As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/07/14  Ashford Inc                       10-12B                 2:1.9M                                   Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-12B      Registration of Securities (General Form)           HTML     54K 
 2: EX-99.1     Miscellaneous Exhibit                               HTML   1.18M 

Exhibit 99.1

 

The information in this information statement is subject to completion or amendment.  A registration statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

 

PRELIMINARY AND SUBJECT TO COMPLETION, DATED APRIL 7, 2014

 

INFORMATION STATEMENT

 

Ashford Inc.

 

Common Stock

 

 

This information statement is being furnished to you in connection with a taxable pro rata special distribution by Ashford Hospitality Trust, Inc. (“Ashford Trust”) to its stockholders of shares of common stock in Ashford Inc. (“Ashford Inc.,” “we,” “us” or “our”), a subsidiary of Ashford Trust.  Ashford Trust will distribute shares representing at least        % of the equity interest in Ashford Inc., but the distribution ratio may be increased up to the business day preceding the distribution date such that Ashford Trust may distribute as much as 100% of its equity interest in Ashford Inc. to its stockholders.  Ashford Inc. will serve as the external advisor to Ashford Hospitality Prime, Inc. (“Ashford Prime”) and Ashford Trust.

 

The special distribution will be payable on a pro rata basis  to Ashford Trust stockholders of record on                        , 2014, the record date, and as a result of the distribution, Ashford Inc. will become a separate, publicly traded company.  You will receive at least            of a share of common stock of Ashford Inc. for every share of Ashford Trust common stock that you own on the record date, based upon a distribution of approximately        % of the equity interest in Ashford Inc.  Up to, and including, the business day preceding the distribution date, this ratio may be adjusted by the board of directors of Ashford Trust, such that you will receive a greater percentage of a share of Ashford Inc. for each share of Ashford Trust common stock that you own as of the record date.  A distribution of 100% of Ashford Trust’s equity interest in us would result in the distribution of approximately         of a share of Ashford Inc. for every share of Ashford Trust common stock that you own on the record date.  In lieu of any fractional shares of common stock of Ashford Inc., which you would have received after application of the distribution ratio, you will receive cash.

 

As discussed under “Our Separation from Ashford Trust—Market for Common Stock—Trading Between the Record Date and Distribution Date,” if you sell your shares of common stock of Ashford Trust in the “regular-way” market after the record date and before the separation, you also will be selling your right to receive the special distribution.  We expect the special distribution to be distributed by Ashford Trust to you on                 , 2014.  We refer to the date of the distribution of common stock of Ashford Inc. as the “distribution date.”

 

No vote of Ashford Trust’s stockholders is required in connection with this special distribution.  Therefore, you are not being asked for a proxy, and you are requested not to send us a proxy, in connection with the separation.  You do not need to pay any consideration, exchange or surrender your existing shares of common stock of Ashford Trust or take any other action to receive your common stock of Ashford Inc.

 

There is no current trading market for our common stock, although we expect that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution, reflecting the minimum distribution noted above, and we expect “regular-way” trading of our common stock to begin on the first trading day following the completion of the separation.  We intend to apply to have our common stock authorized for listing on the                         under the symbol “AINC.”

 

Our certificate of incorporation will contain certain restrictions relating to the ownership and transfer of our stock, including an ownership limit of 9.9% of our outstanding common stock. See “Description of Our Capital Stock—Anti-Takeover Effects of Delaware Law, Our Certificate of Incorporation and Our Bylaws—Restrictions on Ownership and Transfer” for a detailed description of the ownership and transfer restrictions applicable to our common stock.

 

We are an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012.

 

___________________________

 

In reviewing this information statement, you should carefully consider the matters described in the “Risk Factors” section beginning on page 20.

 

___________________________

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

 

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

 

This information statement was first mailed to Ashford Trust stockholders on or about                      , 2014.

 

The date of this information statement is                   , 2014.

 

 

any fractional shares of common stock of Ashford Inc., which you would have received after application of the distribution ratio, you will receive cash.

 

Reasons for the Separation

 

The board of directors of Ashford Trust, after careful review and consideration, determined that the separation of Ashford Inc. is in the best interests of Ashford Trust and its stockholders. The board’s determination was based on a number of factors, including the factors set forth below.

 

·                  Enhanced growth opportunities.  Our business represents a discrete and separate portion of Ashford Trust’s overall business strategy.  Our business has different financial and operational requirements than Ashford Trust’s business.  Ashford Trust is focused on investing opportunistically across all segments and at all levels of the capital structure within the hospitality industry while our business will be to serve as the external manager and focus on the asset management of the assets of Ashford Trust, Ashford Prime and potential new or additional platforms.  The separation will allow each company to better tailor its business strategies to best address growth opportunities in its industry.

 

·                  Increased transparency. The separation will enable potential investors and the financial community to evaluate the performance and assess the strategy of each company separately.  We believe the additional information available resulting from the separate disclosure will allow each company’s securities to be appropriately valued by the market and may result in a higher aggregate market value than the value of the combined company.

 

·                  Tailored capital structure.  Each company will have the flexibility to create a capital structure tailored to its strategic goals and consistent with its stockholders’ interests, which may improve access to the capital markets for both Ashford Trust and Ashford Inc., as compared to Ashford Trust common stock prior to the distribution.  Further, we believe that the creation of a business model with few fixed assets, significant growth potential and stability of earnings, while maintaining alignment of stockholder interests between Ashford Inc. and the two companies it initially advises could unlock value in the asset management platform.

 

·                  Investor choice.  Ashford Trust’s board of directors believes that the lodging investment business and the asset management business appeal to different types of investors with different investment goals and risk profiles.  Following the distribution, investors will be able to pursue investment goals in either or both companies.  In addition, management should be able to establish goals, implement business strategies and evaluate growth opportunities in light of investor expectations specific to each company’s respective business, without undue consideration of investor expectations for the other business.

 

The anticipated benefits of the separation are based on a number of assumptions, and there can be no assurance that such benefits will materialize to the extent anticipated or at all.  In the event that the separation does not result in such benefits, the costs associated with the transaction could have a negative effect on our financial condition and ability to make distributions to our stockholders.  For more information about the risks associated with the separation, see “Risk Factors—Risks Related to the Separation.”

 

Our Business Strategy

 

Our principal business objectives will be to provide asset management and other advisory services to other entities.  Initially, we will act as the external advisor to Ashford Trust and Ashford Prime.  In our capacity as the external advisor to Ashford Trust and Ashford Prime, we will be responsible for implementing the investment strategies and managing the day-to-day operations of Ashford Trust and Ashford Prime, in each case subject to the supervision and oversight of the respective board of directors of such entity.  We will provide the personnel and services necessary to allow each of Ashford Trust and Ashford Prime to conduct its respective business.  We may also perform similar functions for new or additional platforms, including Ashford Trust’s investment securities subsidiary.

 

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We will earn advisory fees from each company that we advise.  These fees will include a quarterly base fee for managing the respective day-to-day operations of the companies we advise and the day-to-day operations of their respective subsidiaries, in each case in conformity with the respective investment guidelines for such entity.  The base fee will be determined as a percentage of each entity’s total enterprise value, subject to a minimum fee.  We will also be entitled to receive an incentive fee from each of Ashford Trust and Ashford Prime based on their respective out-performance, as measured by the total stockholder return of such company compared to its peers.

 

We expect to expand our asset management business through organic growth by (i) managing additional assets of existing platforms of Ashford Trust or Ashford Prime; (ii) managing assets of newly formed platforms; (iii) acquiring other businesses that provide services to the hospitality industry (which may or may not provide such services to our advisory clients), or acquiring the expertise or personnel necessary to provide such services, and (iv) acquiring third-party asset management contracts and businesses.

 

Our Competitive Strengths

 

We believe we distinguish ourselves from other companies that provide asset management or other day-to-day management services to entities within the hospitality industry through the following strengths:

 

·                  Proven Track Record of Delivering Stockholder Value. We will be led by the current management team of Ashford Trust.  This management team has generated strong stockholder returns for Ashford Trust since its inception in 2003.  Ashford Trust has experienced an approximate 132.2% total return measured from its initial public offering through December 31, 2013.  Total return is measured as the increase in the market price of common stock over the specified time period, assuming all dividends are reinvested into additional shares of common stock.

 

·                  Experienced Management Team.  Although during the financial crisis, Ashford Trust entered into consensual foreclosures on three hotel properties, realizing a net loss on investments in these properties of $54.1 million, since January 2009, Ashford Trust has generated the highest total return to stockholders of all publicly-traded lodging REITs that existed throughout that period, with an approximate 1129.7% total return measured from January 1, 2009 through December 31, 2013.  This management team has a very capable and diverse skill set to asset manage hotel businesses as well as engage in complex transactions.  For example, our management team has successfully completed several multi-property acquisitions for Ashford Trust, including the $2.4 billion acquisition of the 51-property CNL Hotels & Resorts portfolio in 2007 and the $1.3 billion acquisition of the 28-property Highland Hospitality portfolio in 2011.  This management team also oversaw the successful spin-off of Ashford Prime from Ashford Trust, establishing a new publicly-traded company focused on investing primarily in high RevPAR, luxury, upper-upscale and upscale hotels.  Each of the chief executive officer, the president, the chief financial officer, the chief operating officer and the chief accounting officer of the management team has more than 20 years of lodging or real estate experience and has experienced multiple lodging cycles in that time.  Furthermore, the members of our management team have developed strong relationships with hotel owners, management companies, brand companies, brokers, lenders and institutional investors that will provide value-added benefits.

 

·                  Asset Management Expertise.  Our management team has a successful track record of maximizing the value of the hotel assets we oversee through aggressive asset management.  As the current asset management team for Ashford Trust and Ashford Prime, we oversee six different property management companies that operate Ashford Trust or Ashford Prime hotels.  We have significant experience with hotel operations, capital planning and capital expenditures, capital markets, buying and selling hotels and financing hotel assets.  We currently asset manage 124 hotels with an aggregate value of approximately $4.3 billion.

 

·                  Highly Aligned Management Structure.  We have been structured to ensure strong management alignment with our stockholders and the stockholders of the companies we advise.  Our executive management team and directors, together with Mr. Archie Bennett, Jr., chairman emeritus and co-founder of Ashford Trust, will own, directly or indirectly, approximately       % of the equity interest in our company, assuming the minimum distribution or approximately      %, assuming a 100% distribution of our common stock owned by Ashford Trust.  This group of management and directors,

 

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together with Mr. Archie Bennett, also owns approximately 19% of Ashford Trust and 10% of Ashford Prime, our initial advisory clients.  These ownership levels may fluctuate over time, but the significant insider ownership creates a strong alignment between management and our stockholders as well as the stockholders of the companies we advise.

 

·                  Attractive Corporate Governance. We will have an attractive governance structure that will provide transparency to investors and promote the long-term interests of stockholders. Some of the significant features of our corporate governance structure include:

 

·                  Five of seven board members are expected to be independent, with a lead independent director and with           of our initial independent directors having no prior affiliations with Ashford Trust or Ashford Prime.

 

·                  Corporate governance policy requires that the board consist of at least two-thirds independent directors at all times that we do not have an independent chairman.

 

·                  Governance documents that address conflicts.

 

·                  No stockholder rights plan currently, and governance documents that prevent us from maintaining such a plan for longer than 12 months without stockholder authorization, unless the board determines its fiduciary duties require otherwise.

 

·                  Prudent Capital Structure.  We expect to have no debt immediately following the distribution.  We expect to be adequately capitalized for more near term needs with approximately $15 million of cash available.  However, over time, we may choose to utilize financial leverage or raise equity for corporate strategic reasons and growth.

 

·                  Business Growth Opportunities.  The hospitality industry contains a wide array of services and product companies that may provide future investment opportunities.  We have the potential to increase our operational size and profitability through the expansion of existing platforms, the creation or acquisition of new companies to advise, or the formation or acquisition of, or the merger with, new operating businesses.

 

Our History and Relationship with Ashford Trust and Ashford Prime

 

We are currently a subsidiary of Ashford Trust, an NYSE-listed REIT.  Ashford Trust created us to separate its asset management and advisory business from its hospitality investment business.  In connection with our separation from Ashford Trust, Ashford LLC will become our operating company, and it will continue to advise Ashford Prime pursuant to the existing advisory agreement between Ashford Prime and Ashford LLC.  Ashford LLC will also become the external advisor to Ashford Trust.  Pursuant to our advisory agreements with Ashford Trust and Ashford Prime, we will be responsible for implementing the investment strategies and decisions and the management of the day-to-day operations of Ashford Trust and Ashford Prime, in each case subject to the supervision and oversight of the respective board of directors of such entity.  We may also perform similar services for new or existing platforms created by Ashford Trust or Ashford Prime, including Ashford Trust’s investment securities platform.

 

The gain recognized by Ashford Trust in connection with the distribution of our common stock will not be qualifying income for purposes of certain REIT gross income tests for federal income tax purposes.  If the gain is too great, Ashford Trust could lose its REIT status.  Accordingly, the board of directors of Ashford Trust intends to authorize the distribution of only the minimum      % of the equity interest in Ashford Inc. held by Ashford Trust, subject to an upward adjustment (up to and including the business day preceding the distribution date) if the board of Ashford Trust determines, in its reasonable best judgment, exercising ordinary business care, that distribution of a greater percentage of Ashford Inc. would not jeopardize the REIT status of Ashford Trust.  To the extent the distribution represents less than 100% of the shares of our common stock held by Ashford Trust, Ashford Trust plans, but is not obligated, to distribute the remaining shares of our common stock to the Ashford Trust stockholders.  Any such subsequent distribution may occur in 2014, or at any time thereafter that such distribution would not jeopardize the REIT status of Ashford Trust.  Any future distribution would also be a taxable pro rata distribution and would be taxable to Ashford Trust.

 

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The U.S. lodging industry is in the fifth year of what we anticipate will be a continuing recovery from the financial crisis and related economic recession. We believe this is an attractive point in the lodging investment cycle.

