Braemar's Largest Shareholder Calls $480M Breakup Fee 'Theft Dressed In A Suit'

Braemar Hotels & Resorts’ largest shareholder is preparing for battle to stop the REIT from paying nearly half a billion dollars to its outgoing chairman in a deal it called “one of the most brazen acts of self-dealing we have ever witnessed.”

Saudi-Canadian businessman Wafic Rida Said's Al Shams Investments Ltd., Breamar’s largest investor, in a letter Monday said the REIT's board wasn't acting in the best interest of shareholders when it outlined a plan to sell off luxury hotels to pay a termination fee to its management company, Ashford Inc.

The deal, announced on Friday, would cost Dallas-based Braemar $480M to walk away from Ashford, which is led by Monty Bennett, who had formerly been Braemar’s CEO and is still chairman of its board of directors. 

“We believe Mr. Bennett engineered this outcome himself, approving the very transactions that lined his own pockets,” says the letter, dated Monday. “That is not governance; that is theft dressed in a suit.”

Braemar’s board said the deal would simplify its corporate structure and allow it to recruit new board members and hold on to control of majority stakes in its eight luxury hotels in the U.S. and the Caribbean.  

As part of the agreement, Braemar said it would sell some assets to pay the termination fee to Ashford. The REIT disclosed in a corporate filing a week earlier that it was under contract to sell three hotels, including the Ritz-Carlton in Sarasota, Florida, for $437.5M.

In Monday’s letter, Al Shams said it would “pursue every available legal remedy against [board members] personally, against Mr. Bennett, and against all parties complicit in these transactions.” 

The letter came with the subject line “Re: A Betrayal of Shareholders for Which We Will Hold You Accountable” and was a follow-up to another scathing letter from June 10 titled “Re: Your Apparent Efforts to Evade Accountability,” which lambasted the board for changes to governance that Al Shams said were meant to dilute shareholder control of the REIT.  

A Braemar spokesperson said Al Shams has repeatedly asked it to “take the extraordinary step of breaching the Ashford Advisory Agreement” and said the REIT implemented nearly all of the investment firm’s other suggestions. 

“Al Shams’ sanctimonious attacks are nothing more than an attempt to mislead shareholders and hide its true intentions,” the spokesperson said.

Five members of Braemar’s board, including Bennett, are set to resign as part of the deal, with CEO Richard Stockton remaining on the board. Al Shams called Stockton “Bennett’s longstanding and loyal lieutenant” in its most recent letter and said it expected the new board to be “handpicked by the very people who authorized this scandal. We reject this charade entirely.”   

Shares in Braemar were down more than 2 percentage points near the end of the trading day Monday and have slid more than 16% in the last five trading days. Al Shams owns roughly 9.5% of the stock, according to Bloomberg. 

Braemar said the new board would be selected with the help of an independent search firm and without the involvement of Bennett.

“With this in mind, shareholders should question why Mr. Said has cried foul about disclosures required of his potential director candidates,” the spokesperson said. “For example, a hospitality asset investor like Mr. Said could very well be planning to take over Braemar and get its assets on the cheap.”

Braemar was one in a growing number of REITs to kick off a strategic review of alternatives in recent quarters as private capital circles the sector. 

Denver-based Apartment Investment and Management Co., better known as Aimco, is among the largest REITs in the last year to explore its options. Aimco opted to sell its assets to maximize shareholder value, but deals to take firms private have been more common. In April, Ares Management Corp. agreed to pay a 12.2% premium on Whitestone REIT’s share price to buy its 5M SF portfolio of open-air retail space. 

UPDATE JUNE 15, 3:35 P.M. ET: This story has been updated to include a statement from Braemar Hotels & Resorts.