|Shares Out. (in M):||2||P/E||19||12.9|
|Market Cap (in $M):||211||P/FCF||0||0|
|Net Debt (in $M):||-35||EBIT||18||27|
This was my application idea, submitted 11/17. It took a little while with the holidays to get it approved. Its up over 35% since my submission, so not quite as cheap as initially written, and I've made some updates to the numbers as necessary, but the general thesis is the same and playing out pretty quickly. Here's a link to the original, as submitted 11/17: https://www.dropbox.com/s/ukd60d7xvcdgnj0/Ashford%20Inc.pdf?dl=0
Developments since submission:
Ashford Inc has moved quickly post spin to increase the fee generating AUM, aka Total Market Capitalization", here are some of the relevant developments since submission:
- AHT recently completed refinancing of its debt on certain properties, increasing the debt from $354 to $478, taking $107m in cash out (to do another deal) resulting in an increase to "Total Market Capitalization", as they define it.
- AHT has bought Prudential out of its JV for the Highlands property. The deal price implies significant equity value, they paid $250m for Pru's 28.26% stake, netting out the $25m preferred, that implies an equity value of $796m or so. They were carrying their equity investment at $145m under the equity method of accounting. They're also assuming Pru's pro-rata share of the debt, $331m or so. The deal is supposed to close by 3/31 and refinancing the debt is a condition, so I would anticipate another significant cash out refinancing once the deal closes. This would increase "Total Market Capitalization" substantially.
- AHP filed a shelf registration for $300m of common & preferred equity and debt.
- Their hedge fund product launced on 1/5. It returned 15.1% net in 2014, with about 40% net exposure.
- The CEO, Monty Bennett, has made nearly $10m in open market purchases of AINC, at prices up to $131/sh, almost immediately post-spin.
In short, the thesis has begun to play out. The cash out refinancings and deal making are actually going a little quicker than we'd thought.
We are long shares of Ashford Inc. (AINC). AINC is the asset management company for two publicly traded hotel REITs: Ashford Hospitality Trust (AHT) & Ashford Hospitality Prime (AHP). Ashford Inc. also owns 60% of Ashford Investment Management (AIM), the advisor to a new long/short equity REIT hedge fund with a decent 3 year track record that is being launched in January.
Presently, the market is valuing AINC equity @ $210m (diluted estimate, adj for deferred comp stock conversion). Over the next 12-18 months we think the company is worth $260m+ in a base case, representing ~20% upside from the current quoted price. However, we think the company has levers to pull that can drive revenue with high incremental margins and our bull case 1 yr estimate is north of $370m, or 67%+ upside potential. Additional upside could come from incentive fees on the HF or from the management agreement and from additional spin offs from AHT (most notably the Select Service Hotel platform).
AINC is an undervalued investment for a variety of reasons, which we will detail below. The bottom line is that management is spinning the company out in an attempt to line its own pockets in big way & they will actually own more of the management company post-spin while concurrently did everything they could to make it unattractive for institutions and their current investor base. While we don’t completely trust these guys, and we don’t think they could be confused with “Outsider CEOs”, we don’t think we can go wrong by betting with them that they’re successful.
Owning the management company is appealing for a few reasons.
First, the base management fees are relatively predictable and captive to AINC, which makes them extremely high quality. The fees are based on “Total Market Capitalization”, which is basically EV of the two REITs without subtracting any cash.
Second, the asset management business has nice operating leverage. A very high percentage of incremental revenue falls to the operating income line. The management company calls the shots for the REITs and the management company is incented to have the REITs do deals, and it gets paid whether they are funded with debt or equity. For example, a billion dollars of equity/debt issuance increases annual revenues by at least $7m and a very high % (north of 80%) of that should fall to operating income.
Third, if the REITs perform they also get a kicker in the form of an incentive fee, which is calculated as 5% of the amount (expressed as a percentage) by which the annual “Total Shareholder Return” of Ashford Trust or Ashford Prime, as applicable, exceeds the average TSR for its respective peer group, multiplied by the fully diluted equity value of such company at December 31 of the applicable year. The percentage by which the TSR of either Ashford Trust or Ashford Prime exceeds the TSR of its peer group will be limited to 25% for purposes of calculating the incentive fee payable to us. So if the peer group was flat and AHT/AHP was up 25%, they would get 5% of that amount or 1.25% of the diluted equity value. It’s paid over 3 years in either cash or AHT/AHP stock. There’s no claw back in years where AHT/AHP underperforms.
The Spin Off was Structured to Confuse AHT’s Investor Base & Make AINC Unappealing to Institutions:
Here are the ways management structured the deal to make it unattractive to current investors and prospective institutional investors:
The distribution ratio is tiny and was subject to change if the stock performed well in the when-issued market. They told shareholders they anticipated distributing 1 share for every 55 if they distribute 100% of the equity, it could be as low as 1 share for every 137 if they only distribute the minimum 40%. It wound up being 1 for every 87 shares. There are no fractional shares and most small investors will get a few shares; many will simply choose to sell their AINC “dividend”.
The current shareholder base is comprised mostly of REIT indices, income/REIT mutual funds, and mom & pop income investors. The new mgmt. co will not be a REIT & pay no dividend. So either by preference (income investors) or mandate (REIT index and actively managed REIT mutual funds) current investors may be unwilling or unable to own AINC.
It is a taxable distribution.
Prospective Institutional Investors
Small size: management provided fairness opinions showing an pro forma equity value of $60.
Small float: the distribution ratio was 70% of shares outstanding with management owns 17% of AINC directly now, and AHT retained 30% of the outside shareholder float, the PF tradable float could be less than 35% of what we expect the fully diluted shares to be.
