Braemar Hotels & Resorts Inc. · NYSE:BHR
Braemar Hotels & Resorts — Ashford Hospitality Prime — Proxy Contest (March 2016)
44 slides from Braemar Hotels & Resorts's proxy contest presentation, Mar 23, 2016
Slide 1: Presentation to Shareholders of Ashford Hospitality Prime (AHP)
March 2016 PRESENTATION TO SHAREHOLDERS OF ASHFORD HOSPITALITY PRIME (AHP)
Slide 2: Introduction to Sessa Capital
1 Introduction to Sessa Capital ▪ Sessa Capital is a New York - based investment advisor that focuses on value and special situations investing. ▪ The firm was founded in 2012 by John Petry and currently manages approximately $350 million. ▪ Sessa’s investment objective is to outperform the broad eq
Slide 3: Table of Contents
2 Table of Contents I AHP Background and History II AHP’s Fundamental Failings Harming Shareholder Value III Sessa’s Nominees IV Sessa’s Goals
Slide 4: Executive Summary
3 Executive Summary ▪ AHP is an externally managed REIT with total shareholder return (including dividends) that trails its peers, 1 with AHP investors having lost 47% since it listed versus a Peer Group return of approximately 8% – a staggering 55% points of underperformance . ▪ AHP’s corporate gov
Slide 5: Executive Summary
4 Executive Summary ▪ In AHP’s brief history, management’s actions have destroyed substantial shareholder value, and AHP’s total shareholder return has significantly lagged its peer group. We believe this results from four fundamental issues: ▪ Governance Failures : AHP’s advisory agreement has abro
Slide 6: Executive Summary – Governance Failures
5 Executive Summary – Governance Failures ▪ The Board has overseen the expansion and redefinition of an advisory agreement termination fee that AHP now says could be “ hundreds of millions of dollars ” and applies in multiple scenarios. In October 2015, Chairman Bennett estimated the fee would be $4
Slide 7: Executive Summary – Current Board Worsens Termination Fee
6 Executive Summary – Current Board Worsens Termination Fee AHP claimed in its 2/3/16 press release, “ The magnitude of the termination fee that Sessa is complaining about remains unchanged.” History and AHP’s own words tell a different story: AHP’s Board approved the change in the definition of “Ne
Slide 8: Executive Summary – The Sessa Solution
7 Executive Summary – The Sessa Solution ▪ Only a new, majority slate will address all of the governance issues facing AHP. Sessa’s highly qualified, unconflicted nominees include individuals with: ▪ Experience as a long - time REIT CEO and real estate developer ▪ Experience as a public company CEO
Slide 9: AHP Background and History
8 I AHP Background and History II AHP’s Fundamental Failings Harming Shareholder Value III Sessa’s Nominees IV Sessa’s Goals
Slide 10: AHP at a Glance
9 AHP at a Glance ▪ AHP is a real estate investment trust (REIT) that owns high - end hotels throughout the United States. ▪ AHP was distributed in a spin off on 11/20/13 from Ashford Hospitality Trust (AHT ). ▪ AHP focuses on high “RevPAR” (revenue per available room) hotels and owns 12 hotels with
Slide 11: AHP is Significantly Undervalued Relative to its Peers
10 AHP is Significantly Undervalued Relative to its Peers ▪ We agree with Chairman Bennett that AHP is undervalued: “We believe...private market cap rates would imply share prices for [AHP] of...$27.60.” - Chairman Bennett, Second Quarter 2015 Conference Call, August 7, 2015 ▪ AHP’s operating perfor
Slide 12: Monty J. Bennett – One Man, Many Hats
11 Monty J. Bennett – One Man, Many Hats MONTY J. BENNETT Chairman/CEO of External Manager Chairman/CEO Chairman/CEO CEO and co - owner (with father Archie Bennett) Chairman, 25% General Partner Owner
Slide 13: AHP's Unorthodox and Value-Impairing Advisory Agreement
12 AHP’s Unorthodox and Value - Impairing Advisory Agreement ▪ AHP and AINC, its external advisor, share a common chairman of the board and CEO (Bennett), and the officers and senior management are the same. ▪ AINC collects a base fee from AHP based on AHP’s total enterprise value and an incentive f
Slide 14: AHP's Fundamental Failings Harming Shareholder Value
13 I AHP Background and History II AHP’s Fundamental Failings Harming Shareholder Value III Sessa’s Nominees IV Sessa’s Goals
Slide 15: Conflicts in Capital Allocation and Transactions
14 Conflicts in Capital Allocation and Transactions ▪ Capital allocation and transactions have been burdened by the conflict with AINC and have harmed shareholders: ▪ Failed to Sell Property : Announced a sale process for Courtyard Philadelphia, but consistent with incentives of their external manag
Slide 16: Excessive, Reckless, and Impenetrable Termination Fee
