Dallas hotel owner Ashford Hospitality under pressure to overhaul board from activist investor Cygnus
Activist investor Cygnus Capital is pushing for changes to a real estate investment trust led by Dallas hotelier Monty Bennett.
Cygnus said in a letter to shareholders of the Ashford Hospitality Trust Tuesday that it supported a list of five “highly qualified” candidates for seats on the trust’s board of directors. Cygnus claimed that the company’s eight-person board of directors was structured so that Bennett, the company’s founder and chairman, and his allies “can prioritize their interests above everything else.”
“We cannot stand idly by and continue to rely on a board of directors who are comfortable stamping highly dilutive measures that are rejected by major shareholders and other questionable insider dealing, including those currently under scrutiny by the Securities and Exchange Commission,” so Cygnus wrote.
In his letter, Cygnus said its drive to overtake the board was justified by Ashford Hospitality’s “miserable” financial performance, the board’s “grim” governance, attempts to dilute common stocks, “incompetent” management of debt and liquidity and concerns about ongoing regulatory control of Bennett and the company from the SEC.
Much like activist investor Elliott Management questioned AT & T’s development in late 2019, Cygnus launched a microsite called RenovateAshford.com, dedicated to its board-level change campaign.
A spokesman for Ashford Hospitality declined to comment on the record of Cygnus’ allegations. The company upheld Cygnus’ proposal in a regulatory filing stating that Ashford “will review the information contained in the notice and evaluate the validity of the notice in accordance with the company’s founding documents and applicable law”.
Cygnus nominees include former AT&T executive Richard Burns, former bank director Shannon M. Johnson, health manager William C. Miller Jr., bank veteran Roderick W. Newton II, and Cygnus’ own president and CEO, Christopher Swann.
“In stark contrast to the incumbent board, which appears to be characterized by underperforming and underqualified directors closely associated with Mr. Bennett, our plan is made up of individuals with proven independence and diverse perspectives,” Swann wrote in his letter.
Cygnus owns 2.8% of the common stock of Ashford Hospitality, the company’s third largest single shareholder. BlackRock Inc. is the largest shareholder with 13.25%.
Atlanta-based Cygnus said Ashford Hospitality has had negative returns for shareholders over the past one, three, and five years.
Bennett and his father Archie spent decades building a collection of high-end hotels owned and operated by three different publicly traded companies.
Ashford Hospitality, which owns 103 hotels mostly labeled as Hilton, Hyatt, Marriott, and Intercontinental, last month raised the possibility of filing for bankruptcy due to the decimation of the leisure and hospitality industries by the COVID-19 pandemic. A $ 200 million loan was taken out last week which allayed those concerns.
All three Bennett-controlled companies were subject to regulatory scrutiny in 2020 after they returned $ 69 million in paycheck protection program loans.
Cygnus also accuses Ashford Hospitality of paying approximately $ 10 million per quarter to Ashford Inc., one of the other Bennett-controlled companies, over the past year [the companies] have virtually the same management teams and the fact that these fees are largely paid for the amount of AHT debt, not for the performance of the business or common stock. “
“It appears to us that the only beneficiaries of this structure are Mr. Bennett and his allies, who have received millions in dividend payments,” the Cygnus letter to shareholders read. “We find it very worrying that the board of directors could have allowed insider trading that was against the law.”
This is not the first time Cygnus has raised concerns about the management of Ashford Hospitality. In October, Cygnus challenged Ashford Hospitality’s request for preferred shareholders to sell lucrative dividend stocks in exchange for common stock.