The bottom line is that AINC will be too small for bigger funds as it will be difficult to get a meaningful position due to the limited float.
Management was actually incented to have AINC trade poorly initially (which hasn’t happened), in order to get the spin off done completely and not have AHT retain any of AINC (among other reasons we’ll get to). Since it traded too well in the when issued market, AHT reduced the shares distributed, because the value of those shares is taxable to the REIT and doesn’t qualify as REIT income, distributing all of it at too high a price could potentially jeopardize AHT’s REIT status. We think this is a convenient excuse and management didn’t provide details on how much bad income would be too much, but they settled on a 70% distribution rate. We think changing the quantity of shares distributed was a smoke screen to confuse current and potential investors. This was consistent with everything else AHT management has done to make sure it gets AINC distributed at a low price.
AHT management has further tried to obfuscate the value of the management company and confuse current/potential investors by:
Providing limited pro-forma data and inconsistent commentary
Getting the spin off done before the AINC’s value becomes obvious in the financials
AINC didn’t even file pro forma Q3 financials, despite AHT/AHP reporting earnings on 10/30.
AHT also filed an 8k where it provided a lowball estimate of 2015 Revenue ($38.5m) & EBITDA ($3.5m).
Revenue assumed no deals, the lowest base management fee, and didn’t seem to incorporate the hedge fund platform. It is also a change in tune from when the spinoff was announced.
AHT/AINC CEO Monty Bennett’s comments on the call following the spin detailed the economics: “There are $38 million in fees if they were paid today, just basically is with(out) incentive fees. And it’s hard to estimate those are, but that will be on top of. And then our allocation of allocated expenses that we see right now is associated with this platform there is something like $28 million.”
We think Ashford management is trying to make the spinco appear less profitable than it really is by laying in excess expenses in the pro formas and understating the base management fees year 1.
This is a little like asking what someone’s income is, how they answer depends who you are. Are you the IRS, their spouse’s divorce attorney, or the mortgage company when they’re trying to get a loan?
Keeping information about a potentially lucrative hedge fund under wraps.
We believe that the hedge fund has capacity of $1b and commitments at launch of $100m (see dropbox link for fact sheet).
Getting fairness opinions that appear to justify the lowest possibly EV and market cap for personal reasons and for its less sophisticated shareholders to anchor to.
The fairness opinion comes to an equity value of about $60m but only counts $10 of the estimated $34m of cash on the balance sheet as excess.
This begs the question, management owns 17% of AHT and will own 17% of AINC, why would they get fairness opinions justifying the low valuation, intentionally confuse investors, and try to keep institutions out?
The answer is so management can own a lot more of the company post-spin, more than the 17% they own now. How much more is dependent upon the valuation and that number being low. The key is in the deferred compensation plan:
Currently, the CEO Monty Bennett & his father have 1.6m shares/or ~$18.1 dollars worth of AHT stock in a deferred compensation plan.
Since it is deferred comp and “at-risk”, and an obligation of AHT, it is not reported as ownership of AHT.
As part of the spin, AINC will be taking on the deferred comp plan and we anticipate the Bennetts exchanging the $18.1 in AHT for an equivalent amount of AINC.
While outsiders get a small number of shares for each share, management, in their deferred comp plan is getting a 1 to 1 exchange ratio. They’re essentially buying AINC hand over fist.
The exchange amount will be established based on a VWAP and weak trading allows them to get more shares and a greater % ownership of the management company.
At current share prices, the CEO & his father could increase their stake in AINC by about 186k shares (increasing the share-count from 1.99m to nearly 2.18m and pushing insider ownership near 35%).
Valuation, Bear, Base Case, and Bull Upside Case/Optionality
We think AINC is undervalued & "underearning" today, we think this will be realized as time goes on:
Management indicated on the initial call there is PF Revenue of $38m, but based on the Total Market Capitalization of about $5.7b for AHP/AHT that gets us to about $39.9m in PF Rev, plus there is another $100m or so committed to the hedge fund @ 1.5% which AINC will receive $1.05m from for a total of $40.95m.
We think management padded the expenses to justify a low valuation, but splitting the difference from the $28m they were at initially with the $35m they’re at now gets us expenses of about $32m and initial EBIT of about $8.5m.
However, as time goes on, we expect AINC to have AHP and AHT do deals and expand their Total Market Capitalization with both debt and equity. We also expect AINC’s base fee to increase and AIM to expand the asset management platform, increasing revenues and operating income. Here are some other things to consider as it relates to revenues going forward:
We believe fees will increase, almost immediately from the stated management estimates.
In the 1st year post-spin, AINC will get a base fee based on the “Total Market Capitalization” of AHT & AHP. “Total Market Capitalization” is the market cap of the common plus the debt outstanding & preferred equity. Currently, this is about $5.7b between AHP & AHT, the minimum base fee is 0.70%, implying $39.9m in PF revenue. The fee could be more than that as it is actually the greater of 0.70% or a “General & Administrative (G&A) Ratio”. The calculation is based on a simple average of peer’s the “G&A Ratio” expenses plus dead-deal costs minus non-cash charges as a % of their “Total Market Capitalization”. The peers are hand selected by management and blessed by the board. Management notes in an old AHP spinoff presentation that is no longer on its IR site that this number has averaged 85bps over the 9 years preceding AHP’s spin. The 2013 number was consistent with this. While there’s no example of the calculation provided anywhere in any Ashford filing, our conservative estimate of what could go into this number leads to a base fee increase of more than 8.5% to about 76bps, this is based on the current annualized run rate of the peer group. See below:
We are modeling base fees of 70bps in the bear, 76bps in the base case, & 85bps in the bull case.
