Untitled document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment No.)
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ x ]
Check the appropriate box:
[x ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
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(Name of Registrant as Specified In Its Charter):
Ashford Hospitality Trust, Inc.
(Name of Person(s) Filing Proxy Statement, if other
than the Registrant):
UNITE HERE
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
1) Title of each class of securities to which
transaction applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 11 (set forth
the amount on which the filing fee is calculated and state how
it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
UNITE HERE
275 Seventh Ave.
New York NY 10001
[PRELIMINARY COPY SUBJECT TO COMPLETION
DATED OCTOBER 22, 2013]
PROXY STATEMENT
TO SHAREHOLDERS OF ASHFORD HOSPITALITY TRUST INC.
SOLICITED BY UNITE HERE TO CALL A SPECIAL MEETING
OF ASHFORD SHAREHOLDERS
THIS SOLICITATION IS NOT BEING MADE ON BEHALF OF
ASHFORD MANAGEMENT
Released to Shareholders:
October , 2013
Re: Shareholder Request to Call a Special Meeting of
Ashford Hospitality Trust, Inc. for the purpose of voting on two
questions related to the Proposed Spin-Off Transactions
To Fellow Ashford Hospitality Trust shareholders:
Ashford Hospitality Trust ("Trust" or "AHT") plans to
spin off 8 of its top-performing hotels into a new REIT called
Ashford Hospitality Prime ("Prime") this quarter. Currently
shareholders are not being asked by Trust management to
vote on this major corporate transaction. We have concerns that
the Spin-off Transactions, as currently planned, have features
that may compromise the goal of maximizing value for Trust
shareholders.
Therefore, we are soliciting your support to call a
Special Meeting of Trust shareholders for the purpose of voting
on the Spin-off Transactions. This solicitation is only asking
for you to join a request to call a Special Meeting.
Our analysis of the proposed Spin-off Transactions
raises questions about whether the structure of Ashford Prime
maximizes value for current Trust shareholders.
Ashford Prime will be burdened by an externally-managed
structure, termination and change of control fees, and a web of
related-party agreements. This leads us to ask:
* Is the Trust
maximizing the value of spinning off high-revPAR hotels in this
transaction?
* Will the market discount the value
of Prime at spin-off and in the future?
* Will the sum of the parts (Trust
and Prime) be greater than the whole for current shareholders?
I.There is evidence that the market consistently
awards lower valuations to externally-managed equity REITs.
Trust is planning to spin-off its higher RevPAR properties into
a separate publicly-traded company called Ashford Prime. Prime
will be externally managed by Ashford Advisors, a subsidiary of
the Trust, employing an unusual structure for publicly-traded
REITs. The transaction raises troubling questions for current
shareholders of the Trust and future shareholders of Prime.
"The market fears externally managed companies and
trades them at significantly lower earnings multiples,"
according to one analyst.FN1 "Frankly the
external management structure is limited in use throughout the
REIT sector and typically results in a 10% valuation discount,"
estimates another.FN2
According to the Wall Street Journal, externally-managed
REITs are a "holdover of the bygone era;" with only about 18
externally-managed equity REITs remaining nationwide. As "REITs
grew in size and prominence after the 1986 tax reform law was
passed, companies abandoned the external management structure,
arguing that it pitted external managers' interests against
shareholders."FN3
To gauge the proper discount that investors should
apply to externally-managed REITs such as Ashford Prime we
calculated the discount investors have historically applied to
Hospitality Properties Trust [HPT], the only externally managed,
publicly traded lodging REIT, over the past 6 years (2007-2012).
Using two common measures of value (price/FFO and Enterprise
Value/EBITDA) calculated by analysts, we found evidence for a
steep discount.
In only one year (2008) did HPT best the industry average, on
price/FFO. Over the course of the period studied, HPT trailed
its peers with an average -24% discounted price/FFO, and an
average -22.8% discounted EV/EBITDA.
In case our findings are in some way confounded by
other issues specific to HPT, we compared the valuation of
externally-managed, publicly-traded equity REITs in other
sub-sectors with industry-selected peers.
We identified five additional externally-managed,
publicly-traded equity REITs:
Senior Housing Trust [SNH] in
Healthcare;
Commonwealth [CWH] and Government Income Properties
[GOV] in Commercial Office; Gladstone [GOOD] in
Office/Industrial;
American Retail Capital Properties [ARCP] in Net
Lease. We relied on industry tools to select peer groups of
comparable market capitalization.
In the years surveyed (2011-2012), four of these five
externally-managed REITs showed sharply discounted price/FFO and
EV/EBITDA values compared to their peer group - price/FFO
discounts ranged from -7.81% to -76.68%. ARCP (for which
complete 2011 data are missing) was the only REIT not posting
discounted EV/EBITDA values in 2012. However, ARCP recently
announced its plans to convert to a self-managed REIT. See
Exhibit 1 for full tables.
