Prior to challenging AHT’s exchange offers of preferred stock for common stock in the fall, we thoroughly examined years of financial statements, regulatory filings, insider ownership information and public announcements and plans. We conducted a similar analysis and review prior to deciding to assemble a slate of director candidates in recent weeks. This process led us to conclude that the first step toward turning around AHT is overhauling the Board.

A brief summary of the issues that compelled us to seek boardroom change at this year’s Annual Meeting includes:

  • Abysmal Financial Performance: AHT has produced negative total stockholder returns over every relevant horizon, including one-year (-90.72%), three-year (-95.40%) and five-year (-94.29%) timeframes1 . This performance dramatically lags a variety of industry benchmarks and market indices.
  • Dismal Governance: AHT’s Board includes an array of interlocks that stem from the business and familial networks of Chairman Monty Bennett, who is also the Chief Executive Officer and Chairman of Ashford Inc. (“AINC”), which is the Company’s paid external advisor. In addition to keeping his father in place as Chairman Emeritus, Mr. Bennett has installed his long-time employee Rob Hays as AHT’s Chief Executive Officer and a Director. The Board also includes Alan Tallis, who began working at AHT in 2008, and Lead Director Benjamin Ansell, who has served on the Board for more than a decade. We believe the Board has been constructed to allow Mr. Bennett and his allies to prioritize their interests above all else.
  • Highly-Concerning External Advisory Structure: AHT is managed by AINC, another public company that is controlled by Mr. Bennett, his father and other insiders. Despite the harrowing impact of the COVID-19 pandemic, AHT paid approximately $10 million per quarter in fees to AINC during 2020. These payments have persisted despite the fact that AHT and AINC have virtually the same management teams and the fact that these fees are largely paid on the size of AHT debt, not the performance of the operating business or the common stock. It appears to us that the only beneficiaries of this structure are Mr. Bennett and his allies, who received millions of dollars in divided payments from AINC last year. AINC seems solely fixated on preserving AHT’s ability to pay external advisory fees at any cost. A proper fiduciary advisor would focus on preserving value for AHT’s stockholders.
  • Troubling Regulatory Matters: According to public reports and filings, AHT, AINC, Mr. Bennett and other affiliated entities are under federal investigation for certain related-party transactions. AHT has disclosed that the Securities and Exchange Commission issued administrative subpoenas for documents and information pertaining to the deals in question to AHT, AINC and certain affiliates and, most recently, has sought testimony and documentation from Mr. Bennett. If true, we find it very troubling that the Board could have permitted insider dealings that ran afoul of the law. Disclosure pertaining to these issues came just months after AHT and other Bennett-controlled entities were scrutinized by federal officials over participation in the Paycheck Protection Program. In our view, the incumbent directors appear to be blinded and ineffective when it comes to serving as a check on Mr. Bennett and his allies.
  • Unnecessary Dilutive Actions: Throughout 2020, AHT’s leadership fought common stockholders in order to initiate highly-dilutive offers of preferred stock for common stock. The Board claimed during the third quarter of last year that dividend payments to preferred stockholders would be untenable based on the Company’s capital position. However, AHT possessed hundreds of millions of dollars in liquidity at that time, including more than $150 million in cash as of the end of Q2 2020. AHT also had the flexibility to amend its external advisory agreement with AINC (which is controlled by Mr. Bennett) to reduce or suspend apparently wasteful payments. Cygnus also pointed out during the fall of 2020 that AHT should have explored strategic alternatives and taken steps to reduce expenses well before executing these rushed exchange offers. Instead, all through the fall, management issued stock via at-the-market transactions, diverted critical resources toward a preferred stock tender scheme and focused on justifying fees to AINC. These actions did nothing to improve the financial viability of the Company – to the contrary, they led to more than 75% dilution of common stockholders since June 30, 2020.
  • Questionable Financing Decisions: We believe the Board has demonstrated a startling level of incompetence when it comes to managing AHT’s debt and liquidity. Prior to the pandemic, AHT’s leverage was already far too high and placed the Company in a precarious position. This is why it was all the more concerning when AHT’s prior credit facility was allowed to expire in 2019. Another highly objectionable decision was the Company’s recent stock purchase agreement with Lincoln Park Capital, which essentially served as an at-the-market offering just weeks after common stockholders had conveyed their opposition to continued dilution. It appears AHT lacks any semblance of a credible financial plan.

While this is just a sample of the issues plaguing AHT, we want to offer stockholders a snapshot of our case for change at the outset of our campaign for boardroom change. We plan to provide more detail pertaining to our slate’s assessment of the Company’s governance, financial and strategic lapses in the weeks and months ahead.

[1] TSR figures account for dividends reinvested and run through the close of trading on December 31, 2020.

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