We also expect AINC to direct AHT/AHP to do deals, right now management could refinance debt and take cash out, lever that and do a deal. They alluded to as much on the last conference call. They also made mention that they haven’t been attempting to close deals while this spin is going on, but they were going to be more aggressive with the deal making post-spin. We suspect sometime shortly after the spin is complete, or perhaps Q1, AHT/AHP will refinance debt and pursue acquisitions, perhaps building up their Select Services hotels which they appear to be readying for a spin at some point. A stand alone with its own cap structure might have the potential for even more deal activity. We don’t know what additional deal capacity that would bring, but our assumption on deal flow is that they do $500m in the bear, $1000m in the base case, $1.25b in the bull case. We think it’s entirely possible (probable, watching these guys) that they were holding deals back until the AINC spin transaction was complete.
We expect the new hedge fund be additive. It is a long/short REIT and has done well, especially compared to the REIT indices on an absolute and risk adjusted basis. We think they can get additional subscriptions with it, investment consultants we spoke with confirm this. This comes with a management fee ranging from 1.5% to 2% and an incentive fee of 15-20%. In our base case we think they can attract $300m, in the bear case we have $100m already committed, and in the bull case we model $500m, though we believe capacity is around $1b. We are not factoring in any incentive fees.
We’ve reviewed a recent fact sheet/pitch book and it looks investable to us. Here’s a link to the overview of the strategy & the track record: https://www.dropbox.com/s/crjjfokh8bjnb24/aim_june2014_presentation.pdf?dl=0 https://www.dropbox.com/s/5fikjai6jei9cxb/AIM%20Long%20Short%20REIT-July%202014.pdf?dl=0
The Ashford Investment Management platform could realistically be expanded to offer a debt fund or any number of offerings, they could also raise a Non-Traded REIT.
In addition to management & incentive fees the company will be getting paid for the capital markets (debt issuance) activity of the REITs and is looking at building out capabilities in real estate brokerage to capture revenue from the actual transactions the REITs complete. We are not factoring this option into our valuation.
We use a 10x multiple in the bear case, a 12x in the base, and 14x in the bull. We also looked at earnings multiples, using 16x in the bear, 18x in the base, and 20x in the base.
It is important to note that we think that AINC can force deals on AHT/AHP for the foreseeable future, possibly several billion dollars worth over the next several years. Ignoring some of the levers we discussed, including launching more funds and earning incentive fees, and just assuming they continue with what they’d already done in our 12-18 month scenario over an additional 24-36 months yields considerable additional upside:
There is a history of self-dealing, specifically insiders bought 40% of AIM for a sum of $1.2m, when we believe they are about to launch a hedge fund strategy that has $100m committed and substantial interest from allocators.
There is a property management company, Remington Hospitality Services, that is owned/operated by the CEO Monty Bennett and his father. We believe is likely this gets folded into AINC at some point, though management has indicated it won’t be happening soon. This makes some sense because AINC and AHT/AHP have mutual exclusivity agreements with Remington and if AINC is going to push deals on AHT/AHP, then Remington directly benefits and selling now would be selling low. It is possible the price at which it is purchased will be too high. The management agreement with the hotels appears to be industry average, so it may not be an egregious price. Paying too much will be mitigated some by the 40% PF insider ownership, but while we anticipate a sweetheart deal, how sweet the deal is would be difficult to handicap.
There’s some other form of self-dealing we haven’t thought of yet.
The L/S REIT hedge fund is a bust, fails to raise AUM.
The hotel REITs become grossly mismanaged and over leveraged, as the incentive is to do almost any deal, despite the incentive fee.
Standard capital markets risks as the growth relies on openness of markets (debt & equity), as well as stable/increasing asset prices for the real estate.
We think ~$115 is a reasonable estimate of what shares are worth as management executes their plan and could be low based on the opportunities the management company has. Management is betting on this and putting their money where their mouth is with the deferred compensation. With the levers they can pull from forcing deals on the REITs, cash out refinancings, and the increases in revenue from the change in base management fee calculations we can see valuation being significantly higher than this in the out years. That would be reflected in the financials and the multiple applied to the results. Buying AINC today gives you a chance to bet with management on that future happening.
Cash out refinancings
Launch of Hedge Fund & other investment platforms (Debt, Non-Traded REIT, etc)
Select Service Hotel Acquisition/Spin
|Subject||Thoughts on quarter?|
|Entry||03/04/2015 03:03 PM|
Wanted to get your thoughts on the quarter. A few take aways on our end that we wondered if you agreed with:
1. Corp G&A - Looks like they are guiding to $6M (annualized figure) on the low end and then some "additional costs" on the high end so say $7M-$8M (these always tend to come in higher)
2. Salaries and benefits - Roughly $7.2M ex the MTM on the deferred comp plan. Do you expect this to be a reasonable quarterly amount that can be annualized (ex-any new costs from new programs)? I know they said they are going to give us some updates on the margins coming up here but wanted your thoughts.
3. Sounds like the hegde fund REIT is around $120M or so now. Any thoughts in terms of whether or not you'd consider that a "good start". They say they can get to $2B...
4. Thought the comments on Remmington were interesting. Particularly enjoyed the conflict of interest comment where they said it was the same as before...was hoping for the follow up "wasn't it always then" but alas did not come to be.
Thanks again for the idea.
|Subject||Re: Thoughts on quarter?|
|Entry||03/05/2015 09:24 AM|
Thanks for the question. The first quarter was muddy, which aside from the revenues was about as good an expectation as one could have. PF revenue looked to be north $11m, as AHT was only a partial quarter (Nov 12), pretty good. The other thing I'd mention, which they didn't dwell, was how incredibly active they'd been in increasing deal capacity and TEV. It's clear they're looking to get more active.
