Dallas lodge proprietor Ashford Hospitality beneath stress to overhaul board from activist trader Cygnus

Activist trader Cygnus Money is pushing for improve atop a genuine estate expense belief led by Dallas hotelier Monty Bennett.

Cygnus, in a letter Tuesday to shareholders of Ashford Hospitality Have faith in, explained it is backing a slate of five “highly qualified” candidates for seats on the trust’s executive board. Cygnus alleged the company’s 8-member board has been structured in a way that enables Bennett, the company’s founder and chairman, and his allies “to prioritize their interests higher than all else.”

“We simply cannot sit idly and carry on to set our faith in a board of administrators that seems cozy rubber-stamping hugely-dilutive steps opposed by key stockholders and other questionable insider dealings, including kinds now currently being reviewed by the Securities and Exchange Commission,” Cygnus wrote.

In its letter, Cygnus stated its force to overhaul the board is justified by Ashford Hospitality’s “abysmal” economic overall performance, “dismal” board governance, makes an attempt to dilute common inventory, “incompetent” administration of financial debt and liquidity and fears about ongoing regulatory scrutiny of Bennett and the company by the SEC.

Much like when activist investor Elliott Management took concern with AT&T’s trajectory in late 2019, Cygnus has proven a microsite named RenovateAshford.com committed to its marketing campaign for board-stage variations.

A spokesperson for Ashford Hospitality declined to remark on the report on Cygnus’ accusations. The organization acknowledged Cygnus’ proposal in a regulatory submitting stating that Ashford “is examining the information supplied in the recognize and assessing the validity of the detect beneath the company’s constituent files and applicable regulation.”

Candidates proposed by Cygnus include previous AT&T government Richard Burns, former banking govt Shannon M. Johnson, wellness care government William C. Miller Jr., banking veteran Roderick W. Newton II and Cygnus’ own president and CEO, Christopher Swann.

“In stark distinction to the incumbent board, which looks to be riddled with underperforming and underqualified directors closely connected to Mr. Bennett, our slate is comprised of persons with demonstrated independence and assorted views,” Swann wrote in his letter.

Cygnus owns 2.8% of Ashford Hospitality’s popular inventory, the company’s third-most significant person stockholder. BlackRock Inc. is its greatest shareholder with 13.25%, according to regulatory filings as of Nov. 30.

Atlanta-based mostly Cygnus claimed Ashford Hospitality has manufactured negative stockholder returns over the final a person-yr, three-12 months and five-12 months timeframes.

Bennett and his father, Archie, used decades developing what nowadays is a selection of significant-stop hotels owned and operated by 3 individual publicly traded businesses.

Ashford Hospitality, which owns 103 motels generally branded as Hilton, Hyatt, Marriott and Intercontinental, past thirty day period raised the likelihood of a bankruptcy submitting as a consequence of the COVID-19 pandemic’s decimation of the leisure and hospitality sector. It secured a $200 million bank loan last 7 days that eased all those issues.

All three Bennett-managed firms came underneath scrutiny by regulators in 2020 after returning $69 million in Paycheck Security Plan financial loans.

Cygnus also accuses Ashford Hospitality of paying about $10 million a quarter in charges past calendar year to Ashford Inc., a person of the other Bennett-controlled corporations, “despite the truth that [the companies] have nearly the very same management groups and the truth that these fees are mainly paid on the measurement of AHT credit card debt, not the functionality of the functioning small business or the widespread inventory.”

“It seems to us that the only beneficiaries of this composition are Mr. Bennett and his allies, who gained millions of dollars in dividend payments,” the Cygnus letter to shareholders explained. “We come across it incredibly troubling that the board could have permitted insider dealings that ran afoul of the legislation.”

It is not the first time Cygnus raised problems about Ashford Hospitality’s administration. In Oct, Cygnus challenged Ashford Hospitality’s ask for for chosen shareholders to give up worthwhile dividend-having to pay shares in trade for popular inventory.