recently entered into a definitive agreement for the acquisition of La Posada de Santa Fe in Santa Fe, New Mexico. The company has shelled out $50 million for the 157-room property.
Subject to customary closing conditions, the transaction is expected to close later this month.
Notably, the acquisition will be executed under the Enhanced Return Funding Program (ERFP), per which, Ashford Inc. AINC — advisor to Ashford — will provide nearly $5 million of funding to the company.
Assuming that the funding from Ashford Inc. was to occur at closing of the transaction, the adjusted net purchase price comes to nearly $287,000 per key. Per the company, this represents a trailing 12-month capitalization rate of 5.3% on the hotel’s net operating income (NOI) of $2.4 million and a trailing 12-month 15.2x Hotel EBITDA multiple, as of Aug 31, 2018. On a forward-looking basis, it indicates a forward 12-month capitalization rate of 7.3%, as well as a forward 12-month Hotel EBITDA multiple of 11.7x.
La Posada enjoys a strategic location with close proximity to the historic Santa Fe Plaza and other tourist spots. Further, with top class amenities such as full-service spa, renowned food outlets and an indoor/outdoor meeting space, among others, the boutique hotel is one of the iconic properties in a lodging market. Additionally, its location in the affluent and high barriers-to-entry Santa Fe market, will drive demand and occupancy at the property.
Per management, the buyout fortifies the portfolio with the addition of a high-quality asset. In addition, management believes it can achieve significant operational synergies by transferring management of the hotel to Remington Lodging, which also manages the company’s Hilton Santa Fe located in the same market.
Also, the asset has a trailing 12-month occupancy and RevPAR of 74% and $155, respectively. In fact, with more than $6 million of capital invested in the hotel for improvement over the past few years, the property has no near-term capital needs.
The strategic acquisition, along with the ERFP arrangement, will likely boost shareholder returns. Furthermore, 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.
However, in the past six months, this Zacks Rank #3 (Hold) stock has lost 11.7%, against the industry's 7.9% growth.
Stocks to Consider
A few better-ranked stocks from the REIT space are W. P. Carey Inc. WPC and Duke Realty Corporation DRE. 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.
W. P. Carey’s funds from operations (FFO) per share estimates for 2018 remained unchanged at $5.43 in 30 days’ time. The stock has inched up 4.3% in six months’ time.
Duke Realty’ Zacks Consensus Estimate for 2018 FFO per share remained unchanged at $1.33 in the last month. Its shares have gained 10.2% in the past six months.
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