 

Room night demand in the U.S. lodging industry historically has been directly correlated with macroeconomic trends, including growth in real gross domestic product (“GDP”), corporate profitability, capital investments, consumer confidence and employment. Following a period of economic contraction and widespread job loss in 2008 and 2009, the U.S. economy has been exhibiting signs of a recovery, and the International Monetary Fund forecasts U.S. real GDP growth of 2.8% in 2014 and 3.0% in 2015. Given the strong correlation between room night demand and growth in real GDP, we believe the current projections of a gradual but consistent growth in real GDP provide an attractive backdrop for a sustained recovery phase of the lodging cycle.

 

According to PKF Hospitality Research, LLC, hotel demand is expected to increase at a 2.3% compound annual rate from 2014 to 2016, including growth of 2.6% in each of 2014 and 2015. In contrast, hotel supply is forecasted to grow more slowly, at a 1.4% compound annual rate from 2014 to 2016, including growth of 1.0% in 2014 and 1.3% in 2015. We believe the strong growth in room night demand combined with limited addition to supply should provide hotel owners with the opportunity to increase ADR, as industry occupancy exceeds the long-term average. We further believe that this forecast for favorable demand/supply imbalance should result in significant gains in both RevPAR and hotel-level EBITDA. PKF Hospitality Research, LLC predicts industry-wide RevPAR will grow 6.6% in 2014, 7.0% in 2015 and 4.7% in 2016, representing a compound annual growth rate over the period of 6.1%. We believe the prevailing industry supply and demand dynamic presents compelling growth opportunities for both of our initial clients. PKF Hospitality Research, LLC further predicts strong RevPAR growth across the key targeted investment segments for each of our two initial clients, as indicated in the chart below:

 

 

Summary Risk Factors

 

You should carefully read and consider the risk factors set forth under “Risk Factors,” as well as all other information contained in this information statement. If any of the risks described in this information statement occur, our business, financial condition, liquidity and results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline. Some of the risks include:

 

·                  The asset management business is highly competitive, and if we are not able to effectively compete with other asset management businesses, our ability to attract additional clients may be limited.

 

·                  Our investments will be concentrated in the hotel industry, and the failure of the hotel industry to exhibit sustained improvement may adversely affect us.

 

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·                  We will be subject to political, economic, market, reputational, operational, legal, regulatory and other risks that are inherent in conducting business internationally.

 

·                  We may be unable to raise capital and attract investors for our existing and potential clients, which will affect our ability to earn advisory fees and grow our asset management business.

 

·                  Initially, we will be predominantly dependent on Ashford Trust and Ashford Prime as our only clients, and the loss of either such company as a client, or their inability to pay for our services, could substantially reduce our revenue.

 

·                  We depend on our key personnel and the loss of their continued service could threaten our ability to operate our business successfully.

 

·                  The prior performance of Ashford Trust is not indicative of our future performance.

 

·                  Our platform may not be as scalable as we anticipate and we could face difficulties growing our business without significant new investment in personnel and infrastructure.

 

·                  Our portfolio management techniques and strategies may not be effective, which may expose us to material unanticipated losses.

 

·                  We may determine to grow our business through the acquisition of asset management contracts or companies, which entails substantial risk.

 

·                  Our separation and distribution agreement, our advisory agreement and other agreements entered into in connection with the separation and distribution were not negotiated on an arm’s-length basis and their terms may not be as favorable to us as if they were negotiated with an unaffiliated third party.

 

·                  Our executive officers, who are also executive officers of each of Ashford Trust and Ashford Prime, face competing demands on their time as well as potential conflicts of interests.

 

·                  The organization and management of Ashford Trust and Ashford Prime and any future companies that we may advise may create conflicts of interest, which could give rise to investor dissatisfaction or litigation.

 

·                  We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from Ashford Trust.

 

·                  If we are unable to successfully implement our business strategy, we may be unable to generate sufficient revenues to pay our operating expenses and make distributions to our stockholders.

 

·                  For federal income tax purposes, the distribution of our common stock will not qualify for tax-free purposes and may be taxable to you as a dividend, however the tax impact will not be able to be calculated until after the end of the 2014 calendar year.

 

·                  If gain recognized by Ashford Trust from the proposed distribution and certain other items of income are significant enough, Ashford Trust may fail to qualify as a REIT for U.S. federal income tax purposes.

 

·                  Securities eligible for future sale may adversely affect the market price of our securities.

 

·                  There is no existing market for our common stock and a trading market that will provide you with adequate liquidity may not develop for our common stock. In addition, once our common stock begins trading, the market price of our shares may fluctuate widely.

 

·                  We may incur material costs and expenses as a result of our separation from Ashford Trust, which could adversely affect our profitability.

 

·                  Conflicts of interest with Ashford Trust, Ashford Prime and Remington Lodging and Hospitality LLC (“Remington”), a property management company owned by Mr. Monty Bennett, our chief executive officer and chairman, and his father, Mr. Archie Bennett, Jr., chairman emeritus of Ashford Trust, could result in management acting other than in our stockholders’ best interest.

 

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·                  Under the terms of our mutual exclusivity agreement with Remington, we will be obligated to utilize Remington as a property manager for future platforms that we advise; to the extent we have the discretion to do so, even if the utilization of Remington for such property management may not be in our stockholders’ best interest.

 

·                  Under the terms of our mutual exclusivity agreement with Remington, Remington may be able to pursue lodging investment opportunities that compete directly with the businesses that we advise.

 

Our Financing Strategy

 

We currently do not use leverage, and therefore have no market risk sensitive instruments; however, we may decide to use leverage to meet future capital needs.  Our organizational documents do not limit our capacity to use leverage or the amount we may use.  Our financing objective is to manage our capital structure effectively in order to provide sufficient capital to execute our business strategies and in turn add value to stockholders.  We may from time to time use derivative instruments primarily to manage interest rate risk.

 

Structure and Formation of Our Company

 

Prior to or concurrently with the separation and distribution, we will engage in certain formation transactions, which are designed to provide for our external management of Ashford Trust, facilitate the separation and distribution and provide us with our initial capital.

 

In connection with our formation transactions, the following transactions have occurred or will occur concurrently with or prior to completion of the separation and distribution:

 

·                  Ashford Trust incorporated us in Delaware on April 2, 2014.

 

·                  We will enter into a separation and distribution agreement with Ashford Trust and its operating partnership, Ashford Hospitality Limited Partnership (“Ashford Trust OP”), which will set forth the mechanics of the separation, certain organizational matters and other ongoing obligations of us and Ashford Trust.

 

·                  Ashford Trust OP will distribute to its limited partners 100% of the membership interests of Ashford LLC.  Each limited partner will then have the opportunity to contribute up to 99% of its membership interest in Ashford LLC to us in exchange for shares of our common stock, except that Ashford Trust will not be subject to the 99% limitation and will contribute 100% of its membership interests to us in exchange for our common stock.

 

·                  Ashford Trust will exchange the membership interests in Ashford LLC for shares of our common stock.

 

·                  In a taxable pro rata special distribution, Ashford Trust will distribute shares of our common stock to its stockholders, to the extent the distribution will not jeopardize the REIT status of Ashford Trust.  If such distribution is less than 100% of the shares of our common stock held by Ashford Trust, Ashford Trust intends to distribute any remaining shares of Ashford Inc. to its stockholders.  Any such subsequent distribution may occur in 2014, or at any time thereafter that such distribution would not jeopardize the REIT status of Ashford Trust.

 

·                  Effective upon the distribution, we will enter into an advisory agreement with Ashford Trust.

 

·                  We will enter into a registration rights agreement with Ashford Trust, pursuant to which we may become obligated to register for sale shares of our common stock, if any, retained by Ashford Trust.

 

·                  We will also enter into a mutual exclusivity agreement with Remington that will be consented and agreed to by Mr. Monty Bennett, our chief executive officer and chairman.  See “Certain Relationships and Related Person Transactions.”

 

Upon completion of the separation and distribution, assuming that (i) each limited partner of Ashford Trust OP contributes to us the maximum 99% of its membership interests in Ashford LLC in exchange for shares of our common stock; (ii) Ashford Trust contributes to us 100% of its membership interests in Ashford LLC in exchange

 

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for shares of our common stock; and (iii) Ashford Trust is able to distribute 100% of the remaining shares of our common stock:

 

·                  We will conduct substantially all of our business through Ashford LLC, our operating company, and its subsidiaries.

 

·                  We will be the sole managing member of Ashford LLC. We will own approximately 99.8% of the outstanding membership interests of our operating company.

 

·                  Ashford LLC, our operating company, will continue to serve as the external advisor to Ashford Prime and will begin serving as the external advisor to Ashford Trust.

 

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We will exchange approximately                  shares of our common stock for the approximately 80.9% of Ashford LLC membership interests held by Ashford Trust.  Ashford Trust will distribute those shares of our common stock to Ashford Trust stockholders.

 

Benefits to Related Parties

 

Upon completion of the separation and distribution, our directors and executive officers and their affiliates will receive material financial and other benefits, as shown below.  For a more detailed discussion of these benefits see “Management,” “Certain Relationships and Related Person Transactions,” and “Structure and Formation of Our Company.”

 

Registration Rights Agreements.  In connection with the distribution, we will enter into a registration rights agreement with Ashford Trust, pursuant to which we may become obligated to register for sale shares of our common stock, if any, retained by Ashford Trust.  We have also agreed to file a shelf registration statement with the SEC covering the resale of the shares of common stock issued or issuable upon redemption of the membership interests, issued to the limited partners of Ashford Trust OP in connection with the separation and distribution.  Certain of the limited partners of Ashford Trust OP are our directors and executive officers and their affiliates.  See “Shares Eligible for Future Sale—Registration Rights.”

 

Advisory Agreements.  As part of the separation and distribution, Ashford LLC will become our operating company, and it will continue to advise Ashford Prime pursuant to the existing advisory agreement between Ashford Prime and Ashford LLC.  Also, as part of the separation and distribution, we will enter into an advisory agreement with Ashford Trust.  See “—Our History and Relationship with Ashford Trust and Ashford Prime” and “Our Business—The Initial Advisory Agreements.”

 

Remington Mutual Exclusivity Agreement.  Immediately prior to the separation and distribution, we will enter into a mutual exclusivity agreement with Remington, pursuant to which we have agreed to utilize Remington to provide property management, project management and development services for all hotels, if any, that we may acquire as well as all future companies we advise, to the extent that we have the right, or control the right, to direct such matters, unless our independent directors either (i) unanimously vote not to utilize Remington for such services or (ii) based on special circumstances or past performance, by a majority vote elect not to engage Remington because they have determined, in their reasonable business judgment, that it would be in our best interest not to engage Remington or that another manager or developer could perform the duties materially better.  In exchange for our agreement to engage Remington for such services for all hotels, if any, that we may acquire as well as future companies that we advise, Remington has agreed to grant to us and any such future companies that we advise a first right of refusal to purchase any investments identified by Remington and any of its affiliates that meet the initial investment criteria of such entities, as identified in the advisory agreements between such entities and us, subject to any prior rights granted by Remington to other entities, including us, Ashford Trust and Ashford Prime.  Mr. Monty Bennett will potentially benefit from the receipt of property management fees, project management fees and development fees by Remington from us or such future companies that we advise.  See “Our Business—Our Mutual Exclusivity Agreement.”

 

Indemnification Agreements. We will enter into indemnification agreements with our directors and executive officers providing for the indemnification by us for certain liabilities and advancement of expenses incurred as a result of actions brought, or threatened to be brought, against such parties.

 

Conflicts of Interest

 

Each of our executive officers and one of our directors also serve as key employees and as officers of Ashford Trust and Ashford Prime, and will continue to do so.  Furthermore, so long as we serve as an external advisor to Ashford Prime, we will be allowed to designate two persons as candidates for election as director of Ashford Prime at any stockholder meeting at which directors are to be elected.  Such nominees may be executive officers of Ashford Prime.  Mr. Monty J. Bennett, our chief executive officer and a nominee for our board of directors, is also the chief executive officer and chairman of the board of directors of Ashford Trust and Ashford Prime.  Although we consulted with our third-party financial advisors when structuring the terms of our agreements, we did not conduct arm’s-length negotiations with respect to the terms of such agreements.  As a result, the

 

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		additional information from their brokerage firms shortly after the distribution date.
Conditions to the distribution		The distribution of our common stock is subject to the satisfaction of the following conditions:   ·                  our registration statement on Form 10, of which this information statement is a part, shall have become effective, and no stop order relating to the registration statement shall be in effect;   ·                  the listing of our common stock on the                          shall have been approved, subject to official notice of issuance;   ·                  the receipt of all necessary consents and approvals from lenders to Ashford Trust;   ·                  no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution or any of the transactions related thereto shall be in effect; and   ·                  as of the day preceding the distribution date, the board of directors of Ashford Trust shall have made a determination that the distribution remains in the best interest of Ashford Trust and its stockholders and that, taking into account current market conditions, the distribution is still advisable.
Tax considerations		The distribution of our common stock will not qualify for tax-free treatment for federal income tax purposes, and an amount equal to the fair market value of the common stock received by you on the distribution date will be treated as a taxable dividend to the extent of your share of any current or accumulated earnings and profits of Ashford Trust for the year of the distribution. Any fair market value in excess of Ashford Trust’s current and accumulated earnings and profits will be treated as a nontaxable return of capital to the extent of your adjusted tax basis in Ashford Trust common stock and any remaining excess will be treated as capital gain. Your adjusted tax basis in your common stock of Ashford Trust held at the time of the distribution will be reduced (but not below zero) to the extent the fair market value of our common stock distributed by Ashford Trust to you in the distribution exceeds your share of Ashford Trust’s current and accumulated earnings and profits. Your holding period for such Ashford Trust common stock will not be affected by the distribution. Ashford Trust may designate a portion of the distribution as a capital gain dividend. See “Our Separation from Ashford Trust—Certain U.S. Federal Income Tax Consequences of the Separation.” Ashford Trust will not be able to advise stockholders of the amount of earnings and profits and the amount of capital gain of Ashford Trust until after the end of the 2014 calendar year.
Stock exchange listing		We intend to file an application to list our common stock on the                      under the ticker symbol “AINC.” We anticipate that on or prior to the record date for the distribution, trading of our common stock will begin on a “when-issued” basis, assuming the minimum distribution, and will continue up to and including through the distribution date. See “Our Separation from Ashford Trust—Market for Common Stock—Trading Between the Record Date and Distribution Date,” included in this information statement. It is expected that after the distribution of the common stock of Ashford Inc., Ashford Trust common stock will continue to be traded on the NYSE under the symbol “AHT.”
Distribution agent		Computershare Trust Company, N.A.
Separation and Distribution Agreement		We will enter into a separation and distribution agreement to effect the separation and distribution of Ashford Inc. from Ashford Trust and provide a framework for our relationships with Ashford Trust after the separation. This agreement will govern the

 

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RISK FACTORS

 

You should carefully consider the following risk factors in conjunction with the other information contained in this information statement in evaluating us and our common stock.  Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.

