Ashford CEO: Activists Harming Other Shareholders

When it comes to keeping tabs on the lodging industry, it’s hard to match the energy of Monty Bennett, chairman and CEO of Ashford Hospitality Trust (NYSE: AHT) and Ashford Hospitality Prime (NYSE: AHP).

In addition to overseeing more than $6 billion in hotel assets across all segments of the industry, Bennett is a prodigious tweeter on all issues pertaining to the companies and the hospitality sector. (You can follow Bennett on Twitter at @MBennettAshford.)

Bennett recently checked in with REIT.com about the issues that are highest on his agenda, ranging from industry mergers to shareholder activism.

REIT.com: Overall, how would you describe conditions in the lodging industry?

BENNETT: Pretty good. The past few months have been a little bit choppy, with the transient market softening somewhat, but we don’t think that’s for the long term. Demand for hotel rooms will continue to exceed new supply for the foreseeable future in most U.S. markets.

REIT.com: Earlier this month, Ashford Prime completed a seven-month strategic review of its operations. What did that involve, and what conclusions were reached?

MONTY BENNETT:  During the process, everything imaginable was considered: a sale of the whole company; sales of individual assets; joint ventures; merging with other private and public platforms; various re-combinations with other Ashford entities; and share repurchases. We received indications of interest from a number of buyers to acquire the company, but none of the indications were at levels that the independent directors, following consultation with their independent advisor, believed would provide adequate value to our shareholders.

The process was concluded by initiating strategies that we believe will maximize long-term shareholder value. They include up to $50 million in share buybacks, increasing the quarterly dividend by 20 percent, and commencing a sale process for up to four of our non-core assets that don’t have the quality and revenue per available room (RevPAR) consistent with our long-term vision.

REIT.com: Are we likely to see any let-up in foreign interest in U.S. real estate?

BENNETT: I think you’ll continue to see that interest from foreign investors, especially Asia, for the foreseeable future.

Things are a little questionable around the world. The U.S. economy is doing better than most, and there’s concern that currencies around the world are going to soften. That, and ongoing concern about a hard landing in China, creates a strong desire to move capital into dollars. Real estate is a favored class because it’s a hard asset that’s easily understood.

REIT.com: What impact are you anticipating from the merger of Marriott International and Starwood Hotels?

BENNETT: We think it’s going to be a net positive for Ashford. We’re one of Marriott’s larger owners and fee-payers worldwide and we own a few Starwood properties. We think the combination of the companies is going to create an even more successful platform, so it’s positive for the industry and positive for Ashford.

REIT.com: Are you seeing any urgency among hotel operators to do deals at this time?

BENNETT: The buyers and the sellers out there are being a little cautious. Everyone is waiting for more clarity on the broader economy.

That caution is being further driven by this disconnect between the public and private markets. There’s maybe a 15 percent value difference between hotels in the private and public market.  REITs are not in the mood to be out there buying assets because it’s a negative arbitrage. REITs are on the sidelines, and a lot of other buyers are on the sidelines too. We’re in kind of a pause to see how this is going to go.

REIT.com: You’ve tweeted extensively on Airbnb’s growing presence in the hospitality sector. What are your main concerns?

BENNETT: Airbnb promotes illegal hotels that do not pay their fair share of taxes, whether its occupancy taxes or the hosts paying income taxes. A Pennsylvania State University survey concluded that at least 70 percent of Airbnb revenues are illegal, and much of it is driven by professional landlords. It’s not mom and pop renting out an extra room, it’s a group that rents out 10 apartments in a complex and runs it like a hotel.

For the guests that use Airbnb, there’s not enough insurance coverage. There are safety issues: Keys can be copied, for example. The list goes on and on. It’s a vast enterprise of illegal operations. There are laws in every jurisdiction of the country that these guys are breaking.

REIT.com:  To what extent are millennials shaping trends in the hospitality sector today?

BENNETT: Millennials are always the early adopters, as they have been with keyless room entry. Almost all the new initiatives, including the offering of hypoallergenic rooms, are targeted to those folks. They are used to a customized world where providers offer a product or service tailored to them; it’s what they’ve grown up with. They are driving a lot of the innovation.

REIT.com: Another issue you’ve been vocal about is shareholder activism, an issue that Ashford Prime has been dealing with. Is there a place for activists?

BENNETT: I do think there’s a place for shareholder activism. Unfortunately, there are activists out there who don’t know what they are doing or even what they want. In order to try to raise capital from more investors, many of them feel compelled to call themselves activists and then to go out and agitate a company.

 It’s been a little bewildering for us to deal with [activist shareholder] Sessa Capital. They want to take over the board of Ashford Prime, but they haven’t said publicly what they are going to do differently. They have made vague comments about doing things better, but none of the candidates they put forward have any relevant lodging or hospitality experience. It’s just a headscratcher here.

Unfortunately, it’s consuming company resources, which is to the detriment of the other shareholders. It is a shame, and some of this activism, with its short-term focus, definitely does need to be reined in.