Leading proxy advisor Institutional Shareholder Services is recommending
shareholders withhold votes for 6 Ashford Hospitality Trust [NYSE: AHT]
directors and support UNITE HERE proposals aiming to strengthen
shareholder rights at Ashford Hospitality Trust and Ashford Prime [NYSE:
AHP], according to UNITE HERE.
Protecting shareholder rights at Ashford
Hospitality Trust
At Ashford Trust, ISS has called on shareholders to withhold votes for
all but one director in light of significant rollbacks in shareholder
rights, calling recent bylaw changes: “A material governance failure
that significantly impairs shareholder rights”.
On February 25, 2014, Ashford Trust’s board removed the ability of
shareholders to independently amend the company’s by-laws and doubled
the number of shares required to call a special meeting of shareholders.
ISS voiced its concern these moves could “promote board and management
entrenchment”:
The board did not provide a specific rationale for the amendment, nor
has the board put the amendment to the bylaws on the ballot for
shareholder approval. This unilateral bylaw amendment is particularly
problematic given that the amendment takes away the fundamental right of
shareholders to opine on matters that could significantly affect their
rights as owners of the company. In addition, the adoption of a higher
threshold to call a special meeting could potentially inhibit
shareholder's ability to exercise the right. (p. 10).
UNITE HERE has proposed Ashford Trust adopt a majority vote standard for
director elections, and recommends a director resignation policy for any
director not receiving the support of a majority of shares outstanding.
Against the backdrop of contracting shareholder rights, ISS recommends
shareholders support these proposals in order to “give full effect to
the shareholder franchise.”
Two other hotel REITs have adopted stronger director resignation
policies than Ashford Trust, in response to proposals by UNITE HERE,
closing a loophole whereby boards may continue to reappoint directors
who do not receive majority support year after year.
Tackling board insulation at Ashford Hospitality
Prime
At Ashford Hospitality Prime, a company that has lost over ¼ of its
share price in its first five months following the spin-off from Ashford
Trust, ISS recommends shareholders support UNITE HERE’s proposal to opt
out of the Maryland Unsolicited Takeovers Act.
The Maryland Act allows boards to adopt anti-takeover devices without
shareholder approval, including staggering the terms of board members.
Ashford Prime’s decision not to opt out of this Maryland Act runs
counter to the choice of its sponsor, Ashford Trust, to opt out of the
same statute since inception.
According to ISS, “anti-takeover statutes generally increase
management's potential for insulating itself and warding off hostile
takeovers that may be beneficial to shareholders.”
At Ashford Prime, board insulation is not merely academic. Ashford Trust
chose a controversial externally managed structure for the spun-off
portfolio. In
a recent report, UNITE HERE has argued that termination fees in both
the advisory and the hotel management agreement behave as poison pills,
as they make a hostile acquisition more expensive and protracted.
To date, four companies have voluntarily opted out of this Maryland
Unsolicited Takeover Act provision in response to shareholder proposals
by UNITE HERE. The only two companies not opting out are the industry’s
two externally managed REITs, AHP and Hospitality Properties Trust
[NYSE: HPT].
Ashford Trust has announced its intention to propagate the externally
advised structure chosen for Prime in other spin-offs or acquisitions.
Ashford Trust has not submitted these corporate restructurings to
shareholders for approval, making the higher threshold for shareholders
to call a special meeting immediately relevant.
Read our reports:
On the depressed
valuations given externally managed REITs
On the fees
Ashford Prime owes related parties
On the anti-takeover
properties of Ashford Prime’s agreement with its external advisor
On
the costs of administering Prime’s portfolio as a self-managed
versus externally advised REIT.
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Copyright Business Wire 2014