In Part 2 of his series, Lawrence Meyers discusses Ashford CEO Monty Bennett’s management experience, a key asset in Ashford’s strategy of taking advantage of hotel cycles.

By: Lawrence Meyers

L: The entire theory behind Ashford Hospitality Trust (NYSE: AHT) is the ability to take advantage of both the up and down cycles in the hotel industry. So let’s examine those.

M: Let’s look at the hotel cycle chart. In general, the hotel cycle is determined by supply, rather than demand. When supply is low, the fundamentals of the industry tend to be stronger, so it’s better to be an owner during those times. When supply is high, the industry tends to struggle, so it’s better to either be in different part of the capital structure or be out of hotels entirely.

L: Your private hotel management company, Remington Lodging & Hospitality, has quite a history of buying and selling at the right time. Let’s look at that chart.

M: The yellow bars are when we bought hotels, and the green bars are when we sold. We bought heavy when times were right, almost 200 hotel assets. Then, when times started to turn, we not only had the discipline to stop buying hotels, but we started to sell them. We sold all the way down to 35 hotels.

L: Let’s hear the story behind this.

M: We were a big buyer of those hotels in 1991-3. But a lot of our competitors were facing tough times because, as I said, the national hotel industry was only then turning down. They were now in trouble and couldn’t afford to buy anything. So we purchased all these hotels, along with private investors like the Fisher Brothers, the Gordon Getty Trust and George Soros. We bought more hotels from the Resolution Trust Corporation than any other firm in the country.

L: And now that you owned them, you went to all these hotel owners with the bad loans and said “pay up.”

M: Not exactly. Ideally, we wanted to work with the borrowers to restructure their notes. Sometimes we ended up having to foreclose on the asset.

L: Were these fire sales?

M: I don’t know. It’s hard to say what they were worth. But the bidding was competitive. Goldman Sachs, Apollo — they were bidding. In retrospect, it was great for us because in the dark depths of a recession, psychology takes over and institutions don’t know if the economy will ever recover. They likely have other investments which are not doing so well, so they don’t have a lot of capital to commit.

L: So Messrs. Fisher, the Getty Trust, Mr. Soros — they all went into business with you because of your firm’s reputation and experience?

M: It was also attractive to them because our firm had been through the tough times, so we knew how to handle it. It made us cautious, and therefore conservative in how we approached the investment.

L: So given that story, and the chart showing your group’s knowledge about when to buy and sell hotels, you demonstrate a fantastic track record. Do you think competitors are as astute?

M: Well, you have to be careful because it’s not comparing apples to apples. Everybody has a different strategy. We’ll get into that as we move along.

Stay tuned for Part 3, where Lawrence Meyers and Monty Bennett discuss Ashford’s strategy of taking advantage of hotel cycles.

Lawrence Meyers is a former journalist for the Motley Fool, and is President of PDLCapital, a private equity firm (www.pdlcapital.com). He currently owns shares of Ashford Hospitality Trust. This article is only an expression of the author’s opinion, may contain inaccuracies, and is not a solicitation to buy or sell any security. All readers are advised to consult with a financial advisor prior to making any investment. The author may be contacted at pdlcapital@earthlink.net

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