On 1&2, i wouldn't disagree with your points. On pt 3, it's about what I expected, the hf seems to be salable and I know they are out there pounding the pavement on it. As it picks up aum it should snowball a bit as long as performance is good.
re remington, I agree it's funny. It's also what I worry about. Quite frankly, if they're going to acquire it I wish they would do it now. I already know it'll be favorable to Monty, but I'd like it to be before they do all these deals and assign themselves as property manager.
|Subject||Re: Highlands/Pru JV closed|
|Entry||05/17/2015 03:46 PM|
Wanted your thoughts on a couple of things from the Q. We will get more details tomorrow but the 10-Q provided some interesting observations:
1. Looks like Ashford Select has been pushed off/cancelled
2. Looks like the hedge fund assets are $0 or at least they haven't charged them (page 6)
3. Cash salary was a lot lower than I expected ($6.3M) although it may have to do with how they accrue bonuses (backloaded).
4. Adjusted G&A (G&A less the related revenue line items advisory services - other service, asset management consulting and other) is around $1.6M. Is that how you look at G&A also?
5. Using the $10.2M advisory $6.3M in cash salaries and $1.6M in G&A I get annualized EBITDA around $9.3M although the rev is understated due to the increased assets during Q1. Tax affected around $6M of FCF. Is that where you are as well?
|Subject||Re: Re: Re: Highlands/Pru JV closed|
|Entry||05/19/2015 03:19 PM|
So from the call looks like we have:
1. Remington is going to be purchase...dilutive but hopefully not significantly so with the additional fee income
2. Select still coming...maybe
3. I still don't fully understand why AINC has to fund the "key money". Would love anyone's thoughts
4. Sounds like they have $215M now in AIM.
5. Adjusted EBITDA was higher than I expected because I did not add back the loss attributable to the non-controlling...that's an interesting one.
|Subject||Re: Re: Re: Re: Re: Highlands/Pru JV closed|
|Entry||05/19/2015 03:42 PM|
youre right on assets i saw $160M in the press release and just added that number. should be 169.
|Subject||Re: Re: Re: They could've mentioned this on the call...|
|Entry||05/19/2015 05:03 PM|
Agree although all that debt scares me personally. I hadn't thought about the fact that the alt. structure would increase their fees due to the declining REITs...that's pretty ironic.
|Subject||Re: Re: Re: Re: They could've mentioned this on the call...|
|Entry||05/19/2015 05:09 PM|
I agree, but that its non-recourse at the property level makes it a little more palatable.
|Subject||Re: Re: Re: Re: Re: They could've mentioned this on the call...|
|Entry||06/11/2015 07:40 PM|
I am still not sure why the two REITs needed $6M of key money to make these deals happen but i guess $200M is a good thing...although you get 1.4M a year and you gave them $6M.
It is likely I still don't understand this concept.
|Subject||Re: Re: Re: Re: Re: Re: They could've mentioned this on the call...|
|Entry||06/11/2015 08:06 PM|
me neither. there must be something more to it than that, perhaps it is structured as a loan. here's what i could find on the topic: http://www.law360.com/articles/472200/for-hotel-deals-key-money-is-back-in-play
I'll just point out that its likely the recurring revenue is higher than 1.4m, as the G&A calc should be kicking in. Idk if you noticed this or not in the 10k, but they changed the peer group for the G&A calc, it went from 9 to 6 and they swapped a few of the 6 remaining. Its an opaque calc so I can't be quite sure I have the number but I am somewhat certain it is to their benefit.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: They could've mentioned this on the call...|
|Entry||06/11/2015 08:36 PM|
the release said it would be paid back if the props sold within xyz timeframe...I haven't seen what the timeline is though...
I would think either way this is relatively a net positive.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: They could've mentioned this on the call...|
|Entry||06/18/2015 01:13 PM|
Do you have an updated "AUM" number you could share?
|Entry||06/19/2015 10:21 AM|
We were just following up on your comment on the peer group change and wanted to make sure we weren't missing anything. From the original proxy we noted there are different peer groups for AHT vs. AHP. AHT's peers as described in the proxy are:
While AHP's peers are:
The amended and restated advisory agreement filed with the 10-K was for AHP, and the peers look the same as they were before. Is that accurate?
|Subject||Remington is coming|
|Entry||06/25/2015 08:53 PM|
Pretty interesting 13D
Item 3 gets interesting, weird way to announce a transaction is coming. Monty's ownership is going to get pretty crazy with the deferred comp and the 30% owned by AHT...
"Proposal of Sale of Interest in Remington
Remington Holdings, LP (“Remington”), an entity owned 50% by the Reporting Person, has proposed to the Issuer (the “Remington Proposal”) the potential sale of a significant and controlling portion of the outstanding
equity interests of Remington to the Issuer or its affiliates. While there can be no certainty that any transaction will be consummated nor whether the definitive terms of any such transaction will be the same or similar to those in the Remington Proposal, the current Remington Proposal contemplates that a subsidiary of the Issuer would issue securities to the Reporting Person or his affiliates and the other Remington seller, among other consideration, in exchange for the significant and controlling equity interests of Remington, which may under certain circumstances be convertible into shares of Common Stock. If the transaction is consummated according to the current terms of the Remington Proposal, the Reporting Person or his affiliates and the other Remington seller may be granted certain governance rights, which may include, among other things, the ability to nominate a representative for election to the board of directors of the Issuer."
|Subject||Re: Remington is coming|
|Entry||06/25/2015 11:24 PM|
Yeah, saw that too, one of the oddest ways I've seen. Glad it's getting out of the way now.
|Subject||Re: Re: Re: Remington is coming|
|Entry||06/26/2015 09:28 AM|
selling "brand managed" to buy owned and operated where Remington will get the property work.