 

Whenever the risk factors below state that we, our business or our properties may be “adversely affected” or “harmed” or make similar expressions, it means that our liquidity (including our ability to make distributions to our stockholders) or other financial condition, operating results or prospects could be harmed.

 

Because we act as the external advisor to Ashford Prime and Ashford Trust and may in the future advise or manage assets for other companies, our stockholders should carefully consider, among other factors, the risk factors described below and the matters described under “Risk Factors” in the SEC filings of Ashford Prime, Ashford Trust and any other public companies we may manage in the future.

 

Risks Related to Our Business

 

The asset management business is highly competitive.

 

The asset management business is highly competitive, driven by a variety of factors including asset performance, the quality of service provided to the companies we advise, brand recognition and business reputation. A number of factors serve to increase our competitive risks:

 

·                  other asset managers may have greater financial, technical, marketing and other resources and more personnel than we do;

 

·                  Ashford Prime, Ashford Trust and other companies that we may advise may not perform as well as the clients of other asset managers;

 

·                  several other asset managers and their clients have significant amounts of capital and many of them have similar management objectives to ours which may create additional competition for management and advisory opportunities;

 

·                  some of these other asset managers’ clients may also have a lower cost of capital and access to funding sources that are not available to the companies that we advise, which may create competitive disadvantages for us with respect to funding opportunities;

 

·                  some of these other asset managers’ clients may have higher risk tolerance, different risk assessment or a lower return threshold, which could allow them to facilitate the acquisition and management by their clients of a wider variety of assets and allow them to consider a broader range of investments and to advise their clients to bid more aggressively for investment opportunities on which we would advise our clients to bid;

 

·                  there are relatively few barriers to entry impeding new asset management companies and the successful efforts of new entrants into the asset management business is expected to continue to result in increased competition;

 

·                  some other asset managers may have better expertise or be regarded by potential clients as having better expertise with regard to specific assets;

 

·                  other asset managers may have more scalable platforms and may operate more efficiently than us;

 

·                  other asset managers may have better brand recognition than us and there is no assurance that we will maintain a positive brand in the future; and

 

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·                  other industry participants may from time to time seek to recruit members of our management team and other employees away from us.

 

Our inability to effectively compete on these and other areas may have an adverse effect on our business, results of operations and financial condition.

 

Our investments will be concentrated in the hotel industry, and our business would be adversely affected by an economic downturn in that sector, and we will be significantly influenced by the economies and other conditions in the specific markets in which our clients operate.

 

All of the investments of Ashford Prime and Ashford Trust are concentrated in the hotel industry.  This concentration may expose such entities, and therefore us,  to the risk of economic downturns in the hotel real estate sector to a greater extent than if the properties of such entities were diversified across other sectors of the real estate industry.  Similarly, we are particularly susceptible to adverse market conditions in areas in which our clients have high concentrations of properties.  Industry downturns, relocation of businesses, any oversupply of hotel rooms, a reduction in lodging demand or other adverse economic developments in the hotel industry generally or in areas where our clients have a high concentration of properties could adversely affect us.

 

Failure of the hotel industry to exhibit sustained improvement or to improve as expected may adversely affect us.

 

Currently, our only sources of revenues are the advisory agreements with Ashford Prime and Ashford Trust.  A substantial part of the business plan of each of these entities is based on management’s belief that the lodging markets in which such entities invest will experience improving economic fundamentals in the future, despite that fundamentals have already substantially improved over the last several years.  In particular, the business strategy of each of these entities is dependent on the expectation that key industry performance indicators, especially RevPAR, will continue to improve.  There can be no assurance as to whether or to what extent, hotel industry fundamentals will continue to improve.  In the event conditions in the industry do not sustain improvement or improve as expected, or deteriorate, we may be adversely affected.

 

We are subject to substantial regulation, numerous contractual obligations and extensive internal policies and failure to comply with these matters could have a material adverse effect on our business, financial condition and results of operations.

 

We and our subsidiaries are subject to substantial regulation, numerous contractual obligations and extensive internal policies.  Given our organizational structure, we are subject to or expect to be subject to regulation by the SEC, the                                  , the IRS, and other federal, state and local governmental bodies and agencies.  We are also responsible for managing the regulatory aspects of Ashford Prime and Ashford Trust, including compliance with applicable REIT rules.  These regulations are extensive, complex and require substantial management time and attention.  If we fail to comply with any of the regulations that apply to our business or the businesses of Ashford Prime, Ashford Trust or other entities that we advise, we could be subjected to extensive investigations as well as substantial penalties, and our business and operations could be materially adversely affected.  We also have numerous contractual obligations that we must adhere to on a continuous basis to operate our business, the default of which could have a material adverse effect on our business and financial condition.  We have also established internal policies designed to ensure that we manage our business and the companies we advise in accordance with applicable law and regulation and in accordance with our contractual obligations.  While we have designed policies to appropriately operate our business and the entities we advise, these internal policies may not be effective in all regards and, further, if we fail to comply with our internal policies, we could be subjected to additional risk and liability.

 

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Our certificate of incorporation will contain provisions that may delay or prevent a change of control transaction.

 

Our certificate of incorporation will prohibit actual or constructive ownership by any person or group, together with its affiliates and associates, of more than 9.9% in total number or value (whichever is more restrictive) of the outstanding shares of our common stock, unless our board of directors grants a waiver.

 

Because our certificate of incorporation prevents ownership of more than 9.9% of our common stock by any person or group, together with its affiliates and associates, the acquisition of less than 9.9% of our common stock by an individual or entity could nevertheless cause that individual or entity to be subject to our certificate of incorporation’s ownership limit.  Any attempt to own or transfer shares of our common stock in excess of the ownership limit without the consent of our board of directors will be void, and could result in the shares being automatically transferred to a charitable trust.

 

Anti-takeover provisions in our constituent documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.

 

Our certificate of incorporation and bylaws will contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors.  These provisions:

 

·                  limit the ownership interest in any class of stock of our company to only 9.9% by any person or group of related individuals;

 

·                  authorize our board of directors, without further action by our stockholders, to provide, out of the unissued shares of preferred stock, for additional or new series of preferred stock and, with respect to such series, to set the number of shares constituting such series, the designation of such series, the terms, preferences and relative participating, optional and other special rights, voting powers, restrictions, limitations and qualification thereof;

 

·                  require a classified board of directors;

 

·                  prohibit stockholder action by written consent, without the express prior consent of our board of directors;

 

·                  provide that stockholders are not permitted to call a special meeting of stockholders;

 

·                  provide that directors may be removed only for cause and with the affirmative vote of at least 80% of the voting interests of our stockholders entitled to vote;

 

·                  provide that our board of directors is expressly authorized to make, alter or repeal our bylaws; and

 

·                  establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

 

These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders.  These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.  For a further discussion of these and other such anti-takeover provisions, refer to “Description of Our Capital Stock—Anti-Takeover Effects of Delaware Law, Our Certificate of Incorporation and Our Bylaws.”

 

Stockholders have limited control over changes in our policies and operations, which increases the uncertainty and risks they face as stockholders.

 

Our board of directors determines our major policies, including our policies regarding growth and distributions.  Our board of directors may amend or revise these and other policies without a vote of our

 

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an “emerging growth company” as defined in the JOBS Act.  For as long as we are an emerging growth company, which may be up to five full fiscal years, unlike other public companies, we will not be required to:

 

·                  provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act,

 

·                  comply with any new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies under Section 102(b)(1) of the JOBS Act,

 

·                  comply with any new requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer,

 

·                  comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise,

 

·                  provide certain disclosure regarding executive compensation, or

 

·                  hold stockholder advisory votes on executive compensation.

 

Our status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need it.

 

Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying with accounting standards newly issued or revised after April 5, 2012, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it.  Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry.  If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

 

We will become subject to financial reporting and other requirements for which our accounting, internal audit and other management systems and resources may not be adequately prepared and we may not be able to accurately report our financial results.

 

Following the separation and distribution, we will become subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act.  Section 404(a) requires annual management assessments of the effectiveness of our internal controls over financial reporting.  These reporting and other obligations will place significant demands on our management, administrative, operational, internal audit and accounting resources and will cause us to incur significant expenses.  We may need to upgrade our systems or create new systems; implement additional financial and management controls, reporting systems and procedures; expand our internal audit function; and hire additional accounting, internal audit and finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to reporting companies could be impaired.  Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, operating results and stock price.

 

For as long as we are an “emerging growth company” under the recently enacted JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b).  We could be an emerging growth company for up to five years.  An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not.  Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

 

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exist by reason of the fact that any such individual directs a corporate opportunity (other than certain limited types of opportunities set forth in the applicable advisory agreement) to Ashford Prime, Ashford Trust or any of their respective subsidiaries instead of us, or does not refer or communicate information regarding such corporate opportunities to us.  See “Description of Our Capital Stock — Certain Corporate Opportunities and Conflicts.”

 

Our executive officers, who are also executive officers of each of Ashford Trust and Ashford Prime, face competing demands relating to their time as well as potential conflicts of interest, and this may adversely affect our operations.

 

Each of our executive officers are also executive officers of each of Ashford Trust and Ashford Prime. Because our executive officers have duties to Ashford Trust and Ashford Prime as well as to our company, we do not have their undivided attention. They face conflicts in allocating their time and resources between our company, Ashford Trust and Ashford Prime, and they will continue to face increasing conflicts as we advise additional companies and platforms.

 

The organization and management of Ashford Prime and Ashford Trust and any companies we may advise in the future may create conflicts of interest.

 

We are or will be party to advisory and other agreements with Ashford Prime and Ashford Trust. These entities, along with any other businesses we may advise in the future will acquire assets consistent with their respective initial investment guidelines, but in each case, we will have discretion to determine which investment opportunities satisfy each such entity’s initial investment guidelines.  If, however, either Ashford Trust or Ashford Prime materially changes its investment guidelines without our express consent, we are required to use our best judgment to allocate investment opportunities to Ashford Trust, Ashford Prime and other entities we advise, taking into account such factors as we deem relevant, in our discretion, subject to any then-existing obligations we may have to such other entities.  If a portfolio investment opportunity cannot be equitably divided by asset type and acquired on the basis of such asset types in satisfaction of each such entity’s investment guidelines, we will allocate investment opportunities between Ashford Trust, Ashford Prime and any other businesses we advise in a fair and equitable manner, consistent with such entities’ investment objectives.  When determining the entity for which such a portfolio investment opportunity would be the most suitable, our investment professionals have substantial discretions and may consider, among other factors, the following:

 

·                  investment strategy and guidelines;

 

·                  portfolio concentrations;

 

·                  tax consequences;

 

·                  regulatory restrictions;

 

·                  liquidity requirements; and

 

·                  financing availability.

 

We may manage additional investment vehicles in the future and, in connection with the creation of such investment vehicles, may revise these allocation procedures.  The result of a revision to the allocation procedures may, among other things, be to increase the number of parties who have the right to participate in investment opportunities sourced by us, increasing the risk of conflicts of interest.

 

The decision of how any potential investment should be allocated among Ashford Prime, Ashford Trust and any other companies we may advise in the future, in many cases, may be a matter of subjective judgment which will be made by us.

 

Appropriately dealing with conflicts of interest is complex and difficult and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential or actual conflicts of interest. Litigation in connection with conflicts of interest could have a material adverse effect on our reputation which could materially adversely affect our business and our ability to attract investors for future vehicles.

 

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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

 

This information statement contains certain forward looking statements that are subject to various risks and uncertainties.  These forward looking statements include information about possible, estimated or assumed future results of our business, financial condition and liquidity, results of operations, plans and objectives.  Forward looking statements are generally identifiable by use of forward looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “outlook,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Additionally, statements regarding the following subjects are forward-looking by their nature:

 

·                  the expected benefits of the proposed spin-off of Ashford Inc. to our company and our stockholders;

 

·                  our business and investment strategy;

 

·                  our projected operating results, including cash available for distribution, and distribution rate;

 

·                  our ability to obtain future financing arrangements;

 

·                  our understanding of our competition;

 

·                  market trends;

 

·                  projected capital expenditures; and

 

·                  the impact of technology on our operations and business.

 

Forward looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward looking information.  Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain.  Although we believe that the expectations reflected in our forward looking statements are based on reasonable assumptions, taking into account all information currently available to us, our actual results and performance could differ materially from those set forth in our forward looking statements.  Factors that could have a material adverse effect on our forward looking statements include, but are not limited to:

 

·                  the factors referenced in this information statement, including those set forth under the section captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and “Our Business;”

 

·                  general volatility of the capital markets, the general economy or the hospitality industry, whether the result of market events or otherwise, and the market price of our common stock;

 

·                  changes in our business or investment strategy;

 

·                  availability, terms and deployment of capital;

 

·                  changes in our industry and the market in which we operate, interest rates, or the general economy;

 

·                  the degree and nature of our competition;

 

·                  actual and potential conflicts of interest with or between Ashford Prime and Ashford Trust, our executive officers and our non-independent directors;

 

·                  availability of qualified personnel;

 

·                  changes in governmental regulations, accounting rules, tax rates and similar matters; and

 

·                  legislative and regulatory changes.

 

When considering forward looking statements, you should keep in mind the risk factors and other cautionary statements in this information statement. The matters summarized under “Risk Factors” and elsewhere in this information statement could cause our actual results and performance to differ significantly from those contained in our forward looking statements.  Accordingly, we cannot guarantee future results or performance.  Readers are cautioned not to place undue reliance on any of these forward looking statements, which reflect our

 

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OUR SEPARATION FROM ASHFORD TRUST

 

General

 

The board of directors of Ashford Trust has determined, after careful review and consideration, that the separation of Ashford Inc. from the rest of Ashford Trust and the establishment of Ashford Inc. as a separate, publicly traded company is in Ashford Trust’s best interests.

