What happened
Shares of Ashford Hospitality Trust (AHT) had fallen roughly 40% on the week as of 10:30 a.m. EDT Friday, after the company announced preliminary revenue per available room (RevPAR) for the second quarter of 2021, and a 1-for-10 reverse stock split.
So what
Ashford, a real estate investment trust (REIT) that largely invests in upscale hotels, reported improving RevPAR in the second quarter. In June, RevPAR grew to $91.27, up 256% year over year, and up from $75.66 in May of this year. The numbers, however, are still below pre-pandemic RevPAR.
But the bigger story is the fact that Ashford announced a 1-for-10 reverse stock split on July 2. For every 10 shares investors own, they will get one new share when the split happens, thereby reducing the existing share count and increasing the share price. So, the holder of 1,000 shares will own 100 after the split, which is expected to occur after market close on July 15.
CEO Rob Hays said on Twitter that the company is doing the reverse split because some funds can't hold stocks that trade below $5, which Ashford has for much of the last year. Hays also said the low share price is not ideal for conditions such as options trading.
Image source: Getty Images.
Now what
While reverse stock splits are not necessarily bad and don't change the value of the company, the market usually does not respond positively to them because they can indicate that a company doesn't think it can get its share price up naturally. This is the second reverse split Ashford has done within the last year, so I do not see this as a positive sign.
