8-K: Ashford Hospitality Trust Announces New Series L and M Preferred Stock Offerings

Ashford Hospitality Trust is launching public offerings for Series L and M Redeemable Preferred Stock, modifying its partnership agreement and charter to accommodate the new issuances.

Summary

• Ashford Hospitality Trust, Inc. announced the execution of Amendment No. 13 to its partnership agreement to facilitate the issuance of Series L and Series M Redeemable Preferred Units.
• The company has designated and authorized the issuance of 11,200,000 Series L units and 4,800,000 Series M units.
• Ashford also filed articles supplementary to its charter, reclassifying 5,000,000 unissued common shares as undesignated preferred shares.
• This brings the total authorized capital stock to 450,000,000 shares, consisting of 395,000,000 common shares and 55,000,000 preferred shares, with 20,481,195 remaining as unclassified preferred shares.
• The company is classifying and designating 16,000,000 shares of unissued preferred stock as 11,200,000 shares of Series L Preferred Stock and 4,800,000 shares of Series M Preferred Stock.
• The Series L Preferred Stock will have a dividend rate of 7.5% of the $25.00 Stated Value, equating to $1.875 per share annually.
• The Series M Preferred Stock will have an initial dividend rate of 7.7% of the $25.00 Stated Value, equating to $1.925 per share annually, increasing by 0.10% annually to a maximum of 8.2%.
• Holders of the Preferred Stock are entitled to receive the Stated Value plus accrued dividends before any distribution to common stockholders upon liquidation.
• The company expects to declare dividends on a monthly basis, payable on the 15th of each month.
• The company is offering up to 12,000,000 shares of Preferred Stock in a primary offering, consisting of 8,400,000 shares of Series L and 3,600,000 shares of Series M.
• An additional 4,000,000 shares are being offered through a dividend reinvestment plan (DRP) at $25.00 per share, consisting of 2,800,000 shares of Series L and 1,200,000 shares of Series M.
• Ashford Securities LLC will act as the exclusive dealer manager for the primary offering.

Sentiment

Score: 6

Explanation: The announcement is neutral to slightly positive. It outlines a capital raising activity through preferred stock offerings, which can be seen as a positive for growth but also introduces potential dilution risks.

Positives

• The new preferred stock offerings provide investors with fixed-income investment opportunities.
• The dividend reinvestment plan allows existing investors to increase their holdings.
• The Series M Preferred Stock offers a potentially increasing dividend rate.

Negatives

• The company has the right to redeem the preferred stock after two years, which could limit potential gains for investors.
• The company can pay the redemption price in cash or common stock, which could dilute existing shareholders if common stock is used.
• The dividend rate for Series M Preferred Stock is capped at 8.2%.

Risks

• The timing and amount of dividends are at the discretion of the Board and may vary.
• The company's right to pay the redemption price in common stock could be revoked, requiring cash payment.
• A change of control could trigger redemption of the preferred stock.

Future Outlook

The company expects to authorize and declare dividends on the shares of Preferred Stock on a monthly basis, payable on the 15th day of each month, subject to Board approval.

Industry Context

Real estate investment trusts (REITs) often use preferred stock offerings to raise capital for acquisitions, development projects, or to refinance existing debt. The terms of these offerings, such as dividend rates and redemption features, are crucial for attracting investors in a competitive market.

Comparison to Industry Standards

• Comparable REITs, such as Host Hotels & Resorts (HST) and Park Hotels & Resorts (PK), also utilize preferred stock as part of their capital structure.
• Dividend rates on preferred stock vary based on the company's credit rating, market conditions, and the specific terms of the offering.
• Redemption features, such as the company's right to redeem after a certain period, are common in preferred stock offerings to provide flexibility in managing capital.

Related Party Transactions

• Ashford Securities LLC, an affiliate of Ashford Hospitality Advisors LLC, will serve as the exclusive dealer manager for the primary offering.

Stakeholder Impact

• Shareholders may experience potential dilution if the company chooses to pay the redemption price in common stock.
• Preferred stockholders will receive fixed dividend payments.
• The capital raise could enable the company to pursue growth opportunities, potentially benefiting all stakeholders.

Next Steps

• The company expects to enter into a Dealer Manager Agreement with Ashford Securities LLC.
• The company will proceed with the offering and sale of the Preferred Stock pending the effectiveness of the Registration Statement by the SEC.

Key Dates