 

In furtherance of this plan, Ashford Trust will distribute a minimum of approximately         shares of our common stock or as many as                shares of our common stock to holders of Ashford Trust common stock, subject in each case to certain conditions.  The distribution of our common stock will take place on                          , 2014.  On the distribution date, each holder of Ashford Trust common stock will receive at least            of a share of our common stock for every share of Ashford Trust common stock held at the close of business on the record date, as described below, based upon a distribution of approximately       % of the equity interest in us held by Ashford Trust.  Up to, and including, the business day preceding the distribution date, this ratio may be adjusted by the board of directors of Ashford Trust, such that you will receive a greater percentage of a share of Ashford Inc. for each share of Ashford Trust common stock that you own as of the record date.  A distribution of 100% of Ashford Trust’s equity interest in us would result in the distribution of approximately         of a share of Ashford Inc. for every share of Ashford Trust common stock held on the record date.  Immediately following the distribution, Ashford Trust’s stockholders will own at least          %, and as much as 81.05%, of our outstanding common stock.  You do not need to pay any consideration, exchange or surrender your existing shares of common stock of Ashford Trust or take any other action to receive your common stock of Ashford Inc.

 

The distribution of our common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions.  We cannot provide any assurances that the distribution will be completed.  For a more detailed description of these conditions, see the section entitled “—Conditions to the Distribution” below.

 

The Number of Shares You Will Receive.  You will receive at least            of a share of common stock of Ashford Inc. for every share of Ashford Trust common stock that you own on the record date, based upon a distribution of approximately        % of the equity interest in Ashford Inc.  Up to, and including, the business day preceding the distribution date, this ratio may be adjusted by the board of directors of Ashford Trust, such that you will receive a greater percentage of a share of Ashford Inc. for each share of Ashford Trust common stock that you own as of the record date.  A distribution of 100% of Ashford Trust’s equity interest in us would result in the distribution of approximately         of a share of Ashford Inc. for every share of Ashford Trust common stock that you own on the record date.  Ashford Trust will not distribute any fractional shares of our common stock to its stockholders.  Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds of the sales pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution.  Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

 

Transferability of Shares You Receive.  The shares of Ashford Inc. common stock distributed to Ashford Trust common stockholders will be freely transferable, except for shares received by persons who may be deemed to be Ashford Inc. “affiliates” under the Securities Act of 1933, as amended (the “Securities Act”).  Persons who may be deemed to be affiliates of Ashford Inc. after the separation generally include individuals or entities that control, are controlled by or are under common control with Ashford Inc. and may include directors and certain officers or principal stockholders of Ashford Inc. Ashford Inc. affiliates will be permitted to sell their shares of Ashford Inc. common stock only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Rule 144.

 

When and How You Will Receive the Distributed Shares.  Ashford Trust will distribute our common stock on                          , 2014, the distribution date.  Computershare Trust Company, N.A. will serve as distribution agent and registrar for our common stock and as distribution agent in connection with the distribution.

 

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If you own Ashford Trust common stock as of the close of business on the record date, the shares of Ashford Inc. common stock that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form.  Registration in book-entry form refers to a method of recording stock ownership when no physical share certificates are issued to stockholders, as is the case in the distribution.  Unless specifically requested by a stockholder, no physical share certificates of Ashford Inc. will be issued.

 

If you sell shares of Ashford Trust common stock in the “regular-way” market prior to the distribution date, you will be selling your right to receive our common stock in the distribution.

 

For more information see the section entitled “—Market for Common Stock—Trading Between the Record Date and Distribution Date” included elsewhere in this information statement.

 

Commencing on or shortly after the distribution date, if you hold physical stock certificates that represent your shares of Ashford Trust common stock, or if you hold your shares in book-entry form, and you are the registered holder of such shares, the distribution agent will mail to you an account statement that indicates the number of shares of our common stock that have been registered in book-entry form in your name.

 

Most Ashford Trust stockholders hold their shares of Ashford Trust common stock through a bank or brokerage firm.  In such cases, the bank or brokerage firm would be said to hold the stock in “street name” and ownership would be recorded on the bank’s or brokerage firm’s books.  If you hold your Ashford Trust common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares of our common stock that you are entitled to receive in the distribution.  If you have any questions concerning the mechanics of having our common stock held in “street name,” we encourage you to contact your bank or brokerage firm.

 

Computershare Trust Company, N.A., as distribution agent, will not issue any fractional shares of our common stock in connection with the distribution.  Instead, the distribution agent will aggregate all fractional shares and sell them on behalf of the holders who otherwise would be entitled to receive fractional shares.  The aggregate net cash proceeds of these sales, which generally will be taxable for federal income tax purposes, will be distributed pro rata (based on the fractional shares such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution.  For more information on the tax consequences, see “—Certain U.S. Federal Income Tax Consequences of the Separation” below.  If you physically hold Ashford Trust common stock certificates and are the registered holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of the aggregate net cash proceeds of the sales.  We estimate that it will take approximately two weeks from the distribution date for the distribution agent to complete the distributions of the aggregate net cash proceeds.  If you hold your Ashford Trust stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales and will electronically credit your account for your share of such proceeds.

 

Results of the Separation.  After our separation from Ashford Trust, we will be a separate, publicly-traded company.  Immediately following the distribution, we expect to have approximately             stockholders of record, based on the number of registered stockholders of Ashford Trust common stock on                          , 2014, and approximately              million shares of our common stock outstanding.  The actual number of shares to be distributed by Ashford Trust will be no less than                  , and will be determined no later than the business day prior to the distribution date.  The final number of shares distributed will take into account any changes in the number of shares of Ashford Trust common stock between                          , 2014 and the record date for the distribution as well as the final determination by the board of directors of Ashford Trust as to the percentage of Ashford Inc. that can be distributed without jeopardizing the REIT status of Ashford Trust.

 

Before the separation, we will enter into a separation and distribution agreement to effect the separation and provide a framework for our relationship with Ashford Trust after the separation.  This agreement will govern the relationship between us and Ashford Trust subsequent to the completion of the separation plan.

 

For a more detailed description of these agreements, see the section entitled “Certain Relationships and Related Person Transactions.”

 

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The distribution will not affect the number of outstanding shares of Ashford Trust common stock or any rights of Ashford Trust stockholders.

 

Certain U.S. Federal Income Tax Consequences of the Separation

 

The following is a summary of the material U.S. federal income tax consequences of our separation from Ashford Trust, and in particular the distribution by Ashford Trust of our common stock to stockholders of Ashford Trust.  For purposes of this section under the heading “Certain U.S. Federal Income Tax Consequences of the Separation”: (i) any references to the “separation” shall mean only the distribution of shares of our common stock by Ashford Trust to stockholders of Ashford Trust; (ii) references to “Ashford Inc.,” “we,” “our” and “us” mean only Ashford Inc. and not its subsidiaries or other lower-tier entities, except as otherwise indicated; and (iii) references to Ashford Trust refer to Ashford Hospitality Trust, Inc.  This summary is based upon the Code, the regulations promulgated by the U.S. Treasury Department, rulings and other administrative pronouncements issued by the IRS, and judicial decisions, all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect.  No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.  We have not sought and do not intend to seek an advance ruling from the IRS regarding any matter discussed in this information statement. The summary is also based upon the assumption that Ashford Trust, Ashford Inc. and their respective subsidiaries and affiliated entities will operate in accordance with their applicable organizational documents or partnership agreements and the agreements and other documents applicable to our separation from Ashford Trust.  This summary is for general information only and is not tax advice.  The Code provisions governing the federal income tax treatment of REITs (such as Ashford Trust) and their stockholders are highly technical and complex, and this summary is qualified in its entirety by the express language of applicable Code provisions, Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof. This summary does not address all possible tax considerations that may be material to an investor and does not constitute legal or tax advice.  Moreover, this summary does not purport to discuss all aspects of federal income taxation that may be important to a particular investor in light of its investment or tax circumstances, or to investors subject to special tax rules, such as:

 

·                  financial institutions;

 

·                  insurance companies;

 

·                  broker-dealers;

 

·                  regulated investment companies and REITs;

 

·                  partnerships and trusts;

 

·                  persons who hold our stock on behalf of another person as a nominee;

 

·                  persons who receive our stock through the exercise of employee stock options or otherwise as compensation;

 

·                  persons holding our stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;

 

and, except to the extent discussed below:

 

·                  tax-exempt organizations; and

 

·                  foreign investors.

 

This summary assumes that investors will hold their common stock as a capital asset, which generally means as property held for investment.  For purposes of this discussion under the heading “Certain U.S. Federal Income Tax Consequences of the Separation,” a domestic holder is a stockholder of Ashford Trust that is for federal income tax purposes:

 

·                  a citizen or resident of the United States,

 

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·                  a corporation (including an entity treated as a corporation for federal income tax purposes) created or organized in or under the laws of the United States, any of its states, or the District of Columbia,

 

·                  an estate, whose income is subject to federal income taxation regardless of its source, or

 

·                  a trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election to be treated as a U.S. person.

 

A “non-U.S. holder” is a stockholder of Ashford Trust that is not a domestic holder and is not an entity treated as a partnership for federal income tax purposes. If a partnership, entity or arrangement treated as a partnership for federal income tax purposes holds Ashford Trust stock, the federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the federal income tax consequences of the separation.

 

THE FEDERAL INCOME TAX TREATMENT OF THE SEPARATION TO STOCKHOLDERS OF ASHFORD TRUST DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE.  IN ADDITION, THE TAX CONSEQUENCES OF THE SEPARATION TO ANY PARTICULAR STOCKHOLDER OF ASHFORD TRUST WILL DEPEND ON THE STOCKHOLDER’S PARTICULAR TAX CIRCUMSTANCES.  YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO YOU OF THE SEPARATION IN LIGHT OF YOUR PARTICULAR INVESTMENT OR TAX CIRCUMSTANCES.

 

Tax Classification of the Separation in General.  For federal income tax purposes, the separation will not be eligible for treatment as a tax-free distribution by Ashford Trust with respect to its stock.  Accordingly, the separation will be treated as if Ashford Trust had distributed to each Ashford Trust stockholder an amount equal to the fair market value of the Ashford Inc. common stock received by such stockholder (including any fractional shares deemed to be received, as described below), determined as of the distribution date (such amount, the “separation distribution amount”).   The federal income tax consequences of the separation on Ashford Trust’s stockholders are thus generally the same as the federal income tax consequences of Ashford Trust’s cash distributions.  The discussion below describes the federal income tax consequences to a domestic holder, a non-U.S. holder, and a tax-exempt domestic holder of Ashford Trust stock upon the receipt of Ashford Inc. common stock in the separation.

 

Although Ashford Trust will ascribe a value to the Ashford Inc. shares distributed in the separation, this valuation is not binding on the IRS or any other taxing authority.  These taxing authorities could ascribe a higher valuation to the distributed Ashford Inc. shares, particularly if, following the separation, those shares trade at prices significantly above the value ascribed to those shares by Ashford Trust.  Such a higher valuation may affect the distribution amount and thus the federal income tax consequences of the separation to Ashford Trust’s stockholders and to Ashford Trust.

 

Any cash received by a stockholder of Ashford Trust in lieu of a fractional share of Ashford Inc. common stock should be treated as if such fractional share had been (i) received by the stockholder as part of the separation and then (ii) sold by such stockholder for the amount of cash received.  Because (as described below) the basis of the fractional share deemed received by the Ashford Trust stockholder will equal the fair market value of such share on distribution date, a stockholder of Ashford Trust generally should not recognize additional gain or loss on the transaction described in (ii) of the preceding sentence unless the fractional share is sold at a price different from its fair market value on the distribution date.

 

To qualify as a REIT for federal income tax purposes each year, Ashford Trust must earn at least 75% of its gross income each year from certain real estate-related sources (the “75% gross income test”).  Ashford Trust will be required to recognize any gain, but will not be permitted to recognize any loss, with respect to the Ashford Inc. shares that it distributes in the separation, determined as if Ashford Trust had sold these shares for their fair market value on the distribution date.  The gain recognized by Ashford Trust from the distribution of Ashford Inc. shares

 

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will not constitute real estate-related income for purposes of the 75% gross income test.  Consequently, Ashford Trust would fail to satisfy the 75% gross income test for federal income tax purposes applicable to a REIT, and could fail to qualify as a REIT, if the gain Ashford Trust recognizes from the distribution of the Ashford Inc. shares, combined with any other items of income not qualifying for the 75% gross income test, exceed 25% of Ashford Trust’s gross income in the year of the separation.

 

Tax Basis and Holding Period of Ashford Inc. Shares Received by Holders of Ashford Trust Stock. An Ashford Trust stockholder’s tax basis in shares of Ashford Inc. common stock received in the separation (including any fractional shares deemed to be received, as described below) generally will equal the fair market value of such shares on the distribution date, and the holding period for such shares will begin the day after the distribution date.

 

Tax Treatment of the Separation to Domestic Holders.  The following discussion describes the federal income tax consequences to a domestic holder of Ashford Trust stock upon the receipt of Ashford Inc. common stock in the separation.

 

Ordinary Dividends.  The portion of the separation distribution amount received by a domestic holder that is payable out of Ashford Trust’s current or accumulated earnings and profits for the year of the distribution and that is not designated by Ashford Trust as a capital gain dividend will generally be taken into account by such domestic holder as ordinary income and will not be eligible for the dividends received deduction for corporations.  With limited exceptions, dividends paid by Ashford Trust are not eligible for taxation at the preferential income tax rates for qualified dividends received by domestic holders that are individuals, trusts and estates from taxable C corporations.  Such domestic holders, however, are taxed at the preferential rates on dividends designated by and received from a REIT such as Ashford Trust to the extent that the dividends are attributable to:

 

·                  income retained by the REIT in the prior taxable year on which the REIT was subject to corporate level income tax (less the amount of income tax), or

 

·                  dividends received by the REIT from TRSs or other taxable C corporations.