|Subject||Re: Re: Re: Re: Remington is coming|
|Entry||07/13/2015 07:19 PM|
Any thoughts on why AHT would distribute the remaining shares of AHP? Just trying to think through the logic of this from a control perspective but maybe there is a tax situation that requires it to be done within a certain amount of time.
|Subject||Re: Re: Re: Re: Re: Re: Remington is coming|
|Entry||07/13/2015 09:13 PM|
Gotcha...so the thought would be they are going to control so much of the business anyway post-REmington dropping that many shares out of their control won't be as big of a deal?
|Subject||Re: Re: Re: Re: Re: Re: Re: Remington is coming|
|Entry||07/13/2015 09:59 PM|
That... Or so they push the deal itself through
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Remington is coming|
|Entry||07/29/2015 05:30 PM|
Are you still expecting around $32M in net (reimbursements) operating expense for the year ex the remington deal which is prob whats pushing this thing lower?
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Remington is coming|
|Entry||07/29/2015 08:33 PM|
the tin hat in me thinks they will announce a price based on a vwap after it is announced...why not drive it even lower!!!
|Subject||Re: Re: Deferred comp|
|Entry||07/30/2015 08:54 AM|
Yeah it's locked, I'd need to go back and find the exact number but its around the $80/$90s...I was actually surprised it wasn't like $30 somehow.
I don't know that these guys are super shady operators that will get in the way of raising capital. It's very easy to sit on VIC and cast stones at people and speculate as to their nefarious intentions (to be fair its me that's doing that).
I think they generated some negative goodwill certainly through how they structured the AINC spin and then basically bought every share they could get their hands on up to the low hundreds. And I'm sure there is other self-dealing that we could find without looking too hard.
That being said these guys have raised billions of dollars historically and since they spun AINC with all of its funkiness hundreds of millions more.
|Subject||Re: Re: Re: Re: Deferred comp|
|Entry||07/30/2015 09:35 AM|
I've been wondering why they would have gone with the VWAP and then step in and LOAD up which arguable drove the price higher? Enterprising am I just missing something on that calc?
Cannacord put the Remington value at around $180M which is 6x their estimated sales. Cannacord also produced a P&L that didn't break out the stock comp and/or the change in the deferred comp value so take that with a grain of salt.
Putting the tinfoil back on it wouldn't really surprise me if once they got their ownership up they tried to do something transformative with AHT or AHP. I am not sure that they could really pull it off however as if would have to be equity and the new shareholders would have to agree to an external asset manager which they may not be too keen on.
|Subject||AHP buying AINC shares|
|Entry||08/10/2015 04:20 PM|
I assume this is HG Vora's stake given the size. Interesting to see AHP stepping in and buying them.
Or something else all together?
|Subject||Re: Re: AHP buying AINC shares|
|Entry||08/10/2015 05:10 PM|
Right thank you. Pretty interesting.
|Subject||Re: Re: Re: Re: AHP buying AINC shares|
|Entry||08/10/2015 06:01 PM|
Well they own what 10% of AHP and AHT so that's still $100M in non-AINC...so you'd think they wouldn't do anything too crazy
|Subject||Re: Re: Enterprising|
|Entry||08/11/2015 10:00 AM|
The only largest thing that is known is the select hotels at AHT which have about $400M of debt coming off the AUM by year end. Spoke with the CFO yesterday...they plan to essentially just use the cash from the select to buy other hotels so the $400M or so should come back on within a shortish time frame.
I still lean towards something significant once Remington is in AINC...not sure how they would pay for it given the debt at the REITs but it wouldn't surprise me.
|Subject||Re: Re: Re: Re: Enterprising|
|Entry||08/11/2015 10:56 AM|
they are keeping that tight to the vest but I would think getting rid of Vora takes care of any significant outsider voice with enough weight to derail it.
AHP bought the shares in order to align with the asset manager was what I was told...I kept my mouth shut but let's just say I'm pretty sure on 7/31 they could have found 200k shares or so to tender at $95...lol...what do you even say to that
Remington manages 87 AHT and 2 AHP props. Canacord put revs at around $30M. They aren't going to talk about that but back of the envelope you have $1.2B in sales at AHT (2h15A). At a 4% fee that's $50M and they have 127 hotels. So 69% of that is $35M or so. Could be higher or lower I am not sure but $30-$40M isn't crazy.
The real question comes down to the profitability. Canacord found one comp at 6x sales...if they have a 50% EBITDA margin that would be12x ebitda. No idea if there are corp costs there they could take out like Monty and his father's gigantic salary.
The honest answer here is that all of this is a guess but they are going to get this whole thing done as soon as possible...they obviously want it done.
|Subject||Re: Re: Re: Re: Re: Enterprising|
|Entry||08/14/2015 10:39 AM|
FWIW on timing i doubt they can do the sale until they file their updated Q1 to add in the investment securities and the tax issues. I have no idea what EY was doing on that to miss a consolidation...it's not rocket science with AINC's situation.
Anyways I'm not a lawyer but doing a transaction with financials outstanding is unlikely...should see the Q next week so after shortly thereafter.
|Subject||Re: Re: Re: Re: Re: Re: Re: Enterprising|
|Entry||08/14/2015 06:40 PM|
they just filed their Q...I'm sure we will know shortly.
|Subject||Re: Re: Re: Re: Re: Re: Re: Enterprising|
|Entry||08/28/2015 09:18 AM|
Potential AHP sale...that's a bit unexpected. I am sure there is an angle here.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Enterprising|
|Entry||08/31/2015 02:06 PM|
If you look in the Cannacord report in teh AHP section they calculate the termination fee as around $100M but they don't allocate costs.