15 Excessive, Reckless, and Impenetrable Termination Fee ▪ Over the last 2 years, the current AHP Board has revised the termination fee in multiple ways that have been shareholder - unfriendly and destructive to long - term value. The fee is: ▪ Excessive : AHP says the fee is “hundreds of millions o
Slide 17: Blocking a Fair Shareholder Election: Proxy Penalty
16 Blocking a Fair Shareholder Election: Proxy Penalty ▪ Current AHP directors and AINC contrived an unprecedented mutual entrenchment scheme, the “Proxy Penalty”. Through the advisory agreement, which was never approved by shareholders , a termination fee may be triggered by the election of directo
Slide 18: Penny Preferred – A Seizure of Common Voting Rights
17 Penny Preferred – A Seizure of Common Voting Rights ▪ On February 2, 2016, AHP amended its operating partnership agreement to enable holders of its Operating Partnership units to purchase preferred voting shares of AHP for a penny per share. ▪ These “Penny Preferred” would represent approximately
Slide 19: Unaligned, Illogical Executive Compensation
18 Unaligned, Illogical Executive Compensation ▪ Excessive Compensation : AHP’s CEO Monty Bennett receives full - time pay for a part time job ▪ CEO Monty Bennett received direct compensation from AHP of $2.4 million in stock grants in 2014. Despite this multi - million dollar payday, he received ma
Slide 20: Termination Fee: A Golden Parachute By Another Name
19 Termination Fee: A Golden Parachute By Another Name AHT was the sole public Ashford entity, prior to the AHP spin. AHT’s change in control payments for Chairman Bennett, his father and all named executive officers were just $40 million , but now AHP and AHT together could trigger an estimated $40
Slide 21: Neutered Board and No Executive Accountability
20 Neutered Board and No Executive Accountability ▪ The Board can’t fire the CEO : Through the advisory agreement, the Board has relinquished oversight of the CEO. The advisory agreement goes so far as to make it impossible to relieve the CEO of his duties. 1 This abrogates a fundamental power of th
Slide 22: AHP Board Overview
21 AHP Board Overview ▪ AHP’s external manager structure places enhanced oversight burdens on the 5 “independent” directors, because all of the officers and employees are conflicted due to their dual role as AINC and AHP executives and because virtually every decision made by this Board involves con
Slide 23: Conflicted Board: Political 'Mixed Agendas'
22 Conflicted Board: Political ‘Mixed Agendas’ ▪ Directors Carter and Rinaldi both served in the Texas House of Representatives and received substantial financial support fro m Chairman Bennett, including $10,000 in contributions to Rinaldi while serving on the AHP Board: ▪ Director Rinaldi received
Slide 24: Conflicted Board: Personal and Financial Connections
23 Conflicted Board: Personal and Financial Connections ▪ The other non - AINC directors also have relationships that challenge true independence: ▪ Director Murphy: Financial Conflicts – Provided substantial professional services to AHP’s former parent AHT, which shares executives with AHP as well.
Slide 25: Conflicted Board: Special Rights for Chairman Bennett (AINC)
24 Conflicted Board: Special Rights for Chairman Bennett (AINC) AINC, controlled by Chairman Bennett, has special Board rights . As long as it is Advisor, AINC has the right (enshrined in AHP’s Articles) to nominate 2 of AHP’s 7 directors. These two directors have been AINC CEO Monty Bennett and Pre
Slide 26: Conflicted Board – Committee Specific Failures
25 Conflicted Board – Committee Specific Failures Governance Committee Members: Directors Carter and Strong ▪ Approved the Proxy Penalty with entrenchment characteristics worse than a staggered board. Did not seek shareholder approval. ▪ Approved issuance of Penny Preferred creating special voting r
Slide 27: It is Time to Stop Shareholder Value Destruction
26 It is Time to Stop Shareholder Value Destruction Our nominees are independent, have significant relevant experience, and will put shareholder interests first, not Chairman Bennett’s. ▪ AHP’s conflicted Board either cannot or will not stop Chairman Bennett’s self - enriching approach to corporate
Slide 28: Sessa's Nominees
27 I AHP Background and History II AHP’s Fundamental Failings Harming Shareholder Value III Sessa’s Nominees IV Sessa’s Goals
Slide 29: Lawrence A. Cunningham
Lawrence A. Cunningham 28 KEY QUALIFICATIONS FOR AHP: • Corporate Culture • Corporate Governance & Fiduciary Duty • Extensive Background in Corporate Law Relevant Experience Lawrence A. Cunningham, age 53, has been the Henry St. George Tucker III Research Professor at The George Washington Universit