 

Non-Dividend Distributions.  A distribution to Ashford Trust’s domestic holders in excess of Ashford Trust’s current and accumulated earnings and profits will generally represent a return of capital and will not be taxable to a stockholder to the extent that the amount of such distribution does not exceed the adjusted tax basis of the holder’s Ashford Trust shares in respect of which the distribution was made.  Rather, the distribution will reduce the adjusted tax basis of the holder’s shares in Ashford Trust.  To the extent that such distribution exceeds the adjusted tax basis of a domestic holder’s Ashford Trust shares, the holder generally must include such distribution in income as long-term capital gain, or short-term capital gain if the holder’s Ashford Trust shares have been held for one year or less.

 

Capital Gain Dividends.  A distribution that Ashford Trust designates as a capital gain dividend will generally be taxed to domestic holders as long-term capital gain, to the extent that such distribution does not exceed Ashford Trust’s actual net capital gain for the taxable year, without regard to the period for which the holder that receives such distribution has held its Ashford Trust stock.  Corporate domestic holders may be required to treat up to 20% of some capital gain dividends as ordinary income.  Long-term capital gains are generally taxable at reduced maximum federal rates in the case of domestic holders that are individuals, trusts and estates, and ordinary income rates in the case of stockholders that are corporations.

 

Tax Treatment of the Separation to Non-U.S. Holders. The following discussion describes the U.S. federal income tax consequences to a non-U.S. holder of Ashford Trust stock upon the receipt of Ashford Inc. common stock in the separation.

 

Ordinary Dividends.  The portion of the separation distribution amount received by a non-U.S. holder that is (1) payable out of Ashford Trust’s current or accumulated earnings and profits for the year of the distribution, (2) not attributable to Ashford Trust’s capital gains, and (3) not effectively connected with a U.S. trade or business of the non-U.S. holder, will be treated as a dividend that is subject to U.S. withholding tax at the rate of 30%, unless reduced or eliminated by treaty.

 

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In general, non-U.S. holders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of Ashford Trust stock.  In cases where the dividend income from a non-U.S. holder’s investment in Ashford Trust stock is, or is treated as, effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business, the non-U.S. holder generally will be subject to federal income tax at graduated rates, in the same manner as domestic holders are taxed with respect to such dividends.  Such income must generally be reported on a federal income tax return filed by or on behalf of the non-U.S. holder. The income may also be subject to the 30% branch profits tax in the case of a non-U.S. holder that is a corporation unless reduced or eliminated by a tax treaty.

 

Non-Dividend Distributions.  Unless Ashford Trust’s stock constitutes a U.S. real property interest (“USRPI”), the separation distribution amount, to the extent not made out of Ashford Trust’s earnings and profits, will not be subject to federal income tax.  If Ashford Trust cannot determine at the time of the separation whether or not the separation distribution amount will exceed current and accumulated earnings and profits, the separation distribution will be subject to withholding at the rate applicable to ordinary dividends, as described above.

 

If Ashford Trust’s stock constitutes a USRPI, as described below, distributions that it makes in excess of the sum of (a) the stockholder’s proportionate share of Ashford Trust’s earnings and profits, plus (b) the stockholder’s basis in its Ashford Trust stock, will be taxed under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) in the same manner as if the Ashford Trust stock had been sold.  In such situations, the non-U.S. holder would be required to file a federal income tax return and would be subject to the same treatment and same tax rates as a domestic holder with respect to such excess, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals.

 

Ashford Trust’s stock will be treated as a USRPI if 50% or more of Ashford Trust’s assets throughout a prescribed testing period consist of interests in real property located within the U.S., excluding, for this purpose, interests in real property solely in a capacity as a creditor. It is currently anticipated that Ashford Trust’s stock will constitute a USRPI.

 

Ashford Trust’s stock nonetheless will not constitute a USRPI if Ashford Trust is a “domestically-controlled qualified investment entity.”  A domestically-controlled qualified investment entity includes a REIT, less than 50% of value of which is held directly or indirectly by non-U.S. holders at all times during a specified testing period.  It is anticipated that Ashford Trust will be a domestically-controlled qualified investment entity, and that a distribution with respect to Ashford Trust’s stock in excess of Ashford Trust’s earnings and profits will not be subject to taxation under FIRPTA.  No assurance can be given that Ashford Trust will remain a domestically-controlled qualified investment entity.

 

If Ashford Trust is not a domestically-controlled qualified investment entity, but its stock is “regularly traded,” as defined by applicable Treasury regulations, on an established securities market, a distribution to a non-U.S. holder nonetheless would not be subject to tax under FIRPTA, provided that the non- U.S. holder held 5% or less of Ashford Trust’s common stock at all times during a specified testing period.  It is anticipated that Ashford Trust’s common stock will be regularly traded.

 

In addition, if a non-U.S. holder owning more than 5% of Ashford Trust’s common stock disposes of such stock during the 30-day period preceding the ex-dividend date of any dividend payment by Ashford Trust, and such non-U.S. holder acquires or enters into a contract or option to acquire Ashford Trust’s common stock within 61 days of the first day of such 30-day period described above, and any portion of such dividend payment would, but for the disposition, be treated as USRPI capital gain (as defined below) to such non-U.S. holder under FIRPTA, then such non-U.S. holder will be treated as having USRPI capital gain in an amount that, but for the disposition, would have been treated as USRPI capital gain.

 

Gain in respect of a non-dividend distribution that would not otherwise be subject to FIRPTA will nonetheless be taxable in the U.S. to a non-U.S. holder in two cases: (1) if the non-U.S. holder’s investment in Ashford Trust stock is effectively connected with a U.S. trade or business conducted by such non-U.S. holder, the non-U.S. holder will be subject to the same treatment as a domestic holder with respect to such gain, or (2) if the non-U.S. holder is a nonresident alien individual who was present in the U.S. for 183 days or more during the

 

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taxable year and has a “tax home” in the U.S., the nonresident alien individual will be subject to a 30% tax on the individual’s capital gain.

 

Capital Gain Dividends. Under FIRPTA, a dividend that Ashford Trust makes to a non-U.S. holder, to the extent attributable to gains from dispositions of USRPIs that Ashford Trust held directly or through pass-through subsidiaries (such gains, “USRPI capital gains”), will, except as described below, be considered effectively connected with a U.S. trade or business of the non-U.S. holder and will be subject to federal income tax at the rates applicable to U.S. individuals or corporations. Ashford Trust will be required to withhold tax equal to 35% of the maximum amount that could have been designated as a USRPI capital gain dividend.  Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a non-U.S. holder that is a corporation.

 

Capital gain dividends received by a non-U.S. holder that are attributable to dispositions of Ashford Trust’s assets other than USRPIs are not subject to federal income tax, unless (1) the gain is effectively connected with the non-U.S. holder’s U.S. trade or business, in which case the non-U.S. holder would be subject to the same treatment as U.S. holders with respect to such gain, or (2) the non-U.S. holder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a “tax home” in the U.S., in which case the non-U.S. holder will incur a 30% tax on his capital gains.

 

A dividend that would otherwise have been treated as a USRPI capital gain dividend will not be so treated or be subject to FIRPTA, and generally will not be treated as income that is effectively connected with a U.S. trade or business, but instead will be treated in the same manner as ordinary income dividends (discussed above), provided that (1) the dividend is received with respect to a class of stock that is regularly traded on an established securities market located in the U.S., and (2) the recipient non-U.S. holder does not own more than 5% of that class of stock at any time during the one-year period ending on the date on which the dividend is received.  Ashford Trust anticipates that its stock will be “regularly traded” on an established securities exchange.

 

Withholding of Amounts Distributable to Non-U.S. Holders in the Separation.  If Ashford Trust is required to withhold any amounts otherwise distributable to a non-U.S. holder in the separation, Ashford Trust or other applicable withholding agents will collect the amount required to be withheld by reducing to cash for remittance to the IRS a sufficient portion of Ashford Inc. common stock that such non-U.S. holder would otherwise receive, and such holder may bear brokerage or other costs for this withholding procedure.  A non-U.S. holder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the amounts withheld exceeded the holder’s U.S. tax liability for the year in which the separation occurred.

 

Tax Treatment of the Separation to Tax-Exempt Entities.  Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from federal income taxation.  Such entities, however, may be subject to taxation on their unrelated business taxable income (“UBTI”).  While some investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a tax-exempt entity do not constitute UBTI.  Based on that ruling, and provided that (1) a tax-exempt stockholder has not held Ashford Trust stock as “debt financed property” within the meaning of the Code (i.e., where the acquisition or holding of the property is financed through a borrowing by the tax-exempt stockholder), and (2) such Ashford Trust stock is not otherwise used in an unrelated trade or business, the separation generally should not give rise to UBTI to a tax-exempt stockholder.

 

Tax-exempt stockholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from federal income taxation under sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code are subject to different UBTI rules, which generally require such stockholders to characterize distributions that Ashford Trust makes as UBTI.

 

In certain circumstances, a pension trust that owns more than 10% of Ashford Trust’s stock could be required to treat a percentage of the dividends as UBTI, if Ashford Trust is a “pension-held REIT.”  Ashford Trust will not be a pension-held REIT unless (1) it is required to “look through” one or more of its pension stockholders in order to satisfy certain REIT requirements and (2) either (i) one pension trust owns more than 25% of the value of Ashford Trust’s stock, or (ii) a group of pension trusts, each individually holding more than 10% of the value of Ashford Trust’s stock, collectively owns more than 50% of Ashford Trust’s stock.  Certain restrictions on ownership and transfer of Ashford Trust’s stock should generally prevent a tax-exempt entity from owning more than 10% of

 

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the value of Ashford Trust’s stock, and should generally prevent Ashford Trust from becoming a pension-held REIT.

 

Time for Determination of the Tax Impact of the Separation. The actual tax impact of the separation will be affected by a number of factors that are unknown at this time, including Ashford Trust’s final earnings and profits for 2014 (including as a result of the gain Ashford Trust recognizes in the separation), the fair market value of Ashford Inc.’s common stock on the distribution date and sales of FIRPTA or other capital assets.  Thus, a definitive calculation of the federal income tax impact of the separation will not be possible until after the end of the 2014 calendar year.  Ashford Trust will notify its stockholders of the tax attributes of the separation (including the separation distribution amount) on an IRS Form 1099-DIV.

 

Market For Our Common Stock

 

There is currently no public market for our common stock. A condition to the distribution is the listing on the                     of our common stock.  We intend to apply to have our common stock authorized for listing on the                     under the symbol “AINC.”

 

Trading Between the Record Date and Distribution Date.  Beginning shortly before the record date and continuing up to and through the distribution date, we expect that there will continue to be a “regular-way” market in Ashford Trust common stock but there will not be an “ex-distribution” market because of the uncertainty as to the distribution ratio prior to the distribution date.  Shares of Ashford Trust common stock that trade on the regular way market will trade with an entitlement to shares of our common stock distributed pursuant to the distribution.  Therefore, if you sell shares of Ashford Trust common stock in the “regular-way” market through the distribution date, you will be selling your right to receive common stock of Ashford Inc. in the distribution.

 

Furthermore, beginning on or shortly before the record date and continuing up to and through the distribution date, we expect that there will be a “when-issued” market in our common stock.  “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued.  The “when-issued” trading market will be a market for shares of our common stock that will be distributed to Ashford Trust common stockholders on the distribution date, assuming the minimum distribution is made.  If you owned shares of Ashford Trust common stock at the close of business on the record date, you would be entitled to common stock of Ashford Inc. distributed pursuant to the distribution.  You may trade your entitlement to the minimum distribution of our common stock, without trading the shares of Ashford Trust common stock you own, on the “when-issued” market.  If Ashford Trust adjusts the distribution ratio such that it distributes greater than      % of our outstanding common stock, you will not be able to trade your entitlement to shares in excess of the minimum distribution but will instead have to wait to trade in the regular way market.  On the first trading day following the distribution date, “when-issued” trading with respect to our common stock will end and “regular-way” trading will begin.

 

Conditions to the Distribution

 

We expect that the distribution will occur on                         , 2014, the distribution date, provided that, among other conditions described in this information statement, the following conditions shall have been satisfied:

 

·                  our registration statement on Form 10, of which this information statement is a part, shall have become effective, and no stop order relating to the registration statement shall be in effect;

 

·                  the listing of our common stock on the                      shall have been approved, subject to official notice of issuance;

 

·                  the receipt of all necessary consents and approvals from lenders to Ashford Trust;

 

·                  no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution or any of the transactions related thereto shall be in effect; and

 

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·                  as of the day preceding the distribution date, the board of directors of Ashford Trust shall have made a determination that the distribution remains in the best interest of Ashford Trust and its stockholders and that, taking into account current market conditions, the distribution is still advisable.

 

Reasons for the Separation

 

The board of directors of Ashford Trust, after careful review and consideration, determined that the separation of Ashford Inc. is in the best interests of Ashford Trust and its stockholders. The board’s determination was based on a number of factors, including the factors set forth below.

 

·                  Enhanced growth opportunities.  Our business represents a discrete and separate portion of Ashford Trust’s overall business strategy.  Our business has different financial and operational requirements than Ashford Trust’s business.  Ashford Trust is focused on investing opportunistically across all segments and at all levels of the capital structure within the hospitality industry while our business will be to serve as the external manager and focus on the asset management of the assets of Ashford Trust, Ashford Prime and potential new or additional platforms.  The separation will allow each company to better tailor its business strategies to best address growth opportunities in its industry.

 

·                  Increased transparency.  The separation will enable potential investors and the financial community to evaluate the performance and assess the strategy of each company separately.  We believe the additional information available resulting from the separate disclosure will allow each company’s securities to be appropriately valued by the market and may result in a higher aggregate market value than the value of the combined company.

 

·                  Tailored capital structure.  Each company will have the flexibility to create a capital structure tailored to its strategic goals and consistent with its stockholders’ interests, which may improve access to the capital markets for both Ashford Trust and Ashford Inc., as compared to Ashford Trust common stock prior to the distribution.  Further, we believe that the creation of a business model with few fixed assets, significant growth potential and stability of earnings, while maintaining alignment of stockholder interests between Ashford Inc. and the two companies it initially advises could unlock value in the asset management platform.

 

·                  Investor choice.  Ashford Trust’s board of directors believes that the lodging investment business and the asset management business appeal to different types of investors with different investment goals and risk profiles.  Following the distribution, investors will be able to pursue investment goals in either or both companies.  In addition, management should be able to establish goals, implement business strategies and evaluate growth opportunities in light of investor expectations specific to each company’s respective business, without undue consideration of investor expectations for the other business.

