Hector
Sanchez said the Braemar sales process is quickly approaching a “fork in the
road” for the REIT's direction.
DALLAS — It’s a busy time for
Dallas-based Ashford Inc., which is actively seeking to sell one of the REITs
it advises, Braemar Hotels & Resorts, and is considering strategic
alternatives, including a sale, for its other REIT, Ashford Hospitality Trust.
Hector Sanchez, who was recently
named president at Ashford Inc. (the role had been vacant since 2022), gave
Hotel Investment Today an update on what’s happening with both REITs and talked
about the benefits of Ashford becoming leaner as an organization.
Sanchez, who cautioned he was
limited in what he could say because Ashford Trust and Braemar will both
announce their earnings later this month (February 25 and 26, respectively),
said the process for Braemar is much further along.
Things are moving along, I would say very well… We’re closing in on a handful of things and [we are at] a fork in the road of what direction we go. So we’re definitely excited about that.
Hector Sanchez
“Things are moving along, I
would say very well… We’re closing in on a handful of things and [we are at] a
fork in the road of what direction we go. So, we’re definitely excited about
that,” he said.
Sanchez said the process is at a
much different stage for Ashford Trust, where a potential sale is one of the
things a special committee is considering.
“Overall, our main focus there
is to really just put that platform in a much healthier place. [Interest] rates
over the years have not helped, being that all of our hotels are at a floating
rate,” he said. “We’re really trying to focus on divesting of quite a few
assets to just make it healthier… I wouldn’t completely eliminate the
possibility of us doing something from a bigger transaction standpoint, but the
focus there is to leverage it and just put it in a good place.”
One of the biggest issues for
Ashford is a valuation disconnect between the REIT’s stock price and its asset
value. Sanchez used Ashford Trust’s current market cap as an example. He said
the stock’s current market cap (as of February 13, around $21.7 million) could
be equal to or below the proceeds from the sale of just one or two of REIT’s
assets.
“We feel like, in general,
for REITs in the hospitality industry, the multiples are just not quite there,”
he said.
Sanchez most recently served as
CEO of Ashford Inc.’s subsidiary, Premier, and as head of real estate
development for Ashford Inc. He came to Ashford in 2020 after serving in the
oil and gas sector.
Portfolio v.
individual sales
When asked about selling a REIT’s
entire portfolio — a distinct possibility for Braemar, which has nine resorts
and five urban properties — versus selling individual assets, he said it could
be easier and faster to sell the whole thing, but the process is complicated.
“It’s obviously a much easier
long-term transaction when we can just transact the whole thing,” he said. “But
it obviously really narrows down the investors that are out there to be able to
actually [acquire] something like this together. Even when you have an
investor, you might need a second or third one to put it together, so that adds
more complexity.”
That complexity offers both
potential risks and rewards for a transaction, Sanchez said.
“If you can find certain people
that really want to own all of these assets and… would potentially be willing
to pay a small premium for it… the bigger the transaction it is, it just adds a
lot more complexity,” he said. “But at the end of the day, if you can get it
done, it allows you to execute it much quicker.”
Interest rate
headwinds
Sanchez said the biggest
headwind the company is facing right now is the heavy debt service price that
higher interest rates are causing.
Our biggest challenge, as an industry, is even as RevPAR has increased, and as we have become more operationally efficient… even if your NOI or if your EBITDA looks great, well, that’s good, but now my debt payment service is 50, 60, 70% higher… So it’s still really hard to overcome that.
Hector Sanchez
“Our biggest challenge, as an industry, is even as
RevPAR has increased, and as we have become more operationally efficient… Even
if your NOI or if your EBITDA looks great, well, that’s good, but now my debt
payment service is 50%, 60%, 70% higher… So, it’s still really hard to overcome
that.”
He said the company is hoping
for interest rate cuts because they would allow Ashford to do more.
“It would give us cash to
actually start growing again,” he said, admitting that some of the properties
are still running negative cash flow because of the expense of the debt
service. “When you look at the P&L, that looks great, but the debt service
is so expensive.”
Becoming leaner
Sanchez said that for NOI and
controlling margins, it’s really about “playing very good defense” and
controlling what you can.
“What we can control is
operational efficiencies and how quickly we really start leaning into AI and
trying to figure out how that helps us be a lot more efficient,” he said,
noting the company has had to do a lot of restructuring and layoffs to become a
lot leaner and more efficient.
“It’s really about becoming a
much leaner, much more operationally efficient company, and utilizing
technology to help us do that,” he said. “I really think that we’re positioned
very well to be one of the leaders on that front… We know that in our
industry, things move slowly, and organizations adopt things very slowly. We’re
not one of those. We’re moving very, very quickly.”
Sanchez said he’s optimistic
about the future of Ashford, noting that there have been many leadership
changes across the company’s various verticals lately.
“I’m excited about where we’re
headed as a company. I feel like we’ve had to figure out how to get leaner very
quickly, but we’ve done it, and now… we’re positioned to hopefully start
growing,” he said.
One leadership change Sanchez
mentioned in particular was Ben Perelmuter, who took over as CEO of third-party
operator Remington Hospitality last May.
“He’s brought with him a very
strong, heavily operationally focused team,” he said. “When you look at the
year-over-year, month-over-month, starting from (September-December), they’re
doing a lot better than they were last year.”