Four shareholder proposals filed by UNITE HERE highlight the need to improve hotel industry corporate governance practices. The proposals seek to address the high degree of self-dealing in hotel corporations by seeking to remove anti-takeover devices like poison pills and supermajority voting requirements, to require independent board chairs, and to opt out of certain Maryland REIT provisions that act as anti-takeover measures.
“Hotel companies protected themselves and their executives to survive the economic downturn, but at a cost,” explained Courtney Alexander, Deputy Research Director for UNITE HERE.
Increased oversight at companies engaged in substantial self-dealing
Two of UNITE HERE’s proposals aim to increase accountability at REITs depending significantly on related party transactions and will be voted on next week. Maryland statutes provide boards of REITs with a substantial degree of shelter from shareholders.
At Hospitality Properties Trust [NYSE: HPT], shareholders will vote on a proposal to remove supermajority voting requirements. A similar proposal received the support of a strong majority of shareholders in 2010. In 2012, HPT paid $36 million to REIT Management and Research, which is privately owned by two HPT Trustees, to run the company’s business, as well as paying $5.7 million in hotel management fees to Sonesta, also owned by the same two HPT Trustees. ISS recommends shareholders vote for two shareholder proposals to improve corporate governance and against the re-election of Mr. Lamkin as Trustee.
In a binding resolution, UNITE HERE proposes Ashford Hospitality [NYSE: AHT] require its Board be chaired by a director independent of management, to ensure that self-dealing transactions are truly in the best interest of the REIT’s shareholders. Ashford paid Remington Lodging, which is privately owned by the REIT’s Chairman and Chairman Emeritus, $21.5 million in management fees in 2012 to operate 47% of its hotels. The percentage of its hotels operated by Remington increased during the Great Recession.
Redeeming poison pills not approved by shareholders
Few hotel companies still maintain poison pills. In recent years, Morgans Hotel Group [Nasdaq: MHGC] and Strategic Hotels [NYSE: BEE] adopted (and extended) poison pills without shareholder approval, and shareholders of both companies are currently advocating for a review of strategic alternatives to stimulate returns. In both cases, we propose the company redeem its poison pill, and adopt no future pill without prior shareholder approval.
The Morgans proposal will be binding if it obtains the requisite votes. The landscape of strategic alternatives available to both these companies may improve, we believe, if their boards can execute a search for alternatives without being bound by a poison pill.
“The hotel industry’s resurgence should be accompanied by greater accountability to stockholders and other stakeholders, where there is a lot of room for improvement,” said Ms. Alexander.
UNITE HERE is a union representing over 275,000 employees in the hotel, food service and gaming industries. Its members are beneficiaries of pension funds with over $60 billion in assets.