 

The anticipated benefits of the separation are based on a number of assumptions, and there can be no assurance that such benefits will materialize to the extent anticipated or at all.  In the event that the separation does not result in such benefits, the costs associated with the transaction could have a negative effect on our financial condition and ability to make distributions to our stockholders.  For more information about the risks associated with the separation, see “Risk Factors—Risks Related to the Separation.”

 

Reasons For Furnishing This Information Statement

 

This information statement is being furnished solely to provide information to Ashford Trust stockholders who are entitled to receive shares of Ashford Inc. common stock in the distribution.  This information statement is not, and is not to be construed as, an inducement or encouragement to buy, hold or sell any of our securities or securities of Ashford Trust.  We believe that the information in this information statement is accurate as of the date set forth on the cover.  Changes may occur after that date and neither Ashford Trust nor we undertake any obligation to update such information.

 

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Our Initial Advisory Agreements

 

We will initially advise two publically traded REITs, Ashford Prime and Ashford Trust, pursuant to advisory agreements, the terms of which are substantially similar.  The following summary of the terms of our advisory agreements does not purport to be complete and is subject to and qualified in its entirety by reference to the actual agreements, copies of which are filed as exhibits to the registration statement of which this information statement is a part.

 

General.  Pursuant to our advisory agreements, we will act as external advisor for each of Ashford Prime and Ashford Trust, responsible for implementing the investment strategies and decisions of such entities and the management of their day-to-day operations, in each case subject to the supervision and oversight of such entity’s respective board.  We will provide, or obtain on their behalf, the personnel and services necessary for each of Ashford Prime and Ashford Trust to conduct its respective business, and they will have no employees of their own.  All of the officers of each of Ashford Prime and Ashford Trust will be our employees.

 

Pursuant to the terms of our advisory agreements, we will provide Ashford Prime and Ashford Trust with a management team, including without limitation, the initial positions of the chief executive officer, president, chief financial officer, chief operating officer, chief accounting officer and executive vice president-asset management, senior vice president-corporate strategy and senior vice president-finance, along with appropriate support personnel as we deem reasonably necessary.  We are not obligated to dedicate any of our employees exclusively to either Ashford Prime or Ashford Trust, nor are we or our employees obligated to dedicate any specific portion of time to the business of either Ashford Prime or Ashford Trust, except as necessary to perform the service required of us in our capacity as their advisor.  We will, at all times, be subject to the supervision and oversight of the board of directors of each of Ashford Prime and Ashford Trust.  So long as we are the external advisor to Ashford Prime, Ashford Prime’s governing documents permit us to designate two persons as candidates for election as director at any stockholder meeting of Ashford Prime at which directors are to be elected.  Such nominees may be our executive officers.   The advisory agreement requires us to manage the business affairs of each of Ashford Prime and Ashford Trust in conformity with the policies and the guidelines that are approved and monitored by the boards of such entities.  Additionally, we must refrain from taking any action that would (a) adversely affect the status of either Ashford Prime or Ashford Trust as a REIT, (b) subject Ashford Prime or Ashford Trust to regulation under the Investment Company Act of 1940, as amended (the “Investment Company Act”), (c) knowingly and intentionally violate any law, rule or regulation of any governmental body or agency having jurisdiction over Ashford Prime or Ashford Trust, (d) violate any of the rules or regulations of any exchange on which the securities of Ashford Prime or Ashford Trust are listed or (e) violate the charter, bylaws or resolutions of board of directors of Ashford Prime or Ashford Trust, all as in effect from time to time.

 

Our Duties as Advisor.  Subject to the supervision of the respective boards of directors of each of Ashford Prime and Ashford Trust, we will be responsible for the day-to-day operations of Ashford Prime and Ashford Trust, including all of the subsidiaries and joint ventures of such entities, and shall perform (or cause to be performed) all services relating to the acquisition and disposition of hotels, asset management and operations of such companies as may be reasonably required, which shall include, without limitation, the following related to hotel investments:

 

·                  source, investigate and evaluate acquisitions and dispositions consistent with the applicable investment guidelines and make recommendations to the applicable board of such companies;

 

·                  engage and supervise, on behalf of such companies and at their expense, third parties to provide development management, property management, project management, design and construction services, investment banking services, financial services, property disposition brokerage services, independent accounting and auditing services and tax reviews and advice, transfer agent and registrar services, feasibility studies, appraisals, engineering studies, environmental property inspections and due diligence services, underwriting review services and consulting services;

 

·                  negotiate, on behalf of such companies, any acquisitions, dispositions, financings, restructurings or other transactions with sellers, purchasers, lenders, brokers, agents and other applicable representatives;

 

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·                  coordinate and manage the joint ventures of such companies, including monitoring and enforcing compliance with applicable joint venture or partnership governing documents;

 

·                  negotiate, on behalf of such companies, terms of hotel management agreements, franchise agreements and other contracts or agreements of such company, and modifications, extensions or terminations thereof including, without limitation, the negotiation and approval of annual operating and capital budgets under the management agreements;

 

·                  on behalf of such companies, enforce, monitor and manage compliance with hotel management agreements, franchise agreements and other contracts or agreements of such company, and modifications, extensions, waivers or terminations thereof;

 

·                  negotiate, on behalf of such companies, terms of loan documents for their respective financings;

 

·                  on behalf of such companies, enforce, monitor and manage compliance of loan documents to which such companies are a party;

 

·                  administer bookkeeping and accounting functions as are required for the management and operation of such companies, contract for audits and prepare or cause to be prepared such periodic reports and filings as may be required by any governmental authority in connection with the ordinary conduct of the business of such companies, and otherwise advise and assist with compliance with applicable legal and regulatory requirements, including without limitation, periodic reports, returns or statements required under the Exchange Act, the Code and any regulations or rulings thereunder, the securities and tax statutes of any jurisdiction in which such companies are obligated to file such reports, or the rules and regulations promulgated under any of the foregoing;

 

·                  advise and assist in the preparation and filing of all offering documents, registration statements, prospectuses, proxies, and other forms or documents filed with the SEC pursuant to the Securities Act or any state securities regulators; provided, however, that each such company will be responsible for the content of any and all of its offering documents, SEC filings or state regulatory filings;

 

·                  retain counsel, consultants and other third-party professionals on behalf of such companies, coordinate, supervise and manage all consultants, third-party professionals and counsel, and investigate, evaluate, negotiate and oversee the processing of claims by or against such companies;

 

·                  advise and assist with each such company’s risk management and oversight function;

 

·                  provide office space, office equipment and personnel necessary for the performance of services;

 

·                  perform or supervise the performance of such administrative functions reasonably necessary for the establishment of bank accounts, related controls, collection of revenues and the payment of debts and obligations of such companies;

 

·                  communicate with the investors and analysts of such companies, as required to satisfy reporting or other requirements of any governing body or exchange on which the securities of such company are traded and to maintain effective relations with such investors;

 

·                  advise and assist such companies with respect to public relations, preparation of marketing materials, website and investor relation services;

 

·                  counsel such companies regarding qualifying, and maintaining qualification as a REIT;

 

·                  assist such companies in complying with all regulatory requirements applicable to them;

 

·                  counsel such companies in connection with policy decisions to be made by their respective boards of directors;

 

·                  furnish reports and statistical and economic research to such companies regarding their investments, financing and capital market activities and services performed for them by us;

 

·                  asset manage and monitor the operating performance of the real estate investments of such companies, including the management and implementation of capital improvement programs, pursue property tax appeals (as appropriate), and provide periodic reports with respect to their investments to the

 

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applicable board of directors, including comparative information with respect to such operating performance and budgeted or projected operating results;

 

·                  maintain cash in U.S. Treasuries or bank accounts (with the understanding that our duties will not include providing or assisting in proactive investment management strategies or investment in securities other than U.S. Treasuries), and make payment of fees, costs and expenses, or the payment of distributions to the stockholders of such companies;

 

·                  advise such companies as to their capital structure and capital raising;

 

·                  take all actions reasonably necessary to enable such companies to comply with and abide by all applicable laws and regulations in all material respects, subject to such companies providing appropriate funding or capital;

 

·                  provide such companies with an internal audit staff with the ability to satisfy any applicable regulatory requirements, including requirements of the NYSE and the SEC, and any additional duties that are determined reasonably necessary or appropriate by the audit committees of such companies; and

 

·                  take such other actions and render such other services as may reasonably be requested by such companies consistent with the purpose of the applicable advisory agreement.

 

Any increase in the scope of duties or services to be provided by us must be jointly approved by us and either Ashford Prime or Ashford Trust, as applicable, and will be subject to additional compensation.

 

We also have the power to delegate all or any part of our rights and powers to manage and control the business and affairs of such companies to such officers, employees, affiliates, agents and representatives of ours or such company as we may deem appropriate.  Any authority delegated by us to any other person is subject to the limitations on our rights and powers specifically set forth in the advisory agreement or the charter of such company.

 

We are required to make available sufficient experienced and appropriate personnel to perform the services and functions specified and such personnel will devote such of their time and attention as is reasonably necessary to perform such services.

 

We will acknowledge receipt of the codes of business conduct and ethics, codes of conduct for the chief executive officer and chief accounting officer and policies on insider trading of such companies and will agree to require our employees who provide services to such companies to comply with the codes and the policies.

 

Limitations on Liability and Indemnification. The advisory agreements provide that we have no responsibility other than to render the services and take the actions described in the advisory agreements in good faith and with the exercise of due care and will not be responsible for any action the board of directors of either Ashford Prime or Ashford Trust takes in following or declining to follow any advice or from us.  The advisory agreements provides that we, and our officers, directors, managers, employees and members, will not be liable for any act or omission by us (or them) performed in accordance with and pursuant to the advisory agreements, except by reason of acts constituting gross negligence, bad faith, willful misconduct or reckless disregard of our duties under the applicable advisory agreement.

 

Each of Ashford Prime and Ashford Trust has agreed to indemnify and hold us harmless (including our partners, directors, officers, stockholders, managers, members, agents, employees and each other person or entity, if any, controlling us) to the full extent lawful, from and against any and all losses, claims, damages or liabilities of any nature whatsoever with respect to or arising from any acts or omission by us (including ordinary negligence) in our capacity as advisor, except with respect to losses, claims, damages or liabilities with respect to or arising out of our gross negligence, bad faith or willful misconduct, or reckless disregard of our duties under the applicable advisory agreement (for which we will indemnify Ashford Prime or Ashford Trust, as applicable).

 

Term and Termination. The initial term of our advisory agreement with Ashford Prime is five years, and the initial term of our advisory agreement with Ashford Trust is 20 years, in each case commencing from the effective date of the applicable advisory agreement.  Each advisory agreement provides for automatic one-year renewal terms on each anniversary date after the expiration of the initial term unless previously terminated as

 

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described below.  Following the initial terms, the advisory agreements may be terminated by Ashford Prime or Ashford Trust, as applicable, with 180 days’ written notice prior to the expiration of the then current term, on the affirmative vote of at least two-thirds of the independent directors of such entity, based upon a good faith finding that either (a) there has been unsatisfactory performance by us that is materially detrimental to such companies and the subsidiaries of such company taken as a whole, or (b) the base fee and/or incentive fee is not fair (and we do not offer to negotiate a lower fee that at least two-thirds of independent directors of Ashford Prime or a majority of the independent directors of Ashford Trust, as applicable, determine is fair).  If the reason for non-renewal specified by such company in the termination notice is (b) in the preceding sentence, then we may, at our option, provide a notice of proposal to renegotiate the base fee and incentive fee not less than 150 days prior to the pending termination date.  Thereupon, each party has agreed to use its commercially reasonable efforts to negotiate in good faith to find a resolution on fees within 120 days following receipt by the company of the renegotiation proposal.  If a resolution is achieved between us and at least two-thirds of the independent directors of Ashford Prime or a majority of the independent directors of Ashford Trust, in either case, within the 120-day period, then the applicable advisory agreement will continue in full force and effect with modification only to the agreed upon base fee and/ or incentive fee, as applicable.

 

Pursuant to the advisory agreement with Ashford Prime, if no resolution on fees is reached within the 120-day period, or if Ashford Prime terminates the advisory agreement by reason of clause (a) above, the advisory agreement will terminate, and Ashford Prime will be required to pay us a termination fee equal to three times the sum of the average annual base and incentive fees for the 24-month period immediately preceding the termination.

 

Pursuant to the advisory agreement with Ashford Trust, if no resolution on fees is reached within the 120-day period, or if Ashford Trust terminates the advisory agreement by reason of clause (a) above, the advisory agreement will terminate and Ashford Trust will be required to pay us a termination fee (the “Ashford Trust Termination Fee”) equal to either:

 

·                  if our common stock is not publicly traded, 14 times our earnings attributable to the Ashford Trust advisory agreement less costs and expenses (the “net earnings”) for the 12 months preceding termination of the Ashford Trust advisory agreement; or

 

·                  if at the time of the termination notice, our common stock is publicly traded, 1.1 multiplied by the greater of (i) 12 times our net earnings attributable to the Ashford Trust advisory agreement for the 12 months preceding the termination of such advisory agreement or (ii) the earnings multiple (based on net earnings after taxes) for our common stock for the 12 months preceding the termination of such advisory agreement multiplied by our net earnings attributable to the Ashford Trust advisory agreement for the same 12 month period; or (iii) the simple average of the earnings multiples (based on net earnings after taxes) for the our common stock for each of the three fiscal years preceding the termination of the Ashford Trust advisory agreement, multiplied by our net earnings attributable to the Ashford Trust advisory agreement for the 12 months preceding the termination of the advisory agreement;

 

plus, in either case, a gross-up amount for assumed federal and state tax liability, based on an assumed tax rate of 40%.

