Rambleside Calls for Ashford Hospitality Trust, Inc. To Explore Strategic Alternatives
NEW YORK, Feb. 29, 2016 /PRNewswire/ -- Today, Rambleside Holdings, an investment firm specializing in real estate assets and securities, publicly released two letters recently sent to the Board of Directors of Ashford Hospitality Trust, Inc., advocating for value creation for all shareholders. Despite strong fourth quarter earnings, the market reacted negatively towards the Board's unacceptable "do nothing" approach to narrowing the substantial valuation discount of the Company's stock price. In light of a potential proxy battle at Ashford Hospitality Prime, Inc.; significant excess cash on its balance sheet; a broken and conflicted corporate structure; and an unprecedented valuation discount relative to its peer group, Rambleside reiterates its call for the Company to direct its financial advisor Deutsche Bank to explore a full range of strategic alternatives for Ashford Trust. The full text of the letters can be found below:
January 25, 2016
Via Email & FedEx
Mr. Monty J. Bennett
Chairman & Chief Executive Officer
Ashford Hospitality Trust Inc.
14185 Dallas Parkway
Suite 1100
Dallas, TX 75254-1319
Dear Mr. Bennett,
We believe Ashford Trust is facing a potentially crippling identity crisis. Without drastic action by the Board, the shares will continue to languish at a material discount to intrinsic value, or worse, head even lower.
While we appreciate your arranging the call last week between CFO Deric Eubanks and representatives from Rambleside, we were apparently disingenuously led to believe the Company was delivering on its announced initiatives to narrow the ridiculous valuation gap in its stock price, including the sale of the 24-hotel select-service portfolio. I'm sure you can imagine our great surprise to learn this morning that the Company was no longer marketing the portfolio as a package, which has time and again been stated by you to be "on track" to close in the first quarter of this year.
Since our letter to you of January 11, the stock price dropped a shocking 25%. It is simply unacceptable for the Company to ask AHT shareholders for "patience," while it reneges on promise after promise, and the stock price continues to decline with zero action by the Company.
As we communicated to Mr. Eubanks, we believe you should expand Deutsche Bank's Ashford Prime assignment to explore a full range of strategic alternatives for Ashford Trust and Ashford Inc. This should include the possible recombination of AHT, AHP, and AINC – the separation of which has caused dramatic value destruction. Let us remind you that as Chairman of all 3 companies, it is a serious violation of your fiduciary duties to favor one company over another.
The recombination of these 3 sister entities would serve several strategic and financial considerations, including to:
- Significantly reduce costs as an internally-managed REIT
- Remove various damaging conflicts of interest between the Advisor and the REITs (including outrageous termination fees)
- Refocus management's time on creating value at the operating level
- Reduce the earnings cyclicality across the entire platform and its hotel quality-spectrum
- Lower the cost of capital due to its larger asset size and trading liquidity
- Attract a new base of investors who can focus on the Company's financial results, not on distracting side-shows
The end result would be a higher trading multiple and stock price, positioning the Company for renewed growth and value creation for shareholders of all 3 companies.
Finally, with the refinancing announced today, we estimate AHT holds around $300 million of cash on its balance sheet, well in excess of any reasonably required amount. If you were willing to buy back stock at $9 per share only a few months ago (at a price you apparently thought was cheap), why are you not aggressively buying back stock when it's on sale for 50% off?
Fred Kleisner and I appreciated the time afforded to us last week. But the time for action is now.
If you feel the Board is under-represented by individuals with the hospitality, financial and strategic expertise – and independence required – to help move the Company in the right direction, Fred and I (along with other highly qualified Rambleside advisors) are willing to join the Board.
We expect immediate action and will continue to advocate for value creation for all shareholders.
Sincerely,
Gregory Cohen
Chief Executive Officer
January 11, 2016
Via Email & FedEx
Mr. Monty J. Bennett
Chairman & Chief Executive Officer
Ashford Hospitality Trust Inc.
14185 Dallas Parkway
Suite 1100
Dallas, TX 75254-1319
Dear Mr. Bennett,
Rambleside Holdings and affiliated private entities are significant shareholders of Ashford Hospitality Trust Inc. (NYSE: AHT) ("Ashford Trust" or the "Company"). We are long-term, value-oriented investors, with deep experience in operating and advising hospitality companies around the world.
We are very concerned with the direction of the Company, and suggest the Board takes immediate steps to remedy the current situation, including the substantial repurchase of AHT stock and removing the outrageous advisory agreement termination fee.
While we appreciate the current unforgiving public market valuations for the broader hotel sector, AHT's depressed stock price can be largely attributed to its own misguided approach to capital allocation. While the Company claims it is focused on improving shareholder value, the investor community has apparently lost complete faith in management's ability (or desire) to close the ridiculous gap between both the private market valuations of the company's assets and its publically traded peers. The stock sits at a 52-week low of $5.48, down a stunning 50% from the highs, and a third of management's publicly stated NAV of $15+ per share.
With current net working capital of $3.14 per share, including close to $200 million of excess, unrestricted cash (not including $175+ million of expected net proceeds from the planned sale of the select-service portfolio), it is beyond incomprehensible why the Company is not aggressively buying back its stock – or, better yet – executing a Dutch tender at a significant premium. A Dutch tender would be a massively accretive and efficient way to capture liquidity without overly affecting the stock price, while providing shareholders the option to participate in the future upside.
We can't imagine the Board would endorse a reckless growth strategy of dilutive acquisitions of full-service hotels, simply to grow the fee-stream of the affiliated asset manager Ashford Inc. (NYSE MKT: AINC). Moreover, we don't understand how the egregious advisory agreement termination fee with AINC, which could be up to $3 per share (or over half the AHT stock price), is in the best interest of Ashford Trust shareholders. If you were truly serious about maximizing long-term shareholder value, you would remove this fee, which would serve to immediately attract various financial and strategic bidders for the Company.
How can the Board justify these blatant conflicts of interest?
While the Company does indeed have a high quality, geographically diverse hotel portfolio with strong RevPAR and EBITDA growth, it is obvious management is failing at creating shareholder value. The "simplification strategy" of spinning-off Ashford Hospitality Prime, Inc. (NYSE: AHP), and selling select-service assets to focus on full-service and upper-upscale hotels has simply not worked.
We expect immediate action and reserve the right to nominate Directors to the Board to effectuate value creation for all shareholders.
Sincerely,
Gregory Cohen
Chief Executive Officer
SOURCE Rambleside Holdings, LLC
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