Nothing is Going This REIT Activist’s Way

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Ashford Hospitality Prime’s chairman and CEO Monty Bennett had a reason to smile last week. A legal dispute in Dallas, TX between Ashford Prime and Sessa Capital, a major shareholder and an activist hedge fund, favored Ashford. The Court decision prevents Sessa from potentially seizing control of the company’s board of directors. The Court stated that “Sessa’s slate of candidates is invalid and ineligible to stand for election to Ashford Prime’s board at the 2016 annual meeting.”

If nothing changes, Ashford Prime will be electing its nominees for board of directors next June 10 and Sessa will have no right to solicit proxies. Both are looking for strategic ways to eliminate share price discount, but they don’t agree in how to fix it.

Obviously, nothing is going Sessa’s way. It is not clear if they are willing to wait to gain from Ashford Prime investment, and this is why they are demanding a quick sale of the company. All that is clear is Sessa interests are not aligned to Ashford Prime interests.

The fight hasn’t been good for the business. The stock has been affected negatively. Just last week, it had a drop of 10%.

This leaves Sessa with two basic options, to back out or stay fighting. If they back out, they will not be able to realize an investment gain that is long gone. This is because since last year the stock has been down by more than 30%, meaning they will experience a huge loss.

A third option is Sessa may decide to negotiate with Ashford Prime to come up with a reasonable deal. It is likely that Ashford will agree to the idea, because as long as they at war, loss will be inevitable. Ashford even posted a draft confidentiality agreement on the company’s website to begin the settlement discussions.

Sessa announced they will appeal the Court’s decision.

Source: Ashford Hospitality Prime, Inc(NYSE:AHP), Fast Graphs

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Dead End Fight Drags Down These REIT Share Prices

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The battle between Ashford Hospitality Prime’s external advisor (AINC) and activist Sessa Capital is getting uglier and just reinforces the speculative situation of the stock at this moment. Unfortunately, this hasn’t helped the share price. Last week, the shares of both hotel REITs managed by AINC, Ashford Hospitality Prime (AHP) and Ashford Hospitality Trust (AHT), trailed our roster or equity REITs once again.

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Ahead of AHP’s 2016 shareholder meeting in June, both sides have filed lawsuits against the other and made their case to shareholders through presentations and press releases. Sessa, the third largest shareholder of AHP, even created a website, www.FixAshfordPrime.com.

In the latest developments, AINC announced they were suing Sessa Capital for tortious interference for $200 million (AHP’s market cap is under $300 million). In a recent press release, they also argued that Sessa failed to propose a plan that maximizes shareholder’s value. They went on to say that Sessa and its director nominees don’t have the necessary experience in lodging, so they aren’t going to simply hand over the keys to them. They even tried to disqualify Sessa’s director choices, while accusing a director nominee of “blatant resume padding.” The management filed a compelling investor presentation to showcase their credentials and performance as managers on ahpreit.com.

Sessa, who is coming from the other perspective, reproves Ashford Prime’s underperformance by saying it is the result of bad governance. The slate of directors that Sessa picked leans toward corporate governance. On numerous occasions, they have brought up the controversial terms of the advisory agreement between AHP and AINC, as well as the conflict of interests.

The change of directors that Sessa is proposing could lead to hefty termination fees (“proxy penalty”), for which they criticize AINC heavily. They say the penalty could be in the range of hundreds of millions of dollars and make up for a significant portion of AHP’s share price.

Since it’s currently unclear how Sessa will be able to get around the termination fee, it looks like their inexperience has put them in the midst of a dead end legal fight. First-time activist, Sessa Capital is learning that external managers don’t release their bones easily. If the solution to the termination fees must be found through a legal battle, the outcome will probably not be positive for shareholders. And, of course, the legal fees can be astronomical.

Sessa Capital has already made it clear that they want to clear the way for the company to sell their assets. This way, they can take full advantage of the discrepancy between share price and asset value in private markets. Indeed, like many hotel REITs, Ashford Prime share price dropped 40% over the past twelve months. Sessa Capital has made white proxy cards available to Ashford shareholders, so they could vote for the slate of directors they recommend.

Ashford Prime, like the name suggests, has assembled the most luxurious assets (high RevPAR) that Ashford Trust previously had.

Due to deep undervalue, I still see some upsides to AHP, but I’d only invest in the company for speculative purposes. I feel that, due to inexperience, Sessa Capital will not be able to be successful.

Feel free to let us know which side you are on in the comments section below.

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on March 25, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of February 29, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Activists Ignore Investor Sentiment Against Lodging

chart02 Activists have ignored a lingering investor sentiment against lodging as a major driver. Instead, they have been looking for an uncertain fight. Last month, Sessa Capital targeted the Ashford REITs and Land & Buildings selected FelCor Lodging Trust.

While it’s impossible to deny that some lodging REITs have enjoyed a very strong operational performance, their share prices have all gone downhill anyway. In fact, the market hasn’t spared a single stock. We saw a big bloodbath in 2015 and 2016 hasn’t started out any differently. So far, lodging has been a bottom performer; something I hope will come to an end soon.

If I had to give a reason for this massive selloff, I’d say that investors have been afraid of oversupply. Although the lodging REITs deny that supply has outpaced demand, some investors are not keen on the steadily rising supply. Carter Wilson from STR wrote an interesting analysis of the current environment in the lodging industry.

Airbnb has also been mentioned as a reason, but anyone who travels abroad regularly knows that renting rooms, and even entire homes, is nothing new and has never made the hotel industry disappear. Yes, Airbnb has made it more secure and easier to rent rooms and homes, but I believe that it is farfetched to call it a major threat to hotels.

We have mentioned Sessa Capital’s case in a previous post. Early February they filed a lawsuit against Ashford Hospitality Prime questioning a huge termination fee that penalizes Ashford Prime if they elect a majority of directors not approved by its external management Ashford Inc. The share price fell by 33% this year, only trailing NorthStar Realty Finance’s 35% drop.

As to Land & Buildings, at the same time they were challenging NorthStar Asset Management for being undervalued, they were also making their case for FelCor Lodging Trust.

chart01 FelCor is a $1 billion market cap that invests in several types of hotels outside the gateway market, such as resorts and those in suburban and airport areas. If the new supply is being built in the gateway market, which currently receives most of the spotlight, the rationale was, why don’t we invest in a hotel REIT that is located elsewhere? According to L&B, FelCor is the hotel REIT in the best position to capitalize on this idea, as 57% of the investments are exposed to markets expected to outperform for the next two years.

When we last looked at FelCor in 2015, the company was experiencing a decline in revenues, as well as one of the highest leverage ratios among its peers. The good thing was that FelCor featured strong same store growth markets and its AFFO per share increased. To get rid of its reputation for low quality and reposition it as one of higher quality, the company has sold and renovated some of its assets.

Last month L&B listed several items that would help close FelCor gap between their net asset value per share and their share price. Among others, they recommended that they sell their NY hotels, reduce their current debt, buyback their shares, and enhance corporate governance. In response, FelCor said that they had already implemented these ideas.

FelCor, indeed, has an AFFO multiple that is below its peer average and like a good portion of the lodging REITs, FelCor has been undervalued. However, that doesn’t mean that I will be running out to buy their stocks just yet. The bloodbath in the sector is not over yet.

Source: FelCor Lodging Trust Incorpora(NYSE:FCH), Ashford Hospitality Prime(NYSE:AHP),Ashford, Inc.(AMEX:AINC),NorthStar Realty Finance Corp.(NYSE:NRF),Northstar Asset Management Gro(NYSE:NSAM),Land and Buildings, Fast Graphs, Yahoo!Finance

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.