Activists, Rambleside Real Estate Capital, a NY based investment company, and Sessa Capital, also a NY investment firm, appear to have picked the wrong fight and are now helping sink both Ashford REITs, Ashford Hospitality Trust and Ashford Hospitality Prime. In the past few days, Rambleside and Sessa have made their discontent with the lodging REITs publicly known. Both Ashfords are advised by the same management team.
Last week, Ashford Prime’s share price plummeted by 18% and Ashford Trust’s by 16%. On Wednesday, January 13, Ashford Prime saw their most substantial drop of 10%. On Monday, January 18, shares fell by 4%. Obviously, investors are fleeing, rather than jumping in.
I’ve never been a fan of external management and I welcome any initiative designed to correct misalignments between management teams and their REITs. Rambleside Holdings, who owns less than 1% of Ashford Trust, complained about the low share prices and urged the company to make a share buyback. They also asked the management team to remove the termination advisory fee.
At the same time, Sessa Capital, who owns 8.2% of Ashford Prime, has stated a desire to nominate a slate of independent board directors and begin a sale process. Sessa reports they are tired of board and management taking “one self-serving action after another.”
Ashford Prime’s issue is deeper and not restricted to the company alone. In the past twelve months, Ashford Prime lost 40% of its value. Their peers experienced the same thing. On average, lodging REITs fell 40% during the same period. The valuation metrics of lodging REITs have fallen to ridiculously cheap levels. Currently, other REITs are trading at 9x AFFO, on average, while Ashford Prime is trading at 7x AFFO.
Perhaps, the biggest source of frustration for shareholders is the fact that Ashford Prime never lived up to what it was meant to be. In 2013, Ashford Prime was spun off from Ashford Trust to provide shareholders with added value. Montgomery Bennett, Chairman, and Chief Executive Officer of the Ashfords, had intended to capitalize on the lodging sector’s good fundamentals. He believed it would be most beneficial to split into two companies with well-defined goals. Ashford Prime invests in luxury hotels, as well as gateway and resort locations, while Ashford Trust is more open-targeted and invests across a variety of segments in the hospitality sector.
In summary, there are several uncertainties that could lead Sessa Capital to a dead end fight that results in lost money on the initiative. First, Ashford Prime’s advisor is also its shareholder and owns a significant ownership. Second, lodging isn’t in favor of the market. As a result, even if they sell the assets, they are unlikely to realize the full net asset value. Finally, the activists’ plan B, which includes selling stock, isn’t the right answer at the current time. Stocks have dropped so significantly that if they did this, they would have no choice but to realize losses.
Source: Ashford Hospitality Prime (NYSE:AHP), Ashford Hospitality Trust (NYSE:AHT), Fast Graphs, Yahoo!Finance.
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