executivesparried pointed analyst questions about the company's strategic review during anearnings conference call,defending their plan to buy back shares and sell four properties.
The company,which has faced a seriesof restless and activist investors in recent months, completed the roughly nine-month review in April. The reviewdid not result in a company sale because offers from strategic buyers were not highenough, executives said.
In thecall's question-and-answer session, Canaccord Genuity analyst Ryan Meliker pressedthe executives on a termination fee that would be payable to the REIT's externalmanager, Ashford Inc.,in the event of a sale. Meliker asked whether the company's board provided the potentialsuitors with details on the fee's exact size, adding that uncertainty about thefee could depress the size of bids for the company.
CompanyPresident Douglas Kessler said bidders made overtures on a gross basis, after whichthe company's board and its advisers subtracted their estimate of the terminationfee from the total bid amounts. Based on that math, he said, "the board determinedthat the valuation to the shareholders would be inadequate."
Lateron the call, Chairman and CEO Monty Bennett said the company plans to buy back itsshares "aggressively" as a result of the strategic review. Asked to reconcilethat plan with past statements in which he argued against repurchases, expressingconcerns over reduced liquidity, Bennett replied: "I am concerned about buybacksat this level. That doesn't mean it's not economic, and it is."
Finally,Bennett said the company's plan to sell four hotels is progressing — though it willdepend in part on Ashford Prime's ability to reach an agreement with over a fee that couldbe triggered by asset sales. The sales will not happen if Ashford Inc. does notagree to waive the fee, executives said. Bennett is also chairman and CEO of AshfordInc.
The fourhotels designated for sale represent one-third of the company's 12-hotel portfolioand made up half of the portfolio when Ashford Prime was spun off from AshfordHospitality Trust Inc. in 2013.
"Oneof the questions that I've heard from investors since the strategic review culminationcame out was, if these four assets were noncore, why were they half of the assetsof the initial spinoff?" Meliker asked. "That doesn't seem to make a lotof sense, and highlights some of the concerns that investors have with the stockand the company's viability overall as a stand-alone entity."
Askedby company executives to clarify those concerns, he added: "Size, scale, allthose challenges. The big concern when you came public with the spinoff was, toosmall, too illiquid, not geographically diversified enough, those challenges. Andnow four of the original eight assets are going to be sold, highlighting the challenges.… Why were these four asset put into Ashford Prime in the beginning if they're noncorein just two years?"
"Ithink it's an ongoing refinement of strategy," Bennett said. "A companyhas to be flexible with what's going on with market conditions, and as the hospitalitymarket has backed up over this past year and a half or so, it's important for thecompany to flex and to be smart, and do what's in the best interest of shareholders.So for someone to jump out and to stay rigid in their approach is not the rightway to do things. Wouldn't you agree?"
Bennettargued that the company is viable at a smaller size in part because its externalmanagement structure makes costs flexible. And, he said, the company will respondto market conditions.
"Asyou know, we have a lot of money tied up in this ourselves, a significant amountof money," he said. "A sale transaction would pay a lot of money overto Ashford Inc., which I personally own a lot of, and it would be a fantastic personaltransaction for me, as it would enrich me immensely. However, we just don't think,the independents don't think, and I agree with them, that that's not in the bestcourse of action for the shareholders at this point in time."