II.Fees to related parties and conflicts of interest
Ashford Prime will be required to pay fees to Ashford
Advisor, a related party. Prime will be dependent on related
parties to conduct almost every aspect of its business. These
fees are outlined in Exhibit 2.
Ashford Advisors is tasked to "engage and supervise, on the
Company's behalf and at the Company's expense, third parties to
provide development management, property management, project
management, design and construction services .... and all other
services reasonably necessary for Advisor to perform its duties
hereunder."FN4
Many of these services must, as a result of the Exclusivity
Agreement, be performed by related parties, giving rise to a
scenario where the same insiders control the advising company, the
advised company, and the "third-party" contractor selected by the
advisor for the advised company.
But Ashford Prime's advisory agreement entrenches related
parties further. The Advisory Agreement has provisions that
function as a poison pill, in so far as they could make a change
in control more difficult or expensive. Specifically, Change in
Control Termination fees apply:
* If there is a
Board-approved change in control conditional upon the
termination of the external management agreement,
* If there is an "involuntary" change of control
resulting in the termination of the external management agreement.
* If written notice of
termination is not within specified timelines, the Advisory
Agreement is binding on the successor owners of the REIT's assets.
* The Change in Control Termination Fees may not apply
if certain key officers remain in place.
The Change of Control Termination Fees charged are hefty: 14
times the Advisor's net earnings from the previous 12 months, in
addition to a reimbursement for state and local taxes (the
configuration is slightly different if Ashford Advisors becomes
independently traded from its parent).FN5
The Exclusivity Agreement between Prime and Remington Lodging,
the hotel operator which is owned privately by the Trust's
Chairman and his family, also provides for a Change of Control
Termination fee. At almost six times annual base and incentive
management fees, this provision also has anti-takeover
properties and insulates income stream to Remington Lodging [see
Exhibit 2].
III.No pathway to self-management of Prime, or internalization
According to a review of income trusts by the Globe and Mail,
"the issue with external management, as we've seen, is the terms
under which it can be internalized, which are typically spelled
out. These buy-ins often look good to unitholders because they
raise per-unit distribution. But the fact is the cost of an
internalization payment is borne by unitholders."FN6
One cautionary tale for Ashford and Ashford Prime shareholders
relates to the track record of Inland Western Retail Real Estate
Trust, Inc, a REIT which internalized its external manager to
become self-managed. In 2007, Inland Western acquired its
external business and property managers, a group of companies
not owned by the REIT. Inland Western paid the related managers
37.5 million shares in Inland Western, valued at $10 per share,
or $375 million. Shareholders, including institutional
investors, filed a class-action suit alleging that 37.5 million
was an excessive number of shares.
In December 2010, the parties to the lawsuit reached a
settlement that resulted in the owners of the business and
property managers returning to Inland Western 9 million of the
37.5 million shares of Inland Western common stock paid for the
buy-in - or, in other words, approximately $90 million worth of
shares were returned to the REIT to the benefit of Inland
Western shareholders.
Inland Western is not the only externally-managed REIT to
internalize its management at significant cost to shareholders,
nor the only one to be subject to a class-action lawsuit over
internalization.
Ashford Prime's advisory agreement does not chart a
clear path to self-management or internalization, but it does
clearly set out a termination fee - three years' worth base AND
incentive fees (see Exhibit 2). And as we've seen, a different
termination fee applies if the Advisory Agreement is lost due to
a change in control.
If the purpose of Ashford Prime's Advisory Agreement were to
help launch a small REIT, we believe it would be in the best
interests of shareholders to define the start-up period and
make the agreement terminable without fees. Instead, Ashford
Prime's Advisory Agreement reinforces a web of related-party
transactions and payments, and prescribes costly termination
fees.
IV.Rights to a Special Meeting; Issues for Meeting
Article I, Section 11 of the Trust's Bylaws requires
the Trust to call a Special Meeting of shareholders if not less
than 25% of outstanding shares request such a meeting, and
limits the matters to be acted on a special meeting to only
those matters declared in the notice for the meeting:
"In addition, special meetings of
the holders of common stock shall be called by the Secretary of
the Corporation upon the written request of the holders of
common stock entitled to cast not less than 25% of all votes
entitled to be cast at such meeting (such request shall state
the purpose or purposes of such meeting and the matters proposed
to be acted on at such meeting). Only those matters set forth in
the notice of the special meeting may be considered or acted
upon at such special meeting, unless otherwise provided in these
Bylaws. Advance notice of any matters which any holder of common
stock intends to propose for action at an annual meeting shall
be given in the manner provided in Section 2 of this Article I."
[Amended and Restated Bylaws dated 11/9/2010]
UNITE HERE has given notice to the Trust pursuant to
the Bylaws that it is soliciting support for a Special Meeting
to consider the following two proposals. We are not requesting
your vote on the two proposals now. A future proxy vote will be
solicited if the Trust calls a Special Meeting as a result of
shareholders' request.
