ISS Recommends Shareholders Withhold Votes for 6 Ashford Trust Directors

The following post comes to us from JJ Fueser, Research Coordinator at UNITE HERE.

UNITE HERE proposals to opt out of Maryland Unsolicited Takeover Act have received resounding support from shareholders of Ashford Hospitality Prime.

Over the past two years, activist shareholder UNITE HERE, the hospitality workers’ union, has been winning corporate governance reforms at lodging REITs, which are nearly all incorporated in Maryland.

Several proposals ask boards to opt out of Maryland statutes which provide a range of anti-takeover tools. The Maryland Unsolicited Takeover Act (MUTA), for example, allows boards to classify at any time without shareholder approval.

UNITE HERE has argued that without opting out of MUTA—and requiring shareholder approval to opt in—a Maryland REIT has not truly declassified its board. The proposals to opt out of Maryland’s anti-takeover statutes have gained traction, with six proposals withdrawn after full or substantial implementation.

On Tuesday, May 13th, a proposal to close the classification loophole and opt out of MUTA faced its first vote at Ashford Hospitality Prime (NYSE: AHP), with support from Institutional Shareholder Services.

According to ISS, “anti-takeover statutes generally increase management’s potential for insulating itself and warding off hostile takeovers that may be beneficial to shareholders.”

Unofficial results reported at the annual meeting suggest that 64% of shares voted were cast in favor of opting out. AHP’s board has not yet committed to implement the resolution.

At Ashford Prime, board insulation is not merely an academic concern. Ashford Trust chose a controversial externally managed structure for the spun-off portfolio. In a report released last year, UNITE HERE argued that termination fees in two related party agreements—the advisory and hotel management agreements—behaved as poison pills in so far as they could make a hostile acquisition more costly. [Update: on 5/14/14, the AHT announced changes to its advisory agreement with AHP, changing but not removing change-of-control termination fees.]

AHP lost over ¼ of its share price in its first five months following the spin-off from Ashford Trust.

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