This Hotel REIT Advisor Receives Underwhelming Shareholder Support

chart01After all the pressure from the activist Sessa Capital, Ashford Prime advisors received underwhelming support from shareholders at the annual shareholders meeting last Friday, June 10. Approximately 30% of the voting shares were cast in favor of the slate of directors recommended by the advisor. Running unopposed, Monty Bennett, founder, CEO and chairman of both Ashford Prime and the external advisor, remains in control of the company.

Monty now sees a minority investor base that is sympathetic to his stewardship. The percentage of votes in favor of the advisor were way lower than the previous year’s votes. Last year, Monty Bennett was able to gather the support of about 78% of the voting shares. Ashford Prime’s seven board members, including non-independent Monty and Douglas Kessler, remain in place for another tenure.

chart02The Ashford board also gave the green light to initiate discussions with The Wiseman Group on their “soft” and unsolicited bid to purchase the company for $20.25 a share. The bid is not binding and the potential buyer has clearly stated their intention to continue further discussions.

The market has received the offer with skepticism. The post announcement share price has yet to reach the full bid, with the price jumping from $11 to $14 a share. The truth is that the share price hasn’t even come close to the bid.

I understand the market skepticism stems from several reasons. The main one being that the advisor will not walk away without a good offer for its advisory contract. Even with a questionable confidence from shareholders last Friday, it is unlikely that the advisor will let go without driving a hard bargain.

The negotiations with The Wiseman Group can go either way. However, the majority of the market seems to be placing bets against it. After looking at the post announcement reaction, I would say the likelihood of a successful sale are about a third.

Source: Ashford Hospitality Prime, Inc. (NYSE:AHP)

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.

 

Last Week Sees Rebounding REITs

chart01REITs saw a boost throughout last week. In particular, there have been a number of REITs under stress that have managed to make a rebound, which speaks well of them as well as REITs as a whole. Here are some highlights:

* One of the examples is CBL & Associates Properties, which is a mall REIT that specializes in low-productivity malls. Its shares tumbled by about 10 percent in May because of allegations from the Wall Street Journal that they had been conducting fraudulent accounting in order to firm up their financial numbers. Since then, no further news has come up, which seems to be why its shares have bounced back to their former level.

* CorEnergy Infrastructure Trust is another example of a REIT that has managed to make a comeback after serious losses. In its case, this seems to be partly because of the rise in oil prices as shown by Brent passing the $50 per barrel mark and partly because REIT investors have confidence in its leadership even though its two main clients are in Chapter 11 bankruptcies.

* Finally, there is Ashford Prime with its 23 percent stock return, which is seeing renewed attention because of an unsolicited offer from The Weisman Group in California to buy the embattled REIT. In short, the REIT had been suffering in recent months because of the struggle between its external management and activist Sessa Capital over who gets to control the REIT. They’ve been in a court battle over whether or not Sessa could nominate candidates for the REIT’s Board of Directors.

Since the Weisman offer was made just before the annual shareholders’ meeting this Friday, it put significant pressure on the REIT’s senior leadership.  Particularly since it came with a number of conditions such as a limit on the value of Ashford’s external management agreement. However, it should be noted that the offer has its flaws, below what the management thinks it is the fair value. This could be why investors have not been enthusiastic as they could be and have instead been treating it with a degree of skepticism.

Source: CBL & Associates Properties, Inc. (NYSE:CBL), CorEnergy Infrastructure Trust, Inc. (CORR), Ashford (NYSE MKT: AINC), Ashford Hospitality Prime (NYSE: AHP)

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 June 10, 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 April 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.

Checkmate, Monty Bennett?

chart01.pngWhile Ashford Prime has been embroiled in a proxy fight with major shareholder and activist, Sessa Capital, this Wednesday morning the company finally received a decent buy proposal from Weisman Group, a California based real estate investor. The company offered $20.25 a share, although the share was trading at $11.32 the day before. This offer comes just before the annual meeting of shareholders scheduled to take place this Friday, June 10. Ashford Prime has stated they plan to study the offer.

The offer is less than what Ashford believed was the fair value of the company. Last August, the company said the NAV was approximately $28, but that was before they sold a Courtyard hotel in Seattle. Currently, they are marketing another hotel in San Francisco. Also, Sessa Capital has tried in court to have the right nominate candidates for their board. If I were Monty Bennett, CEO and Chairman of Ashford Prime, I would certainly sit down at the table with these folks and make a counteroffer.

Additionally, the offer comes at a time when lodging REITs have fallen out of favor. Several stocks have plummeted more than 30% from the previous year. Although several quality lodging REITs have demonstrated great results lately, they have not been able to get closer to their fair value. In fact, investors are afraid that lodging’s cycle peak has passed, but it does look as if there are some investors (like Weisman) willing to cover the gap between NAV and share price.

Ashford Prime saw a quick spike this morning, but trading has been interrupted at just under $15. Weisman already owns 5% of the company. This offer is certainly very timely and provides as honorable exit strategy for clumsy activist Sessa and greedy advisor Monty Bennett. Not only will it allow him to save face with the activists, but shareholders will gain a whopping premium and Weisman will be buying quality assets that are consistently highly rated.

Source: Ashford Hospitality Prime, Inc., (NYSE: AHP)

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.

Hotel REIT Investors Turn Eyes to Management’s Actions

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Speaking bluntly, Ashford Prime is currently in a bad situation. For example, its 6 times AFFO is below that of its peers. Furthermore, its current share price is $11, which is well below the expected share price of $27 based nothing but the value of its net assets estimated by its management.

These problems can be partially traced to the fighting between the management of Ashford Prime and the activist hedge fund Sessa Capital. Both sides have been locked in the struggle ever since Sessa Capital came in with the intention of rushing the sale of the company and making a profit on its investment, but the result has been nothing but bad for the stakeholders.

For example, the management of Ashford Prime has taken serious blows to their reputation because of their evident greed and entrenchment, while Sessa Capital has been pulled into an uncertain and exhaustive legal battle even though their intention was to make a profit. Finally, the investors have lost most of all because of the plummeting share price, which is particularly concerning because the REIT’s current situation makes it an excellent choice for speculative investors rather than their long-term counterparts, suggesting that its share price will continue to be volatile for the foreseeable future.

At the moment, the future of Ashford Prime remains uncertain. The REIT will be holding its annual shareholders’ meeting on June 10, which will include the election of the members of its board of directors. Already, there are complications, seeing as how the management of Ashford Prime has stated that they will be ignoring Sessa Capital’s slate of five candidates while it remains to be seen whether Sessa Capital has convinced enough of the institutional investors, who make up about 62 percent of the shareholders, to reject its rival’s recommendations.

Things should be particularly interesting because while the management of Ashford received full support from the shareholders at the last annual shareholders’ meeting, that was before the 30 percent fall in the REIT’s share price. Similarly, Sessa Capital has a hard time backing out, seeing as how it stands to lose at least $8 million (from its 31 December 2015 position) if they decide to sell right now, which is not an insignificant sum considering their portfolio of hundreds of millions of dollars.

With that said, the management of Ashford Prime has been making efforts to raise its share price, with examples ranging from increasing its dividend yield to 4.4 percent, repurchasing shares, and selling a handful of its hotels to raise more funds. As a result, it might have some potential for speculative investors who are willing to take a small chance on them.

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

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.