FBR Capital Upgrades Ashford Hospitality Prime (AHP) to Outperform

FBR Capital upgraded Ashford Hospitality Prime (NYSE: AHP) from Market Perform to Outperform while maintaining a $20 price target.

Analyst Nikhil Bhalla comments, "The stock is down ~14% since we initiated coverage at Market Perform on July 17, 2014, versus a roughly 1% gain in the S&P 500 index tracking over the same period, and down 37% since the recent peak following the spin-off from AHT earlier this year. After a 2Q14 miss, we see a better second half shaping up for AHP as the company’s major markets such as Chicago, D.C., and Philadelphia performed notably well in 3Q14, and it appears that 4Q14 could be shaping up at least better than 2Q14.

The analyst added, "Additionally, investors getting into the stock at this level are buying into a portfolio that is trading materially below what it is worth in the private market (the shares are trading at a 28%–33% discount to the net asset value/share, in our view). We estimate that if the company did another equity raise at about $17 (the last equity raise was at $16.50, and we give a low probability for an equity raise below $17) and bought assets at a 7.5% EBITDA yield (about 6.5% cap rate), the dilution to AFFO/share may be only about 5%, which could possibly be made up quickly by cost efficiencies/synergies. Finally, we believe the company may be able to exercise its option to purchase the 697-room Crystal City Gateway Marriott from AHT before the end of the option expiration next year and potentially acquire another three to four ROFO assets over the next 12 months. We think these assets could provide AHP with a growth pipeline without having to go to the open market. We are also adjusting our AHP and AHT estimates in this note but leaving our price targets on both companies unchanged."

For an analyst ratings summary and ratings history on Ashford Hospitality Prime click here. For more ratings news on Ashford Hospitality Prime click here.

Shares of Ashford Hospitality Prime closed at $15.23 yesterday.

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