The proposed resolutions presented in UNITE HERE's notice to the
Trust are:
1.Resolved, shareholders of Ashford Hospitality Trust hereby
disapprove the Spin-off Transactions creating Ashford
Hospitality Prime, as last described by the Trust in SEC
filings. In the event any law prevents shareholders from
compelling the Board to disapprove such Transactions, this
disapproval will constitute a recommendation to the Board
against consummation of the Transactions.
2.Resolved, shareholders of Ashford Hospitality Trust recommend
to the Board that termination fees be excluded from any Ashford
Advisory Agreement or Remington Hotel Management Agreement
executed in the future.
UNITE HERE will present the results of this proxy
solicitation to the Trust if 25% of outstanding shares join the
call for a Special Meeting.
V. Participation in solicitation
This solicitation is conducted by UNITE HERE, which
beneficially owns 765 shares of Ashford Hospitality stock and
represents workers at four hotels owned by Ashford for
collective bargaining purposes. The persons proposed as proxies
are UNITE HERE researchers. There is a long-standing labor
dispute at the Ashford-owned Sheraton Anchorage Hotel in Alaska.
We do not seek your support in labor matters. UNITE HERE will
bear all solicitation costs (anticipated at $10,000) and will
not seek reimbursement from the Company.
VI. More information on Ashford's proposed spin-off
of Ashford Prime REIT
We incorporate by reference the information on the
proposed Spin-off disclosed in Ashford Prime's Form 10, along
with listed Exhibits, as well as in the Trust's SEC filings
pertaining to the proposed transaction. Copies of these are on
the SEC website and will be provided by us to shareholders upon
request.
For more information contact Courtney Alexander at
UNITE HERE at calexander@unitehere.org or (631)-834-4681.
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[PRELIMINARY
SUBJECT TO COMPLETION]
WRITTEN
REQUEST
OF
SHAREHOLDERS OF ASHFORD HOSPITALITY TRUST INC.
TO
CALL A SPECIAL MEETING OF TRUST SHAREHOLDERS
SOLICITED
BY UNITE HERE; NOT SOLICITED ON BEHALF OF ASHFORD MANAGEMENT
The
undersigned hereby appoints Courtney Alexander or Jeff Nelson,
each with full power of substitution, the agent of the
undersigned (the "Designated Agents") in respect of all shares
of common stock of Ashford Hospitality Trust, Inc. (the "Trust")
owned by the undersigned to do any or all of the following, to
which the undersigned hereby consents:
1.To join shareholders in demanding a Special Meeting of
shareholders of the Trust be called for the following purposes:
(1) vote to approve or disapprove the proposed spin-off
transactions between the Trust and Ashford Hospitality Prime (as
last disclosed in the Trust's SEC filings and in Ashford Prime's
Form 10), or in the alternative to make a recommendation to the
Board thereon; and (2) vote on a recommendation to the Board of
Directors that termination fees be excluded from any Ashford
Advisory Agreement or Remington Hotel Management Agreement
executed in the future.
2.The exercise of any and all rights of the undersigned
incidental to calling the special meeting and causing the
purposes of the authority granted herein to the Designated
Agents to be carried into effect; provided, however, that
nothing contained in this instrument shall be construed to
grant the Designated Agents the right, power or authority to
vote any shares of Common Stock owned by the undersigned at
the special meeting or at any other shareholders meeting. A
separate proxy shall be required to vote on any proposals to
be placed before a shareholders meeting.
The
undersigned hereby authorizes and designates the Designated
Agents to collect and deliver this request to the Trust, and to
deliver any other information required in connection therewith.
This request supersedes, and the undersigned hereby revokes, any
earlier-dated revocation which the undersigned may have
submitted. .
Signature: ____________
Print
Name: ______________
Organization's
Name in Which Stock Held (if any) and your title:
__________________
Dated:
___________
Please sign exactly as your shares are registered. When shares
are held by joint tenants, both should sign. When signing as an
attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full
corporation name by a duly authorized officer. If a partnership,
please sign in partnership name by authorized person. This
demand will represent all shares held in all capacities.
PLEASE
COMPLETE, SIGN, DATE AND MAIL IN THE ENCLOSED POSTAGE-PAID
ENVELOPE OR AS INSTRUCTED AS PROMPTLY AS POSSIBLE
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Exhibits:
Exhibit 1: Valuation of externally-managed equity
REITs compared to industry peers
Exhibit 2: Recurring and extraordinary fees payable
by Prime to major related parties
FN1
http://seekingalpha.com/article/1077701-how-to-value-reits-with-questionable-alignment,
accessed September 8, 2013.
FN2.JMP
Securities February 28, 2013-08-29
FN3.RobbieWhelan,"Activists
Win a Round in CommonWealth Shareholder Battle,"Wall Street
Journal, August 8, 2013.
FN6."A
matter of trust: Management fees an eye-opener." Globe &
Mail, June 25, 2003.