Inside Ashford Trust’s pivot to growing its portfolio

DALLAS — Stephen Zsigray is done talking about COVID.

The CEO of Ashford Hospitality Trust, who took the spot at the end of June, said the pandemic could have been a “death blow” for the Dallas-based REIT, especially because of its financial position in March 2020.

“Candidly, there are arguments that we probably shouldn’t have survived COVID, given that our leverage was higher than most of our peers going in,” he said. “It’s tough enough to survive a 90% to 95% hit to revenue even if you have zero leverage. For us, that was tough.”

Ashford Trust had to take on corporate debt for the first time in its history, Zsigray said, and the REIT has been in survival mode the past few years as it has been handing back keys to lenders and selling off assets to pay off that debt.

But with the expectation that the debt will be paid off early in the first quarter of this year, Zsigray said he is looking forward to turning the page.

“The next chapter for me is this breakpoint. We’re going to pay off that financing, and that’s the last I really want to talk about COVID,” he said.

The first page of that new chapter is all about growing EBITDA and the REIT’s value to investors.

“The market is telling us they’ll pay 12 times (EBITDA), but that $250 million isn’t going to cut it. You need more,” he said. “If we do that, you’ll see transformative impacts on the common stock and the value and it positions the company then to start working towards, ‘OK, let’s go be acquisitive.’”

We were extremely diligent about the assets that we sold. We took a lot of assets to market that we ended up not selling and saying at that price, that’s a keeper for us.

Stephen Zsigray

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Two weeks ago, Ashford Trust announced a “GRO AHT” plan to increase EBITDA and cut costs through layoffs, pay cuts, streamlining labor costs and adding new revenue streams.

Hotel Investment Today talked to Zsigray about the details of the plan and his desire for the company to return to growing through acquisitions. He said most of the changes outlined in the “GRO AHT” plan are happening at the property level.

“A lot of these things have already been implemented by our property managers. I’m hopeful that by the middle of 2025 or early 2025, we start seeing these results,” Zsigray said. “The earlier we can get there, the sooner we can get to the real start of this next chapter, which is we can go out there and buy portfolios of assets again. We can be involved in some of these big deals that will be attractive.”

More details on GRO AHT

Zsigray said the layoffs will happen on the property level in redundant positions, as will the OT and PTO changes (which involve Remington Hospitality, also owned by Ashford Inc., which manages a number of the REIT’s properties) as ways to streamline labor costs.

He said the plan focuses on maximizing room revenue by growing market share for its current portfolio.

“It’s really about gaining market share,” Zsigray said. “If we look at where we are in terms of market share relative to pre-COVID across the portfolio, our share of the markets that we’re in is actually down relative to pre-COVID. The easiest place to get that is to make up the ground.”

The plan also includes looking for ancillary revenue streams, with F&B being the biggest (the REIT is currently evaluating its menu pricing at all of its properties). The idea is to maximize all of its streams (parking and gift shops, to name a few) and add new streams as well (the REIT is exploring rolling out the concept of non-guests using its amenities — something it has been using in the Dallas-Fort Worth market — to all of its properties, for example).

Reshaping, adding to portfolio

Zsigray said growing market share also means enhancing the portfolio the REIT already owns.

Le Méridien Fort Worth Downtown opened in August.

“We now have an opportunity to grow market share that we didn’t have when we were already top of the market when we were just trying to preserve our position… We will – we and probably most other owners – be looking to over the coming years, through capital expenditures, improving the quality of the existing product,” he said.

“It’s time for the industry to find those dollars and reinvest in their portfolios or find new owners who are interested in doing that… If you look at the property, you look at what it will cost to renovate and if that renovation will yield a return. Is it going to position me to earn a decent return on that investment? If the answer is no, OK, then I should probably rotate out of that asset and go find one where I feel like I can spend some dollars and get a return on the investment.”

Zsigray said as the REIT has been selling off assets, it’s also been learning through bid-ask spreads which properties already have outsized market value.

“If you’re not a forced seller – which in our case we weren’t forced to, we just wanted to monetize at fair value in order to pay off some debt – then you don’t have to come down and meet the bid and, in many cases, we didn’t,” he said. “We were extremely diligent about the assets that we sold. We took a lot of assets to market that we ended up not selling and saying at that price, that’s a keeper for us.”

Reshaping that portfolio also means adding as well.

We were extremely diligent about the assets that we sold. We took a lot of assets to market that we ended up not selling and saying at that price, that’s a keeper for us.

Stephen Zsigray

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“We want to get to a position where the company can be acquisitive regularly,” he said. “We have a history of making some really good deals, but it takes capital, and in order to be able to raise capital, we need to execute this first.”

Lessons learned

When asked about the biggest things he’s learned in his first six months as CEO, Zsigray said Ashford Trust’s development of the Le Méridien Fort Worth Downtown in Texas taught him a lot about all the development opportunities with incentive financing as a way to grow a portfolio efficiently with investor capital.  

“Institutions are sometimes not nimble enough to play in that space effectively. For us, it’s a tremendous opportunity if you can develop hotels,” he said. “Yes, it costs more, but incentive financing is a great way to make up for that. So, as I look to the first stages of how we build a portfolio, that will be a big piece of it. Can we find opportunities where it may not even take a ton of capital from us? If you’re successful in finding attractive conversions, or whatever it might be, and you’re helping improve downtown areas while you’re at it, that’s exciting for us.” 

Ashford Trust has also been active in the refinance market over the past few years, and Zsigray said he sees improvement there as well, which means better times ahead for the M&A market.

“I expect it will continue to improve, and the transaction market lags the financing market… The improvement in the financing market also makes it much less likely that you will have these asset fire sales, where people have to sell a portfolio because at least now they can refinance it.

“They may not like everything about it, but it’s refinanceable. Whereas, I think six months ago, nine months ago, a lot of those portfolios would have been in trouble.”