AINC - Ashford Inc

[kab60]

I have a position in this Company and broke my rule of not investing with scumbags because I was simply attracted to the valuation and situation. Greenhaven Road describes it pretty well in some of his letters (luckily I was in much cheaper than he was), but it's a bit like the Portnoy Family/RMR Group.

 

Shady management spins off the golden goose (asset management business) that has long term and favorable contracts with listed REITS (Ashford Trust and Braemer).

 

While Ashford Trust and Braemer would be better off buying back shares, incentives are stacked so that it's growth for whatever it takes. That's obviously bad for the listed REITS but golden for the capital light asset management business (Ashford Inc) where management seems to have concentrated most of its wealth.

 

Add in a shady transaction (Ashford Inc buying private project management biz owned by CEO and his father) and it screams stay the hell away.

 

So many things are wrong with this situation, but the bet is basically that they'll be more incentivized to bolster the share price of Ashford Inc than continuing to siphon off wealth from shareholders since they're now the biggest.

 

They seem like pretty savy operators and have recently launched a version of "key money" that looks pretty clever, but they did a surprising capital raise and market definitely doesn't like it.

 

Obviously not without merit, but fundamentally it's a very attractive business model even though I don't like companies that screw their partners (listed REITS) or shareholders.

 

I think the problem now is that the equity of the listed REITS is valued so low that issuing shares to buy more properties is pretty much impossible and thus hinders growth. Not that I think one needs much of that here.

 

I might have gotten myself into too deep water, but I'm sure some of you guys have taken a look as well. So what'd you see? :D

[mateo999]

I own it too, and am down about 22% on my basis.  But with that said, the volumes are so thin that a small amount of institutional capital can drive this either way.  Thankfully I never made it a large position given the scum factor, and shouldn't have gotten involved after seeing Raging move on.

 

Interestingly, I was able to join Monty at a roundtable lunch at the October Investor Day, where he seemed dismayed that they were forced to raise equity at $74.50 (which had been a considerable discount to trading-- mid 80s, low 90s-- in days leading up to the offering).  I just don't trust this management team.  When you speak with them (I attended the 2017 Investor Day as well), nobody admits there's anything wrong (either in reality or perception).  It's all sunshine and roses.  Also, clearly the market doesn't care about the key money Enhanced Return Funding Program^TM concept.

[kab60]

I own it too, and am down about 22% on my basis.  But with that said, the volumes are so thin that a small amount of institutional capital can drive this either way.  Thankfully I never made it a large position given the scum factor, and shouldn't have gotten involved after seeing Raging move on.

 

Interestingly, I was able to join Monty at a roundtable lunch at the October Investor Day, where he seemed dismayed that they were forced to raise equity at $74.50 (which had been a considerable discount to trading-- mid 80s, low 90s-- in days leading up to the offering).  I just don't trust this management team.  When you speak with them (I attended the 2017 Investor Day as well), nobody admits there's anything wrong (either in reality or perception).  It's all sunshine and roses.  Also, clearly the market doesn't care about the key money Enhanced Return Funding Program^TM concept.

Did they say why they did the equity raise? I suppose it was to fund the ERFP-program, but their communication was awful.

 

Anyway, looking past the scum factor - what do you think about the current situation? Their returns on the ERFP-program looks pretty good and going through the last presentation (on Braemers ERFP) one gets a feel for how much they're able to milk the REITS through their various services like newly acquired project management.

 

I'm down 22 pct. as well and am just gonna let it runs it course. I'm not comfortable increasing to a larger allocation since it's a more tricky situation than what I usually invest in, and then there's this nagging feeling that one might get stabbed in the back. :)

[mateo999]

More or less to fund erfp, but they (allegedly) thought they’d be able to issue equity at 80 or so.  Instead they first announced the raise and then let it sit out there for a few days.  What did they think would happen to the share price?

 

I just think they’re at a weird spot.  Given how shitty their captive clients trade, they don’t have a public currency to buy stuff.  So instead it’s more esoteric instruments and ERFP to fund growth.

 

I wonder where future erfp money is going to come from.

 

Why not sell the reits to a larger public reit?  And then have ainc take equity of acquirorCo in lieu of a cash termination fee.  Remington potentially poses a problem?

 

 

[mateo999]

+30% in a few days.  Kab... keep posting... i think you’re good luck.