 

Ashford Prime or Ashford Trust may also terminate the applicable advisory agreement with 60 days’ notice upon a change of control of such entity, if the change of control transaction is conditioned upon the termination of the advisory agreement.  In such a circumstance, Ashford Trust would be required to pay the Ashford Trust Termination Fee, and Ashford Prime would be required to pay us a termination fee equal to either:

 

·                  if our common stock is not publicly traded, 14 times our earnings attributable to the Ashford Prime advisory agreement less costs and expenses (the “net earnings”) for the 12 months preceding termination of the advisory agreement; or

 

·                  if at the time of the termination notice, our common stock is publicly traded, 1.1 multiplied by the greater of (i) 12 times our net earnings attributable to the Ashford Prime advisory agreement for the 12 months preceding the termination of such advisory agreement or (ii) the earnings multiple (based on net earnings after taxes) for our common stock for the 12 months preceding the termination of such

 

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advisory agreement multiplied by our net earnings attributable to the Ashford Prime advisory agreement for the same 12 month period; or (iii) the simple average of the earnings multiples (based on net earnings after taxes) for our common stock for each of the three fiscal years preceding the termination of the Ashford Prime advisory agreement, multiplied by our net earnings attributable to the Ashford Prime advisory agreement for the 12 months preceding the termination of the advisory agreement;

 

plus, in either case, a gross-up amount for assumed federal and state tax liability, based on an assumed tax rate of 40%.  Any such termination fee will be payable on or before the termination date.

 

Either Ashford Prime or Ashford Trust may also terminate the applicable advisory agreement at any time, including during the initial term, without the payment of a termination fee under the following circumstances:

 

·                  upon a default by us in the performance or observance of any material term, condition or covenant under the applicable advisory agreement; provided, however, that such entity must, before terminating the advisory agreement, give written notice of the default to us and provide us with an opportunity to cure the default within 45 days if the default is under the Ashford Prime advisory agreement or 60 days if the default is under the Ashford Trust advisory agreement, or if such default is not reasonably susceptible to cure within the applicable timeframe, such additional cure period as is reasonably necessary to cure the default so long as we are diligently and in good faith pursuing such cure; provided, the additional cure period cannot exceed 90 days if the default is under the Ashford Prime advisory agreement, but there is no limitation on the cure period under the Ashford Trust advisory agreement;

 

·                  immediately upon providing written notice to us, following a voluntary or collusive bankruptcy event by us, or an involuntary bankruptcy event that remains undismissed and unstayed for a period exceeding 60 days if the default is under the Ashford Prime advisory agreement or 120 days if the default is under the Ashford Trust advisory agreement; except that pursuant to the terms of the Ashford Trust advisory agreement, if we file a motion to assume the Ashford Trust advisory agreement within 120 days of the commencement of such case or proceeding, the bankruptcy event will not constitute an event of default;

 

·                  immediately, upon the commencement by us of an action for our dissolution;

 

·                  immediately upon providing written notice to us, following our conviction (including a plea or nolo contendere) of a felony;

 

·                  immediately upon providing written notice to us, if we commit an act of fraud against Ashford Prime or Ashford Trust, misappropriate such entity’s funds or act in a manner constituting willful misconduct, gross negligence or reckless disregard in the performance of our material duties under the applicable advisory agreement (including a failure to act); provided, however, that if any such actions or omissions are caused by one of our employees and/or officers (or one of our affiliates) and we take all reasonable necessary and appropriate action against such person and cure the damage caused by such actions or omissions within 45 days of our actual knowledge of its commission or omission, neither Ashford Prime nor Ashford Prime will have any right to terminate the applicable advisory agreement; and

 

·                  immediately upon providing written notice to us following certain changes of control, exclusive of any change of control that is an assignment permitted as described in “—Assignment”.

 

Upon any termination of either advisory agreement, we are expected to cooperate with and assist Ashford Prime or Ashford Trust, as applicable, in executing an orderly transition of the management of its assets to a new advisor, providing a full accounting of all accounts held in the name of or on behalf of such company, returning any funds held on behalf of such company and returning any and all of the books and records of such company.  Ashford Prime or Ashford Trust, as applicable, will be responsible for paying all accrued fees and expenses and will be subject to certain non-solicitation obligations with respect to our employees upon any termination of the applicable advisory agreement.

 

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Following the initial term, we may terminate either advisory agreement prior to the expiration of each term with 180 days’ prior written notice.  Additionally, we may terminate either advisory agreement if Ashford Prime or Ashford Trust, as applicable, defaults in the performance or observance of any material term, condition or covenant under the applicable advisory agreement; provided, however, before terminating the advisory agreement, we must give Ashford Prime or Ashford Trust, as applicable, written notice of the default and provide such entity with an opportunity to cure the default within 45 days, or if such default is not reasonably susceptible to cure within 45 days, such additional cure period as is reasonably necessary to cure the default (not to exceed 90 days) so long as such entity is diligently and in good faith pursuing such cure.  In the event of such a termination, we will be entitled to all accrued fees and expenses.

 

Fees and Expenses.

 

·                  Base Fee. The total quarterly base fee will be equal to 0.70% per annum of the total enterprise value of each of Ashford Prime and Ashford Trust, subject to a minimum quarterly base fee.  The “total enterprise value” for purposes of determining the base fee will be calculated on a quarterly basis as (i) the average of the volume-weighted average price per share of common stock for such entity for each trading day of the preceding quarter multiplied by the average number of shares of common stock and common units outstanding during such quarter, on a fully-diluted basis (assuming all common units and long term incentive partnership units in the applicable operating partnership which have achieved economic parity with common units in the operating partnership have been redeemed for common stock in such company), plus (ii) the quarterly average of the aggregate principal amount of the consolidated indebtedness of such company (including its proportionate share of debt of any entity that is not consolidated but excluding its joint venture partners’ proportionate share of consolidated debt), plus (iii) the quarterly average of the liquidation value of any outstanding preferred equity of such company; provided, however, the “total enterprise value” of Ashford Trust will be decreased by the aggregate fair market value on the last day of the applicable quarter, of any equity interests in Ashford Prime and Ashford Inc. held by Ashford Trust.  The minimum base fee each quarter will be equal to the greater of (i) 90% of the base fee paid for the same quarter in the prior year and (ii) the “G&A ratio” multiplied by the total enterprise value of such company.  The “G&A ratio” will be calculated as the simple average of the ratios of total general and administrative expenses, including any dead deal costs, less any non-cash expenses, paid in the applicable quarter by each member of a select peer group, divided by the total enterprise value of such peer group member.  The peer group for each company may be adjusted from time-to-time by mutual agreement between us and a majority of the independent directors of such company, negotiating in good faith.  The base fee will be payable in cash on a quarterly basis.

 

·                  Incentive Fee. In each year that the TSR of Ashford Prime or Ashford Trust exceeds the “average TSR of its peer group,” Ashford Prime or Ashford Trust, as applicable will be required to pay us an incentive fee.  For purposes of this calculation, the TSR of such entity will be calculated using a year-end stock price equal to the closing price of its common stock on the last trading day of the year as compared to the closing stock price of its common stock on the last trading day of the prior year, assuming all dividends on the common stock are reinvested into additional shares of common stock of such entity. The average TSR for each member of such company’s peer group will be calculated in the same manner, and the simple average for the entire peer group will be the “average TSR for its peer group.”  If the TSR of Ashford Prime or Ashford Trust exceeds the average TSR for its peer group, we will be paid an incentive fee.

 

The annual incentive fee will be calculated as (i) 10%, in the case of Ashford Prime, and 5%, in the case of Ashford Trust, of the amount (expressed as a percentage) by which the annual TSR of the applicable entity exceeds the average TSR for its respective peer group, multiplied by (ii) the fully diluted equity value of such company at December 31 of the applicable year.  The percentage by which the TSR of Ashford Trust exceeds the TSR of its peer group will be limited to 25% for purposes of calculating the incentive fee payable to us.  Further, with respect to Ashford Trust, for the stub period ending December 31, 2014, the product from the incentive fee calculation shall be reduced proportionately based on the number of days in which the advisory agreement with Ashford Trust is in effect for the calendar year 2014 divided by 365 days.  To determine the fully diluted equity value, we

 

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will assume that all units in the operating partnership of Ashford Prime or Ashford Trust, as applicable, including LTIP units that have achieved economic parity with the common units, if any, are redeemed for common stock of such company and that the per share value of each share of common stock of such company is equal to the closing price of its stock on the last trading day of the year.  For the purpose of calculating TSR for Ashford Trust during the first year, the starting price of its common stock will be based on the closing price per share of its common stock on the first trading day following the completion of the separation and distribution, and for its peers, the closing price on the same trading day.

 

The incentive fee due from Ashford Prime, if any, will be payable in arrears on an annual basis, on or before January 15 following each year in which an incentive fee is payable on the date of termination of the advisory agreement, if applicable.  Except in the case when the incentive fee is payable on the date of termination of the advisory agreement, up to 50% of the incentive fee may be paid in the common stock of Ashford Prime or in common units of the operating partnership of Ashford Prime, at the discretion of such entity, with the balance payable in cash unless at the time for payment of the incentive fee, we own common stock or common units of Ashford Prime in an amount greater than or equal to three times the base fee for the preceding four quarters.  If we own common stock or common units in an amount more than the base fee limitation then the entire incentive fee will be payable in cash.

 

The incentive fee due from Ashford Trust, if any, will be payable in arrears in three equal annual installments, with the first installment being due and payable on or before January 15 following the year for which the incentive fee relates and the remaining two installments being due and payable on or before January 15 of the next two successive years.  Notwithstanding the foregoing, each installment of the incentive fee will not be deemed earned by us or otherwise payable by Ashford Trust unless Ashford Trust, as of the December 31 immediately preceding the due date for the incentive fee installment payment, has a fixed charge coverage ratio of 0.20x or greater.  The fixed charge coverage ratio is defined as the ratio of adjusted EBITDA for the previous four consecutive fiscal quarters to fixed charges, which includes all (i) interest expense of Ashford Trust and its subsidiaries, (ii) regularly scheduled principal payments of Ashford Trust and its subsidiaries, other than balloon or similar principal payments which repay indebtedness in full and payments under a cash flow mortgage applied to principal, and (iii) preferred dividends paid by Ashford Trust.  Except in the case when the incentive fee is payable on the date of termination of the advisory agreement, up to 50% of the incentive fee may be paid in the common stock of Ashford Trust or in common units of the operating partnership of Ashford Trust, at the discretion of such entity, with the balance payable in cash unless at the time for payment of the incentive fee, we own common stock or common units of Ashford Trust in an amount greater than or equal to three times the base fee for the preceding four quarters.  If we own common stock or common units in an amount more than the base fee limitation then the entire incentive fee will be payable in cash.

 

·                  Equity Compensation. To incentivize our employees, officers, consultants, non-employee directors, affiliates and representatives to achieve the goals and business objectives of each of Ashford Prime and Ashford Trust, as established by the boards of directors of such entities, in addition to the base fee and the incentive fee described above, the boards of directors of each of Ashford Prime and Ashford Trust will have the authority to make annual equity awards to us or directly to our employees, officers, consultants and non-employee directors, based on achievement of certain financial and other hurdles established by such board of directors.  These annual equity awards are intended to provide an incentive to us and our employees to promote the success of the business of each of Ashford Prime and Ashford Trust.  The compensation committee of the board of directors of each of Ashford Prime and Ashford Trust will have full discretion regarding the grant of any annual equity awards to be provided to us or our employees, and other than the overall limitation on the total number of shares that are authorized to be granted under the applicable equity incentive plan, there are no limitations on the amount of these annual equity awards.

 

·                  Expense Reimbursement. We will be responsible for all wages, salaries, cash bonus payments and benefits related to our employees providing services to Ashford Prime or Ashford Trust (including any

 

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of the officers of Ashford Prime or Ashford Trust who are also officers of our company), with the exception of any equity compensation that may be awarded by Ashford Prime or Ashford Trust to our employees who provide services to Ashford Prime and Ashford Trust, the provision of certain internal audit services and the international office expenses described below.  Ashford Prime and Ashford Trust will each be responsible to pay or reimburse us monthly for all other costs we incur on behalf of such entities or in connection with the performance of our services and duties to such companies, including, without limitation, tax, legal, accounting, advisory, investment banking and other third-party professional fees, director fees and insurance (including errors and omissions insurance and any other insurance required pursuant to the terms of the advisory agreements), debt service, taxes, insurance, underwriting, brokerage, reporting, registration, listing fees and charges, travel and entertainment expenses, conference sponsorships, transaction diligence and closing costs, dead deal costs, dividends, office space, the cost of all equity awards or compensation plans established by such companies, including the value of awards made by companies to our employees, and any other costs which are reasonably necessary for the performance by us of our duties and functions.  In addition, each of Ashford Prime and Ashford Trust will pay a pro rata share of our office overhead and administrative expenses incurred in the performance of our duties and functions under the advisory agreement.  There is no specific limitation on the amount of such reimbursements.

 

In addition to the expenses described above, each of Ashford Prime and Ashford Trust are required to reimburse us monthly for its pro-rata share (as reasonably agreed to between us and a majority of the independent directors of such company or its audit committee, chairman of its audit committee or lead director) of (i) employment expenses of our internal audit managers and other employees who are actively engaged in providing internal audit services, (ii) the reasonable travel and other out-of-pocket costs relating to the activities of our internal audit employees and the reasonable third-party expenses which we incur in connection with the provision of internal audit services to such company, and (iii) all reasonable international office expenses, overhead, personnel costs, travel and other costs directly related to our non-executive personnel who are located internationally.  Ashford Trust is also required to reimburse us for reasonable international expenses related to our non-executive personnel that oversee the operations of international assets or related to our personnel that service, investigate or provide diligence services in connection with possible acquisitions or investments internationally.  Such expenses will include but are not limited to, salary, wage payroll taxes and the cost of employee benefit plans.

 

·                  Additional Services.  If, and to the extent that, either Ashford Prime or Ashford Trust requests us to render services on behalf of such company other than those required to be rendered by us under the advisory agreement, such additional services shall be compensated separately, at market rates, as defined in the advisory agreements.

 

Assignment.  Ashford LLC may assign its rights under the advisory agreement with Ashford Prime without approval of Ashford Prime, to a publicly-traded company newly formed through a spin-off, carve-out, split-off or similar distribution of Ashford LLC, its property and affairs to Ashford Trust’s stockholders.  In the separation and distribution, Ashford LLC will become our operating company and will continue to advise Ashford Prime, so no assignment of the advisory agreement is contemplated.  We may not assign our rights under the Ashford Prime advisory agreement without the prior written approval of Ashford Prime, if such assignment is to a party that has a person or group (as defined under the federal securities laws) with a 35% or greater ownership interest unless the party is controlled by one or more of the persons who controls us immediately before the assignment.  We will not be permitted to assign our rights under the Ashford Trust advisory agreement without the prior written approval of Ashford Trust, if such assignment is to a party that has a person or group (as defined under the federal securities laws) with a 50% or greater ownership interest unless the party is controlled by one or more of the persons who controls us immediately before the assignment.