Slide 30: Philip B. Livingston
Philip B. Livingston 29 Relevant Experience Philip Livingston, age 59, commenced a part time position as Chief Operating Officer of UASUSA, LLC, a manufacturer of unmanned aircraft systems based in Longmont, Colorado, in March 2016. Prior to that time, he was the Chief Executive Officer and a direct
Slide 31: John E. Petry
John E. Petry 30 Relevant Experience John Petry , age 44, founded Sessa Capital in November 2012 and since that time has served as Sessa Capital’s managing member and sole portfolio manager responsible for portfolio management, risk management, and overseeing research. Prior to founding Sessa Capita
Slide 32: Daniel B. Silvers
Daniel B. Silvers 31 Relevant Experience Daniel B. Silvers, age 39, has served as the Founder and Managing Member of Matthews Lane Capital Partners LLC, an investment firm, since June 2015. From March 2009 to June 2015, Mr. Silvers served as President of SpringOwl Asset Management LLC (including pre
Slide 33: Chris D. Wheeler
Chris D. Wheeler 32 Relevant Experience Chris D. Wheeler, age 59, has been a partner at Triton Atlantic Partners, LLC since March 2009. Triton Atlantic is a real estate development and management company specializing in acquiring, developing and managing residential, resort, multi - family and comme
Slide 34: Sessa's Goals
33 I AHP Background and History II AHP’s Fundamental Failings Harming Shareholder Value III Sessa’s Nominees IV Sessa’s Goals
Slide 35: Best in Class Governance
34 Best in Class Governance ▪ If the Sessa slate is elected, the majority of the Board (5 of 7 members) will be independent directors with no personal or financial ties to the existing management team or AINC ▪ Commitment to “best - in - class” corporate governance, led by Professor Cunningham, Form
Slide 36: Capital Allocation Focused on Shareholder Value
35 Capital Allocation Focused on Shareholder Value ▪ WE WILL GROW AHP ONLY WHEN IT CLEARLY BENEFITS AHP: ▪ No growth for the purposes of increasing the management fees of AINC: – No dilutive equity issuances – No expensive trophy property acquisitions justified by optimistic pro formas ▪ Always prio
Slide 37: Capital Allocation, Continued
36 Capital Allocation, Continued ▪ WE WILL PROMPTLY: ▪ Issue a redemption notice to Ashford Quantitative Alternatives (U.S.) LP, the hedge fund where Chairman Bennett serves as Chairman of the manager, is part owner of the General Partner and lost money for AHP in 2015 ▪ Evaluate the highest and bes
Slide 38: Sessa Nominees will Preserve Business Continuity
37 Sessa Nominees will Preserve Business Continuity ▪ A Board change will not alter day - to - day management ▪ Property Management Continuity: The property managers will have an obligation to continue to deliver services to AHP under AHP’s Property Management Agreements ▪ Board Continuity: We are n
Slide 39: Strategic Alternatives
38 Strategic Alternatives ▪ By the end of May, AHP’s strategic review process will be 9 months old. We will review the work of AHP’s Board and the performance of AHP’s investment banker. If appropriate, we will retain new bankers. ▪ AHP falsely claims that we are “only interested in a quick sale”. ▪
Slide 40: Key Conclusions
39 Key Conclusions ▪ The expansion of the termination fee, which would personally benefit Chairman Bennett and his father, is only one symptom of the Board’s failure to protect shareholders and the untenable nature of the AHP structure. ▪ Current directors have expanded the size and application of t
Slide 41: Appendices
Appendices Sessa Capital
Slide 42: Appendix A – Summary Timeline of Key Events
41 Appendix A – Summary Timeline of Key Events ▪ November 2013 : AHP begins trading, advisory agreement with Ashford Advisors allows AHP to terminate agreement for three times trailing fees for unsatisfactory performance or unfair fees. ▪ January 2014 : AHP sells 9.2 million shares to the public at
Slide 43: Appendix B – Summary of the Advisory Agreement
42 Appendix B – Summary of the Advisory Agreement Under the advisory agreement between AHP and AINC: ▪ AINC provides a management team to AHP and is responsible for, among other things, sourcing and evaluating acquisitions and dispositions, “asset managing” AHP’s hotels, overseeing property managers
Slide 44: Disclaimer
43 Disclaimer This presentation contains information and other content (“Third Party Content”) relating to Ashford Hospitality Prime, Inc. (“A HP”) by persons not affiliated with the Sessa Capital (Master), L.P. (“ Sessa Capital”) or the other Participants (as defined below), including as derived fr
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