NEW YORK, Sept 28 (Reuters) – Shares of Ashford Hospitality Trust jumped almost 30% on Monday after a proxy advisory firm recommended shareholders of the troubled hotel operator approve, “with caution,” two proposals that would substantially dilute their ownership.
The rally in AHT AHT.N, a real estate investment trust whose shares had plunged almost 95% this year as of Friday, comes as the industry’s outlook has improved but hotel occupancy remains low due to the still-unchecked coronavirus pandemic.
An exchange offer for preferred stock in AHT AHT.N could dilute legacy shareholders’ stakes by up to 90.6%, said advisory firm Institutional Shareholder Services on Friday.
Rapidly eroding cash reserves, mounting debt and apparently limited financing options have cast doubt on AHT unless the hotel industry recovers, ISS said. The proposal could allow AHT, which operates 116 hotels, to stave off bankruptcy, it said.
“The proposals are therefore supportable, with caution,” ISS said. “A cautionary vote for both proposals is warranted.”
But ISS said that AHT had significantly underperformed peers in recent years and reported losses in 2018 and 2019, ISS said.
Cygnus Capital, an Atlanta-based investor in distressed real estate with a 7.8% stake in AHT, warns a Securities and Exchange Commission investigation into related party transactions and accounting policies at AHT should give shareholders pause.
“We just believe there’s a very clear conflict of interest here,” said Cygnus Chief Executive Christopher Swann, an assessment ISS said is correct.
AHT is managed by Ashford Inc AINC.N, a related REIT known as AINC whose chairman and chief executive, Monty Bennett, is also AHT’s chairman. The two companies also share executives.
Cygnus holds that AHT is being run to maximize AINC’s management fees and that the common owners running the two companies have a greater economic interest in the survival of AINC than they do in minimizing dilution at AHT.
(Reporting by Herbert Lash Editing by Nick Zieminski)
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