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.

 

Wrapping our Heads Around This REIT Merger

chart01.pngThe complex merger between the two giants NorthStar and Colony Capital intensifies the uncertainty in the beleaguered shares of NorthStar Asset Management (NSAM) and NorthStar Realty (NRF). The brand new company Colony NorthStar involves merging of three public companies. Shareholders of NorthStar Asset Management will own 32.85% of the upcoming company, Colony Capital (CLNY) 33.25%, and NorthStar Realty Finance 33.90%.

Well, to be honest, coming to terms with the merger between NSAM (an external advisor to NRF), an equity REIT (NRF) and a mortgage REIT (CLNY), is not what I would call an easy task to do. The combined management team says they resulted in a leading global equity REIT with an embedded investment management platform. However, they draw a comparison between themselves and Blackstone and Brookfield, which are not necessarily the global equity REITs we know. That actually sounds more like an inverse of their claim, a platform for managing investments coupled up with embedded equity REITs.

To add on to that, despite the fact that NSAM along with NRF shareholders total to ⅔ of the company combined, both Colony and NorthStar have equal rights when it comes to nomination of board members. In the same way, major management positions will be filled by officials of Colony, which looks to me as though NorthStar seems to be paying the price (lack of credibility) for the move they made dissociating NRF along with NRE (the European Branch) late last year.

It is crucial to note that Colony Capital rose from a merger of its external manager and operating company, becoming an internally-managed real estate and investment management company last year. The move had adverse impacts on their shares because we notice a significant drop of 27% over the last 12 months. This, surprisingly enough, was not as devastating as NSAM and NRF, which lost a whopping 40% and 61% respectively. The market, in the same way, was not sure about the recent merger, seeing as the combination of the shares from the three companies didn’t perform quite well at first.

Superficially, Colony Capital appeared to be more on the gaining end. In addition to getting better transaction terms, it came with the lowering of their leverage level down to 49% from the former 53%. Owners of NSAM shares, the activist Land & Buildings made a complaint of the company barely seeing any form of accretion to their shares.

To summarize it all up, the merger didn’t seem to help NorthStar shareholders that much.

NorthStar Asset Management Group Inc. (NYSE: NSAM), Colony Capital, Inc. (NYSE: CLNY) and NorthStar Realty Finance Corp. (NYSE: NRF)

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.

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.

This Speculative Hotel REIT Needs a Positive Agenda

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Investors reacted well to Ashford Prime’s Q1 performance and the company’s share price rose by 9% last week. For a stock that has been one of 2016’s worst performers among equity REITs, the stock jump should not come as a surprise. Its multiple has been low compared to peers and shares are down 23% from its 52-week high.

The stock is clearly undervalued. When the company went public in late 2013, it enjoyed a multiple close to 20 times AFFO; currently, the multiple hovers around 7.  Not that the stock will climb up to that level, but it has room to approach the hotel REIT average, which is around 10. This makes a potential rally of 40%.

The issue lies on what is holding back the investors, so I’m going to offer some thoughts for a positive agenda:

Management should move past the spat with Sessa Capital, a major shareholder – It is beneficial for shareholders that the company settles any legal disputes with Sessa Capital, even if the company manages to elect its slate of directors in June’s annual meeting of stockholders. Judicial disputes can be full of surprises and hidden costs, which will ultimately impact this small cap REIT’s funds from operations.

Management should bring down termination fee – Blatant signs of greed grab investors’ attention and create a negative sentiment against the company. The agreement between Ashford Prime and its external advisor includes a high termination fee that should be brought down to market standards.  The estimate fee of $5-6 a share is preposterously high compared to the share price of $13.This harms Ashford as whole, even if its major hotels, located in competitive markets, have been well rated.

Management should improve governance – As Sessa Capital hammered over and over again, the company should improve its standards of governance. They should take this opportunity in which they’ve been under scrutiny and address major issues.

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

 

This Office REIT’s Entry Point

 

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I have had an overwhelming feeling that healthcare and hotels reits are the only good entries left. Over the last few months many companies, with good fundamentals have reached high multiples. This has left fewer options on the table, and one of the last groups left has been net lease retail. Since this list has begun to slowly decline, I have found myself starting to weigh the risks over rewards more often and reviewing less popular picks. For example, just last week I picked Spirit Realty Capital, from the net lease group. I picked Spirit Realty because it showed a chance of potentially having a turnaround in the market.

This week, we’ll feature Whitestone, which is another option to the overcrowded shopping center sector. This company displayed some risks that could have some potential negative impact on their stock performance. But, today, I will look at Government Properties Income, an office REIT that is part of our second tier group. That is, for over five years, this company has been distributing the same or increasing stocks without interruption.

chart02During the last twelve months, the Government share price was down, and more recently up. It has an AFFO multiple that has been around 10 while its dividend yield is at 9% making it one of the highest yields. Despite the recent appreciation, this stock still has a 20% upside just from looking at its past performance.

Government Properties, which has been externally managed by the Portnoy family, is currently faced with two main concerns. The most compelling is that a portion of their portfolio is currently expiring in the short and mid-terms. Meaning that over the next two years 26% of this company’s portfolio will expire. In addition, since this is an election year, there will be a certain degree of uncertainty over the projected federal government expenses.

One of the management’s main goals has been to renew as many of their leases as possible, which they accomplished in the Q1. With their new leasing, the profile has improved, as opposed to the same time frame of last year. The occupancy levels have also been steady over the last year.

At the same, though, we are not sure about their debt profile, since those metrics have deteriorated. The ratios between debt to adjusted EBITDA and the total debt to total gross assets have increased. But the deterioration, so far, has been in small increments and has not yet threatened its public debt covenants. The company hold an investment grade rating.

chart03In regards to the elections, the management has yet been able to tell which direction the market will go. As of right now, they have also decided to not outline possible scenarios. With a potential change of party on the horizon, this will certainly cause a splash in the federal government. As a result of this, it will add more uncertainty to the expiring leases.

In conclusion, with so many declining opportunities that are outside the healthcare and hotel realms, Government Properties, with their high dividend yield and decent record, seems to be a good entry point into the market.

Check our previous post on Government Properties.

Source: Government Properties Income T(NYSE:GOV), Spirit Realty Capital, Inc.(NYSE:SRC), Whitestone REIT(NYSE:WSR)

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.