Eagle Hospitality Properties Trust, Inc. (NYSE:EHP) shares moved up $0.20, or 2.17%, to $9.40 today after the company said that it may put the company up for sale in an 8-K filing with the SEC. According to the associated press release, the Board of Directors has established a Special Committee of independent directors to explore strategic alternatives to enhance shareholder value, which could include a possible sale of the company. The company also said that it has retained Morgan Stanley as its financial adviser.

Eagle Hospitality itself is an REIT focused on acquiring, developing and managing full-service and all-suites hotels. The company's property portfolio consists of nine hotels including Embassy Suites Hotels, Marriott, Hyatt and Hilton. And as of September 2005, the company owned 100% interest in nine hotels and 49% interest in one other hotel within the United States. Financially, the company currently trades below book value (which stands at $10.02) with a debt-to-equity ratio of just 1.4x (below the industry average). And while the company is somewhat inefficiently run (with low ROA and ROIC), it did show vast improvements in several key hotel metrics including its occupancy rates, average daily rates (ADRs), and RevPAR (revenues per room available).

What could be expected in the event of a sale? Well, REITs typically grow through acquisitions of undervalued and mismanaged properties which they utilize their economies of scale to improve. Clearly this makes EHP a great target as it is both undervalued and somewhat inefficiently run but yet improving. Moreover, the company's low market cap, low debt, and decent cash on hand would make it a relatively easy transaction. Valuations themselves come in two flavors: intrinsic valuation and peer valuation. Intrinsically, the company is trading well below its enterprise value with low debt and decent fundamentals. Eagle Hospitality also has a lower valuation compared to its peers, in an industry where buyout premiums typically come between 20% and 30% of the 90 day moving average. Combined, this puts a conservative buyout number somewhere in the area of $11.50 - of course, this is assuming that the Board decides to even put the company up for sale. Overall, EHP is a stock that is definitely worth watching as the Board decides how to best unlock shareholder value.

Related Companies
Hospitality Properties Trust (HPT)
FelCor Lodging Trust Inc. (FCH)
Sunstone Hotel Investors, Inc. (SHO)