Spoke with the CFO...the calculation is AINC EBITDA as is less AINC EBITDA ex-AHP...so theoeretically they could assign some costs and bring that down but the fee would likely be very material to AINC...of course you lose some growth prospects.
Alternatively strategic could mean they move to buy someone and grow.
Either way I would think this news is somewhat perversely positive for AINC despite what looks like on the face to be a negative (losing AUM).
Another option which might explain the lack of a Remington deal is that they sell AHP, collect the cash and do some sort of less dilutive transaction...all speculation but it sort of makes sense.
Would love other thoughts.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Enterprising|
|Entry||08/31/2015 02:50 PM|
Appreciate your thoughts. maybe if they wanted to get the stock price up they wouldn't use AHP to buy-out Vora at a 40% premium..
|Subject||Remington Deal Done|
|Entry||09/18/2015 08:55 AM|
Thoughts on the deal?
|Subject||Re: Re: Remington Deal Done|
|Entry||09/18/2015 09:33 AM|
Bit confused on the preferred...am I reading this as 9.2M shares if it hits 120...the number of preferrred shares they issued
|Subject||Re: Re: Re: Remington Deal Done|
|Entry||09/18/2015 09:59 AM|
nvm from the actual detailed agreement looks like conversion is 120/share so basically $230M/120 or 1.9M shares
|Subject||Re: Re: Remington Deal Done|
|Entry||09/18/2015 10:48 AM|
Have read through everything now. To be honest I think this was a fair deal which is somewhat surprising but maybe not so given that Monty doens't want to completely destroy his reputation:
1. 10 ebitda for this business is a fair price...now I can't wait to see how they get to that ebitda. I thought revenue was more around $40M.
2. The $100 share price was used in order to calculate the number of shares issued...if they had used $65/share there would have been a lot more shares issued (in other words it topped them up from 220M to 320M for the 10x ebitda number
3. The $120 conversion price for the preferred is fine by me...Monty probably has a longer timeline for this than most investors.
4. The non-voting part was nicely done.
5. All the fees are a joke but whatever it is what it is. Pretty sure they can afford to cover their own legal costs.
All in all I am quite and very surpringly pleased. I didn't think they would do this during the AHP strategic initiatives though.
All in now I see an EV of roughly $370M (assuming everything converts) and ebitda (with no preferred payments) if that $32M is real at around $42M (that includes AHP..who knows what really happens there) so 8.7x.
I wouldn't say 8.7x is screamingly cheap given the assets are cyclical but that being said there are so many levers he can pull here now if he wants to including using the balance sheet and what not.
I hope this restores a little reptutation.
|Subject||Re: Re: Re: Re: Remington Deal Done|
|Entry||09/18/2015 11:17 AM|
I asked on the call and he wouldn't give me the TTM number...not available...sure.
But we'll be getting it before the vote so fair enough. I don't thin $77 is the right price here that's for sure.
|Subject||Re: Re: Re: Re: Re: Remington Deal Done|
|Entry||09/18/2015 11:25 AM|
Yeah that was the answer to my question haha. We'll see it all soon I guess and at least there is a vote.
They've put their eggs into the AINC basket full-on so it's hard to imagine they would want to be using completely fraudulent numbers.
I was under the impression this was 50-60% margin business. They essentially get paid a portion of the revs for the hotels with various kickers and the only cost is corporate to run it so maybe Remington is a rock star and operates super efficiently.
Would it surprise you if they tried to pull of a massive acquistion now that did double the company's size and some of that is baked in...wouldn't surprise me a bit.
|Subject||Re: Re: Re: Re: Re: Re: Re: Remington Deal Done|
|Entry||09/18/2015 12:20 PM|
Agree although it's generally a bad idea to make someone look bad in public...I'll give them a call later.
|Subject||EBITDA Bridge for Remington|
|Entry||09/18/2015 05:49 PM|
From my conversations:
1. This is essentially a 50% margin business so need to get to $80M of revenue although the incentive fees can jack up the margin
2. FY14 Remington was around $57M ($39M AHT, $2M AHP, $17M Highlands). Highlands was paying in 2014 for some reason so you have to add that
3. The other $20M or so is (i) some of the growth they've added, (ii) select service is branded, once they sell and reallocate that will be Remington so that is another say $6M or so (maybe more)...3% of revenues plus incentive fees is Remington's cost
4. Nobody told me this but a little bit of logic says they can probably cut some of Remington's costs through "synergies". Might not be gigantic but if they did roughly $57M in revenue in 2014 and it is 50% margin we know there is $28.5M in cost...hell Monty may have been paying himself over there too.
So there it is...there are going to have to execute but what else is new. Yes I am somewhat concerned this is a multiple at the top of the cycle especially given the incentive fees. Maybe Monty can dial up MHGC and see if he can buy the property management business from them.
|Subject||Re: Re: EBITDA Bridge for Remington|
|Entry||09/18/2015 09:49 PM|
No they aren't sharing that. Proxy will have it all.
|Subject||Re: Re: EBITDA Bridge for Remington|
|Entry||09/20/2015 11:59 PM|
A different property manager handles the select service. Once those are sold and reinvested Remington should handle them.
|Subject||Re: Re: Re: EBITDA Bridge for Remington|
|Entry||11/15/2015 12:22 PM|
Anyone check out the proxy? Those projections are pretty intense.
|Subject||Re: Re: Re: Re: EBITDA Bridge for Remington|
|Entry||11/15/2015 01:54 PM|
Yeah, I was pretty surpised by the AINC projections alone.
|Subject||Re: Re: Re: Re: Re: EBITDA Bridge for Remington|
|Entry||11/15/2015 05:57 PM|
Agree how do they get to 18m this year???
