What is a non-activist hedge fund, Sessa Capital (run by John E. Petry) doing waging an activist campaign against Ashford Hospitality Prime (NYSE:AHP), a hotel REIT?
It’s a weird move by Sessa Capital. Its founder, John Petry, has no experience in hotels, and appears to have missed embezzlement going on right under his nose during his tenure at a previous company.
John Petry and Sessa Capital are engaging in a misguided war against one of the most experienced hotel management teams in the country, Ashford Hospitality Prime. Sessa Capital investors have to ask themselves why John Petry is pursuing a misguided proxy fight instead of more judiciously shepherding their capital.
Ashford Prime, or AHP stock, is a hotel REIT. On August 28, 2015, it announced it was putting its hotel portfolio up for sale. According to 13F filings, Sessa Capital owned 57,560 shares of AHP stock as of 3/31/15, all of which appears to have been bought in Q1. Sessa Capital increased its stake to 1,008,765 shares as of 6/30/15.
Sessa Capital was up to 2,060,207 shares by 9/30/15, and reported 2,330,726 shares as of 12/31/15.
But here’s the curious thing about Sessa Capital. On December 12, 2015, Sessa Capital published a letter to AHP stockholders, saying they were “disappointed, however, to read in your third quarter press release that the Independent Directors are only “in the beginning stage” of the strategic review. This disclosure, coming more than two months after your initiation of the process is unacceptable, and we fear indicates a lack of urgency.”
So after a mere three-and-a-half months after announcing AHP was up for sale, John Petry wants to put his foot on the gas for a sale? This strikes BloggerNews as very strange. Company sales can take months, if not years. The recent sale of Strategic Hotels & Resorts took five years. Starwood Hotels has been unofficially on the block for even longer. Yet 3 months into the process and John Petry wants to sling the portfolio at anyone who will pay?
Given that Sessa is not an activist fund, given that John Petry has no experience in hotels, given the rapidity of this demand, and given that Sessa Capital doubled its position in the quarter following the sale announcement, it is patently obvious that Sessa merely wanted a quick flip.
A quick flip is not in shareholder’s best interest. Quick flips likely mean not fully exploring all options. Quick flips means that Ashford Prime’s implied sale price of $27.60 when the stock was about $14.50 would not be likely to be achieved.
Then, less than a month later, John Petry launched a proxy fight to take control of AHP stock.
What’s the rush? Why not let the process play itself out?
The rush is that Sessa gobbled up a ton of AHP stock, hoping for a quick flip, and it isn’t going to happen. In the interim, AHP stock — along with all the other hotel REITs and broader market — experienced a correction, taking AHP stock below $11. Sessa’s investors cannot be happy that John Petry dropped all that money into AHP stock, is sitting on a loss, and they are likely pressuring Sessa to exit that position — which in turn means Sessa must pressure AHP, no matter how foolish that move is.
And that’s because Sessa investors may redeem their money only twice a year — on June 30 and December 31. Redemption intentions must be submitted by April 15. So John Petry is falling all over himself to get this wrapped up before investors pull their money out, and force him to either liquidate his AHP stock, or other positions.
Sessa Capital investors may want to take a second look at the actions of their fiduciary.
John Petry was Chief Operating Office and Senior Investment Principal at Columbus Hill Capital Management from November 2010 to February 2012. During his tenure, from February 2008 to March 2011, the Chief Financial Officer, David Newmark, embezzled more than $10 million of funds from the company.
Why would Sessa Capital investors want their money with a guy who didn’t detect embezzlement going on right under his nose?
This, and many other issues surrounding this proxy fight, will be examined in the weeks to come.