NATIONAL REPORT—Ashford Inc. has entered into an agreement with Ashford Hospitality Trust Inc. for the new Enhanced Return Funding Program (ERFP). Under the program, Ashford has agreed to provide $50 million to Ashford Trust in connection with the acquisition by Ashford Trust of additional hotels. Ashford will provide 10% of the price of each hotel acquired by Ashford Trust, helping Ashford Trust grow its assets by as much as $500 million. The company will target funding the program with approximately 50% cash on hand and 50% debt. The program will replace Ashford’s legacy key money concept and has the ability to be upsized based upon mutual agreement.
The program is expected to generate attractive returns on invested capital for Ashford via incremental base advisory fees, potential incentive fees, fees for various products and services offered, and tax savings, with year one cash-on-cash returns estimated at 50% and five year internal rates of return estimated at over 35%. Ashford estimates that the ERFP investment made in connection with the Hilton Alexandria Old Town will add an estimated $0.70 to its adjusted net income per share in year one.
The program has potential to improve the five year internal rate of return for each new hotel acquisition at Ashford Trust by up to 700 to 1,200 basis points as well as increase assets under management for Ashford. Subject to the terms of the ERFP agreement, Ashford has agreed to provide approximately $11.1 million to Ashford Trust in connection with its purchase of the Hilton Old Town Alexandria for $111 million. The company believes the program should improve Ashford Trust’s estimated leveraged internal rate of return on the acquisition from 18.2% to 29.5%, a 62% increase in returns with over 1,100 basis points in absolute improvement.
The company anticipates funding the program with existing cash on its balance sheet, its existing credit facility and with ongoing cash flow. The company currently has approximately $38 million of cash and cash equivalents on hand, and its credit facility has $35 million of available capacity with upsize potential to $75 million using its accordion feature.
Additional details of the Enhanced Return Funding Program will be provided in a company 8-K filing and in a company presentation that will be posted on its website, including related amendments to its advisory agreement with Ashford Trust. The program, including the ERFP funding in connection with the Hilton Alexandria Old Town acquisition, is subject to the closing of the company’s pending project management transaction.