NEW YORK—Sessa Capital (Master), L.P. (Sessa), owner of 8.2 percent of the outstanding common shares of Ashford Hospitality Prime, Inc. (Ashford Prime or the company) today sent the following letter to Ashford Prime shareholders in response to the company’s termination of its strategic review process.
The full text of the letter follows:
“Dear Fellow Ashford Prime Shareholders,
As shareholders of Ashford Hospitality Prime, we’re disappointed.
After a seven month process, Ashford Prime’s incumbent directors admitted that the company’s strategic alternatives process has produced nothing. The takeaway from the process was the incumbent directors’ announcement of an array of unconvincing “initiatives.” In some cases, the incumbent directors’ initiatives are ones the company has unsuccessfully attempted before, and in other cases the initiatives merely reverse actions that the incumbent board should never have taken in the first place. Ashford Prime shareholders deserve better than a repackaged and rehashed set of proposals that depend on follow through from an incumbent board that hasn’t produced in the past.
Since the outset of the strategic alternatives process, we recognized it would be burdened by the company’s advisory agreement with Ashford Inc, with its unusual and outsized termination fee, recently estimated at more than $200 million. On September 1, 2015, just days after the company announced the strategic process, we wrote to the company’s board stating: “Quite simply, the current termination fee is … making a fair strategic review process impossible. …we believe that success or failure will rest on your ability to clarify this critical obstacle.” Seven months later, we know the answer to whether the incumbent board could or would resolve the problem with the termination fee: it couldn’t and it didn’t.
For more than half a year, the incumbent Ashford Prime directors never responded to our requests regarding the termination fee and never clarified how the fee could be addressed or renegotiated to permit a sale of the company or its assets. Shareholders deserve to know the range of indications of interest received during the strategic process and if the lack of “adequate value” cited by the company in the indications was due to the drag of the termination fee.
From the ashes of the strategic alternatives process comes the incumbent board’s package of “initiatives,” including “commencing the sale process for up to four of the company’s assets.” What troubles us is that this board’s plan to sell hotel assets, once past the scrutiny of the proxy season, may be altogether illusory. Even with the incumbent directors’ minimal commitment to commence a sale process, the incumbent board has once again failed to address the termination fee and has yet to obtain a waiver of the fee by Ashford Inc. This aspect of the termination fee problem is wholly the making of the incumbent directors: they agreed to extend the termination fee to asset sales like the ones now proposed only last June, thereby tying the company’s hands with respect to dispositions. The incumbent directors have conceded that the hotels won’t be sold unless there is a prior agreement that the termination fee will not be triggered. Knowing this, and given that they had already taken seven months in a strategic review process that included asset sales, why didn’t the incumbent directors obtain and disclose the waiver before announcing the plan to sell? Why broadcast a plan the incumbent directors don’t have permission to implement?
We have little confidence in the incumbent directors’ latest recycled proposals. If Ashford Prime’s announcement that it may sell hotels and would institute a stock repurchase program sounds familiar to shareholders, that’s because the company tried it before, with little success or follow through: In October 2014 the company announced it would “look to sell” the Courtyard Downtown Philadelphia and potentially other hotels, and the company instituted a $100 million stock repurchase program.