|Subject||Re: Re: Re: Re: Re: Re: EBITDA Bridge for Remington|
|Entry||11/18/2015 03:22 PM|
The more I look at this the more I think, unless they are totally full of it, they basically (i) raised AINC guidance for 2015E and came out and said they will be doing material acquisitions. I think this quote from page 70 makes it pretty blatant:
We are including in this proxy statement unaudited projected financial information, which includes unaudited projected financial information that was made available to the Special Committee and BMO Capital Markets, the Special Committee's financial advisor, in connection with the Special Committee's evaluation of the transactions. The unaudited projected financial information of Remington was provided by Remington management based on assumptions that the Company management believed were reasonable and that reflected the Company management's best available estimate of acquisitions by Ashford Trust and Ashford Prime at such time.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: EBITDA Bridge for Remington|
|Entry||11/18/2015 03:51 PM|
thats the biggie we have a call as well to discuss the same bu thank you.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: EBITDA Bridge for Remington|
|Entry||11/18/2015 04:02 PM|
how much are you estimating on the term fees sorry?
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: EBITDA Bridge for Remington|
|Entry||11/18/2015 04:48 PM|
yeah thats the pure calc at 8M ebitda x 12x x 1.1 in the contract but there's no way that's what actually get collected. that would be with zero attribution of costs to AHP.
it would be pretty nuts if that happened though...all of the sudden they have $130M in cash.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: EBITDA Bridge for Remington|
|Entry||11/30/2015 03:10 PM|
Ditto, I'm Thursday now.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: EBITDA Bridge for Remington|
|Entry||12/10/2015 02:55 PM|
Anything interesting from your call?
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: EBITDA Bridge for Remington|
|Entry||12/10/2015 05:49 PM|
they were very confident about the $40M which was nice to hear and didn't depend on crazy assumptions.
the projections in the filing came from the beginning of the Remington transaction so not really where they are going to be. overall projections based on historical growth rates which of course prob decline as they get bigger but who knows. it doesnt really matter anyways as none of that is being priced in.
why do you think they sell AHP? The AHP payment will be north of $150M due to a tax gross-up. that's a big old part of the equity. I don't see why they would want to remove AHP from the game...why not just have them merge with another similar REIT and double their size.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: EBITDA Bridge for Remington|
|Entry||12/10/2015 06:06 PM|
It's what, $1.2b in aum right now? Even if the fee went to 1%, you're talking a huge revenue multiple. If I were them I'd consider it.
|Subject||Strategic Review Outcome|
|Entry||04/11/2016 08:34 PM|
Enterprising and others who follow the story closey, what is your take on the review outcome? Would appreciate if you could share your thoughts. Ares
|Subject||Re: AHP offer|
|Entry||06/08/2016 03:23 PM|
He put in the offer that the company will settle the contract should be no more than $70M.
5. Allocation of not more than $70 million of the cash consideration to the buy-out, termination and full satisfaction of the AHP Advisory Agreement with Ashford LLC;
I get to about 50M after taxes. My guess is Monty negotiates that up under the idea of a contract and fiduciary AINC duties.
|Subject||Re: Re: Re: AHP offer|
|Entry||06/08/2016 03:43 PM|
FWIW I calculated the number using their formula and assuming no direct costs...ie all the costs remain.
That comes out to somewhere around $11M + the tax step up so around $160M which is about what Monty and team has said. There is a lot of room in this deal to negotiate given the price that has been offered.
|Subject||Re: Re: Re: Re: AHP offer|
|Entry||06/08/2016 03:59 PM|
sorry I left out a $0 so $110M not $11M of course
|Entry||10/06/2016 06:27 PM|
nice to see someone at least making waves. Any thoughts on what they'd want. I'm guessing a massive buyback instead of using any deal cash some other way. Also don't see why Monty can't get Weisman to contribute the ainc shares they own along with buying ahts. That would take care of the Remington issue as well.
|Subject||Re: Re: Raging capital|
|Entry||10/07/2016 09:11 AM|
Maybe he's more sensitive to criticism these days...I guess it can't hurt.
|Subject||Re: Re: Re: Raging capital|
|Entry||10/07/2016 02:01 PM|
Well Im wrong again, moving inc to Maryland from Delaware.
A few choice positives for mgmt vs shareholders:
Delaware. The Delaware Code provides that an amendment to a certificate of incorporation may be adopted by a resolution of the board of directors and approved by the stockholders by a majority of the votes of each class entitled to vote, unless a greater vote is required by a corporation's certificate of incorporation. The Delaware Charter does not require a greater vote.
Maryland. Under the Maryland Code, a Maryland corporation generally cannot amend its charter unless the action is first declared advisable by its board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter, unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is specified in the corporation's charter. The Maryland Charter provides that the stockholder vote to amend the Maryland Charter shall be a majority of all of the votes entitled to be cast.
A Maryland corporation may also provide in its charter that the board of directors, with the approval of a majority of the entire board, and without action by the stockholders, may approve amendments to the charter to increase or decrease the aggregate number of shares of stock that the corporation is authorized to issue or the number of shares of stock of any class or series that the
corporation is authorized to issue. The Maryland Charter does not provide the board of directors with such power.
Restrictions on Voting Rights
Delaware. The Delaware Code does not contain a control share or similar statute.
