Key Takeaways
Braemar Hotels & Resorts' strategic sale process is stalled by a controversial $505 million termination fee, sparking shareholder lawsuits and accusations of poor governance. The fee is payable to an advisory firm controlled by Braemar's chairman if the company is sold.
"The problem is basically all the proceeds go to Monty,” said Gene Pretti, a portfolio manager at Zazove Associates, which has held Braemar’s securities for several years. “The governance here is just abysmal. Is anybody looking out for the shareholders?”
The termination fee is payable to Ashford Inc., an advisory firm also chaired by Braemar's chairman, Monty Bennett. At $505 million, the fee is nearly three times Braemar's entire market capitalization of approximately $175 million, a figure that investors say makes a sale of the REIT impossible.
The fee structure effectively deters potential acquirers, keeping the stock depressed. Braemar shares have fallen over 90% since the company’s 2013 debut. With a full sale stalled since it was announced in August, the company is now reportedly taking bids on individual hotel properties.
For years, activist shareholders have unsuccessfully challenged Bennett’s control and the lucrative contracts his firms hold with Braemar and its sister REIT, Ashford Hospitality Trust (AHT). In a statement to Barron's, Bennett noted that the terms of the advisory agreement were disclosed to and approved by shareholders.
The latest conflict involves investors Alejandro Malbran of Brancous LP and Bob Ghassemieh. On March 11, Braemar sued both in a Maryland federal court, alleging they formed a “secret group” to interfere with the sale process after criticizing the termination fee. This follows a pattern of the company suing its critics, including a 2016 suit against John Petry of Sessa Capital and a 2023 proxy battle with Blackwells Capital.
The $505 million termination payment was approved in 2017. A December amendment to the advisory contract stipulates that the fee is still triggered if just half of Braemar’s assets are sold, complicating the new piecemeal sales strategy.
The ongoing legal battles and the prohibitive termination fee create a significant overhang on Braemar's stock. Shareholders are left with a portfolio of 13 high-end hotels, including the Ritz-Carlton Lake Tahoe, but with little prospect of realizing their value through a company sale. The next catalyst will be the outcome of the individual asset sales and the ongoing lawsuits in Maryland's federal court.
This article is for informational purposes only and does not constitute investment advice.