Maryland. The Maryland Code contains a control share acquisition statute which, in general terms, provides that when a stockholder acquires issued and outstanding shares of a corporation's voting stock (referred to as control shares) within one of several specified ranges (one-tenth or more but less than one-third, one-third or more but less than a majority, or a majority or more), approval by stockholders of the voting rights with respect to shares acquired in a control share acquisition must be
obtained before the acquiring stockholder may vote those shares. The required stockholder vote is two-thirds of all votes entitled to be cast, excluding "interested shares," defined as shares held by the acquiring person, officers of the corporation and employees of the corporation who are also directors of the corporation. Generally, if voting rights are not approved, the corporation may redeem the shares acquired in the control share acquisition. A corporation may, however, opt out of the control share statute through a charter or bylaws provision. The Maryland Bylaws provide that the Maryland control share acquisition statute shall not apply to any Control Share Acquisitions (as defined in Title 3, Subtitle 7 of the Maryland Code) by (i) Archie Bennett, (ii) Monty Bennett, (iii) any present or future affiliate or associate of Archie Bennett or Monty Bennett, (iv) Ashford Trust, (v) Ashford Prime, or (vi) any other entity that is advised by Ashford Maryland or its controlled affiliates through an advisory agreement.
|Subject||Re: AHP Settled, propsosed AHT merger with Felcor|
|Entry||02/24/2017 01:15 PM|
Ironically, the maximum valuation today would be no remington and felcor goes. the felcor deal adds around $12M+ of ebITDA which almost doubles the ebitda line...and they gave nothing but the warrants. The shares are AHT's.
So today we are at what 6.8x, with Felcor it would be 3.8x...of course there are potential downsides with the reinvestment of the cash, etc., etc. as this board surely knows.
Finally, the team did note that if they bought project management the brand managed contracts do sometimes allow for an outside project manager. The day to day management is handled by the brands but the project management (CAPEX spend, renovations,etc.) can be Remington if they bought Felcor.
|Subject||Re: Re: AHP Settled, propsosed AHT merger with Felcor|
|Entry||02/24/2017 02:29 PM|
Do you think it is possible they re-cut the Reminington deal - I have not followed too closely, and appreciate both you and EnterprisingInvestor's thoughts - but on 3Q earnings, seemed like it was being floated...
|Subject||Re: Re: Re: AHP Settled, propsosed AHT merger with Felcor|
|Entry||02/24/2017 02:34 PM|
They didn't talk about recutting the whole deal but they did tlak about just buying the project management portion on the business which does not need a PLR.
That deal would be new and who knows what it would cost them and how they would restructure it.
I think the most likely option is that they finish the remington deal.
The FCH effectively unloads 20% of the 30% that AHT owns to a bunch of disparate shareholders thereby reducing the need to distribute AINC to AHT shareholders and/or find a buyer and put a huge stake in their hands. If Remington goes through it really doesn't matter who owns the rest because Monty will control AINC completely though.
|Subject||Re: Re: Re: Re: AHP Settled, propsosed AHT merger with Felcor|
|Entry||02/24/2017 02:50 PM|
Thanks, very helpful
|Subject||Re: Re: Re: Re: Re: AHP Settled, propsosed AHT merger with Felcor|
|Entry||02/24/2017 05:07 PM|
Enterprising and shoobity, thanks for keeping this idea active and providing the updates. The discussion has been really helpful. I just started looking at this situation a couple days ago so please bear with me as I am getting up to speed.
Shoobity, I get $17-19m in new base fee revenue should the FCH transaction go through. When I asked management they suggested there would be additional costs “such as accountants” but the incremental EBITDA seems significant. Is there any hard reasoning / data behind your $12m number or is it more a conservative finger in the air estimate? (My guess was also $12m but have nothing to back it up).
Have you accounted for potential AHT/AINC contract amendments should the FCH merger occur? I still need to look into the recent AHP/AINC contract amendment but do you have a sense of how detrimental it is to AINC?
Generally speaking, what are your thoughts on management’s capital allocation skills? On today’s call they discussed using AINC’s balance sheet to make acquisitions. I find this concerning / risky. Do you have any sense of what they would be looking to acquire?
Finally, the link to your original write-up is dead. Would you be willing to re-upload the document just to give me a sense of the history. Thanks!
|Subject||Re: Re: Re: Re: Re: Re: AHP Settled, propsosed AHT merger with Felcor|
|Entry||02/24/2017 11:08 PM|
60 to 70 percent flow through on 18m is what mgmt has been guiding to on new advisory revenue forever. So there's your 12m.
There are no amendments coming to the contract around revenue without something really significant happening. It would be on the takeout number just like ahp. They already have downward escalators in place so above Certain ev it goes to 60bp then 50bp. It's all disclosed. The new ahp termination calc is complicated as all get out on purpose but doesn't change base revenues.
Capital allocation...well I don't know to be honest. Monty has a bad rep on related party issues but he isn't a bad operator and ainc is his kitty so I doubt we see something crazy unless the project management buyout is extreme.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: AHP Settled, propsosed AHT merger with Felcor|
|Entry||02/27/2017 10:00 PM|
I didn't understand that either to be honest but they have never lied to me. I may not have liked the answers they gave me especially around returning capital but they've been honest with me.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: AHP Settled, propsosed AHT merger with Felcor|
|Entry||03/28/2017 04:49 PM|
Remington deal called off. In my simple models this is actually a net positive because of the multiple paid and the lack of significant leverage (and non-deductible leverage at that) it would have created.
We'll see if the market agrees with me.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: AHP Settled, propsosed AHT merger with Felcor|
|Entry||03/28/2017 07:48 PM|
I have. the big thing I discussed with them are the margins. They say it's the same margin (roughly 50%).
The big thing here is that they can take over the project management (basically the constant renovations) for all the hotels even if marriot or Hilton handles the day to day 3% of revenues + the bonuses. That is a really big deal if they buy Felcor and/or just grow. they have very clearly made the point the management agreements for felcor are locked in so they couldn't get those (or I should say based on their preliminary diligence) but they would get the project management so that would be a big number.
Hopefully they would pay a similar if lower multiple, we wouldn't have the leverage and we benefit from acquisitions.