 

The Ashford Trademark.  Pursuant to the Separation and Distribution Agreement, we will have a proprietary interest in the “Ashford” trademark, and we have agreed to license its use to each of Ashford Prime and Ashford Trust.  If at any time Ashford Prime or Ashford Trust ceases to retain us to perform advisory services for them, within 60 days following receipt of written request from us, such entity must cease to conduct business under

 

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or use the “Ashford” name or logo, as well as change its name and the names of any of its subsidiaries to a name that does not contain the name “Ashford.”

 

Relationship with Ashford Prime and Ashford Trust. Immediately following the separation and distribution, we will advise both Ashford Prime and Ashford Trust.  We, our equityholders and our employees are also permitted to have other advisory clients, which may include other REITs operating in the real estate industry, provided we may not act as external advisor for an entity with investment guidelines substantially similar to Ashford Prime, as initially set forth in the advisory agreement with Ashford Prime.  If Ashford Prime materially revises its initial investment guidelines without our express written consent, we will use our best judgment to allocate investment opportunities to them and other entities we advise, taking into account such factors as we deem relevant, in our discretion, subject to any of our then existing obligations to such other entities. Ashford Prime has agreed that it will not revise its initial investment guidelines to be directly competitive with Ashford Trust.  The advisory agreements give each of Ashford Prime and Ashford Trust the right to equitable treatment with respect to other clients of ours, but the advisory agreements do not give any entity the right to preferential treatment, except as follows:

 

·                  Any new individual investment opportunities that satisfy Ashford Prime’s initial investment guidelines will be presented to its board of directors, who will have up to 10 business days to accept any such opportunity prior to it being available to Ashford Trust or another business advised by us.

 

·                  Any new individual investment opportunities that satisfy Ashford Trust’s initial investment guidelines will be presented to its board of directors, who will have up to 10 business days to accept any such opportunity prior to it being available to Ashford Prime or another business advised by us.

 

To minimize conflict between Ashford Prime and Ashford Trust, the advisory agreements require each such entity to designate an investment focus by targeted RevPAR, segments, markets and other factors or financial metrics.  After consultation with us, such entity may modify or supplement its investment guidelines from time to time by giving written notice to us; however, if either Ashford Prime or Ashford Trust materially changes its investment guidelines without our express written consent, we will use our best judgment to allocate investment opportunities to Ashford Prime, Ashford Trust and other entities we may advise, taking into account such factors as we deem relevant, in our discretion, subject to any then existing obligations we have to such other entities.

 

When determining whether an asset satisfies the investment guidelines of either Ashford Prime or Ashford Trust, we must make a good faith determination of projected RevPAR, taking into account historical RevPAR as well as such additional considerations as conversions or reposition of assets, capital plans, brand changes and other factors that may reasonably be forecasted to raise RevPAR after stabilization of such initiative.

 

If Ashford Prime or Ashford Trust elect to spin-off, carve-out, split-off or otherwise consummate a transfer of a division or subset of assets for the purpose of forming a joint venture, a newly created private platform or a new publicly traded company to hold such division or subset of assets constituting a distinct asset type and/or investment guidelines, any such new entity will be externally advised by us pursuant to an advisory agreement containing substantially the same material terms set forth in our advisory agreement with Ashford Prime or Ashford Trust, as applicable.

 

If either Ashford Prime or Ashford Trust desires to engage a third party for services or products (other than services exclusively required to be provided by the property managers for such entities), we will have the exclusive right to provide such services or products at typical market rates provided that Ashford Prime or Ashford Trust, as applicable, is able to control the award of the applicable contract.  We will have at least 20 days after the applicable company gives notice of the terms and specifications of the products or services that Ashford Prime or Ashford Trust, as applicable, intends to solicit to provide such services or products at market rates, as determined by reference to fees charged by third-party providers who are not discounting their fees as a result of fees generated from other sources.  If a majority of the independent directors of either Ashford Prime or Ashford Trust, as applicable, determines that our pricing proposal is not at market rates, Ashford Prime or Ashford Trust, as applicable, is required to engage a consultant to determine the market rate for the services or products in question.  Such company will be required to pay for the services of the consultant and to engage us at the market rates determined by the consultant if the consultant finds that our proposed pricing was at or below market rates.

 

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Alternatively, we will pay the consultant’s fees and will have the option to provide the services or product at the market rates determined by the consultant should the consultant find that the proposed pricing was above market rates.

 

Our Mutual Exclusivity Agreement

 

We and Ashford LLC, our operating company, will enter into a mutual exclusivity agreement with Remington, that will be consented and agreed to by Mr. Monty J. Bennett, regarding potential future advisory clients for us and property management clients for Remington. Mr. Monty Bennett and his father Mr. Archie Bennett, Jr. are the sole owners of Remington, and Mr. Monty Bennett is the chief executive officer of Remington. The following summary assumes that we have already entered into the mutual exclusivity agreement. We will sign the agreement on the effective date of the distribution described in this information statement.

 

Term.  The initial term of the mutual exclusivity agreement will be 10 years. This term will automatically extend for three additional renewal periods of seven years each and a final renewal period of four years, for a total of up to 35 years. The agreement may be sooner terminated because of:

 

·                  an event of default (see “—Events of Default”), or

 

·                  a party’s early termination rights (see “—Early Termination”).

 

Exclusivity Rights.  We have agreed to utilize Remington to provide property management, project management and development services for all hotels, if any, that we may acquire as well as all future companies we advise, to the extent that we have the right, or control the right, to direct such matters, unless our independent directors either (i) unanimously vote not to utilize Remington for such services or (ii) based on special circumstances or past performance, by a majority vote elect not to engage Remington because they have determined, in their reasonable business judgment, that it would be in our best interest not to engage Remington or that another manager or developer could perform the duties materially better.  In exchange for our agreement to engage Remington for such services for hotels, if any, that we may acquire as well as future companies that we advise, Remington has agreed to grant to us and any such future companies that we advise a first right of refusal to purchase any investments identified by Remington and any of its affiliates that meet the initial investment criteria of us or such entities, as applicable, as identified in the advisory agreement between us and such entities, subject to any prior rights granted by Remington to other entities, including Ashford Trust, Ashford Prime and us.

 

Management or Development.  If we acquire any hotel properties and utilize Remington as the property manager for such properties, we have agreed to enter into a management agreement substantially in the form attached as an exhibit to the mutual exclusivity agreement.  Additionally, if we utilize Remington as the property manager for one or more of the hotel properties of any of our future clients, we will use our best efforts to cause such client to enter into a management agreement with Remington substantially in the form attached as an exhibit to the mutual exclusivity agreement.  Further, if we utilize Remington to develop and construct a hotel for us or any of our future clients, we will enter into, and use our best efforts to cause such client to enter into, a development and construction agreement in a form agreed to by us and Remington.

 

Events of Default. Each of the following is a default under the mutual exclusivity agreement:

 

·                  we or Remington experience a bankruptcy-related event; and

 

·                  we or Remington do not observe or perform any other term of the agreement, subject to a 30-day cure period (which may be increased to a maximum of 120 days in certain instances).

 

If a default occurs, the non-defaulting party will have the option of terminating the mutual exclusivity agreement subject to 30 days’ written notice and pursuing its rights and remedies under applicable law.

 

Early Termination. Remington has the right to terminate the exclusivity rights granted to us if:

 

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·                  Mr. Monty J. Bennett is removed as our chief executive officer or as chairman of our board of directors or is not re-appointed to either position, or he resigns as chief executive officer or chairman of our board of directors; or

 

·                  we terminate the Remington exclusivity rights pursuant to the terms of the mutual exclusivity agreement.

 

We may terminate the exclusivity rights granted to Remington if:

 

·                  Remington is no longer “controlled” by Mr. Monty Bennett or his father, Mr. Archie Bennett, Jr., or their respective family partnership or trusts, the sole members of which are at all times lineal descendants of Mr. Monty Bennett or Mr. Archie Bennett, Jr. (including step children) and their spouses;

 

·                  we experience a change in control; or

 

·                  the Remington parties terminate our exclusivity rights pursuant to the terms of the mutual exclusivity agreement.

 

Assignment. The mutual exclusivity agreement may not be assigned by any of the parties to the agreement without the prior written consent of the other parties, provided that Remington can assign its interest in the mutual exclusivity agreement, without the written consent of the other parties, to one of its affiliates.

 

Our Competitive Strengths

 

We believe we distinguish ourselves from other companies that provide asset management or other day-to-day management services to entities within the hospitality industry through the following strengths:

 

·                  Proven Track Record of Delivering Stockholder Value. We will be led by the current management team of Ashford Trust.  This management team has generated strong stockholder returns for Ashford Trust since its inception in 2003.  Ashford Trust has experienced an approximate 132.2% total return measured from its initial public offering through December 31, 2013.  Total return is measured as the increase in the market price of common stock over the specified time period, assuming all dividends are reinvested into additional shares of common stock.

 

·                  Experienced Management Team.  Although during the financial crisis, Ashford Trust entered into consensual foreclosures on three hotel properties, realizing a net loss on investments in these properties of $54.1 million, since January 2009, Ashford Trust has generated the highest total return to stockholders of all publicly-traded lodging REITs that existed throughout that period, with an approximate 1129.7% total return measured from January 1, 2009 through December 31, 2013.  This management team has a very capable and diverse skill set to asset manage hotel businesses as well as engage in complex transactions.  For example, our management team has successfully completed several multi-property acquisitions for Ashford Trust, including the $2.4 billion acquisition of the 51-property CNL Hotels & Resorts portfolio in 2007 and the $1.3 billion acquisition of the 28-property Highland Hospitality portfolio in 2011.  This management team also oversaw the successful spin-off of Ashford Prime from Ashford Trust, establishing a new publicly-traded company focused on investing primarily in high RevPAR, luxury, upper-upscale and upscale hotels.  Each of the chief executive officer, the president, the chief financial officer, the chief operating officer and the chief accounting officer of the management team has more than 20 years of lodging or real estate experience and has experienced multiple lodging cycles in that time.  Furthermore, the members of our management team have developed strong relationships with hotel owners, management companies, brand companies, brokers, lenders and institutional investors that will provide value-added benefits.

 

·                  Asset Management Expertise.  Our management team has a successful track record of maximizing the value of the hotel assets we oversee through aggressive asset management.  As the current asset management team for Ashford Trust and Ashford Prime, we oversee six different property management companies that operate Ashford Trust or Ashford Prime hotels.  We have significant

 

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experience with hotel operations, capital planning and capital expenditures, capital markets, buying and selling hotels and financing hotel assets.  We currently asset manage 124 hotels with an aggregate value of approximately $4.3 billion.

 

·                  Highly Aligned Management Structure.  We have been structured to ensure strong management alignment with our stockholders and the stockholders of the companies we advise.  Our executive management team and directors, together with Mr. Archie Bennett, Jr., chairman emeritus and co-founder of Ashford Trust, will own, directly or indirectly, approximately       % of the equity interest in our company, assuming the minimum distribution or approximately      %, assuming a 100% distribution of our common stock owned by Ashford Trust.  This group of management and directors, together with Mr. Archie Bennett, also owns approximately 19% of Ashford Trust and 10% of Ashford Prime, our initial advisory clients.  These ownership levels may fluctuate over time, but the significant insider ownership creates a strong alignment between management and our stockholders as well as the stockholders of the companies we advise.

 

·                  Attractive Corporate Governance. We will have an attractive governance structure that will provide transparency to investors and promote the long-term interests of stockholders. Some of the significant features of our corporate governance structure include:

 

·                  Five of seven board members are expected to be independent, with a lead independent director and with           of our initial independent directors having no prior affiliations with Ashford Trust or Ashford Prime.

 

·                  Corporate governance policy requires that the board consist of at least two-thirds independent directors at all times that we do not have an independent chairman.

 

·                  Governance documents that address conflicts.

 

·                  No stockholder rights plan currently, and governance documents that prevent us from maintaining such a plan for longer than 12 months without stockholder authorization, unless the board determines its fiduciary duties require otherwise.

 

·                  Prudent Capital Structure.  We expect to have no debt immediately following the distribution.  We expect to be adequately capitalized for more near term needs with approximately $15 million of cash available.  However, over time, we may choose to utilize financial leverage or raise equity for corporate strategic reasons and growth.

 

·                  Business Growth Opportunities.  The hospitality industry contains a wide array of services and product companies that may provide future investment opportunities.  We have the potential to increase our operational size and profitability through the expansion of existing platforms, the creation or acquisition of new companies to advise, or the formation or acquisition of, or the merger with, new operating businesses.

 

Our Financing Strategy

 

We currently do not use leverage, and therefore have no market risk sensitive instruments; however, we may decide to use leverage to meet future capital needs.  Our organizational documents do not limit our capacity to use leverage or the amount we may use.  Our financing objective is to manage our capital structure effectively in order to provide sufficient capital to execute our business strategies and in turn add value to stockholders.  We may from time to time use derivative instruments primarily to manage interest rate risk.

 

Regulation

 

General.  We and each of Ashford Prime and Ashford Trust, as applicable, are subject, in certain circumstances, to supervision and regulation by state and federal governmental authorities and are subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things regulate public disclosures, reporting obligations and capital raising activity.  As an advisor to companies that own hotel properties, the operations and such properties are subject to various federal, state and local laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements.

 

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REIT Regulations.  Each of Ashford Prime and Ashford Trust has elected and is qualified and expects to continue to qualify to be taxed as REITs under Section 856 through 860 of the Code.  As REITs, such companies must currently distribute, at a minimum, an amount equal to 90% of their taxable income.  In addition, such companies must distribute 100% of taxable income to avoid paying corporate federal income taxes.  REITs are also subject to a number of organizational and operational requirements in order to elect and maintain REIT status.  These requirements include specific share ownership tests and assets and gross income composition tests.  If either Ashford Prime or Ashford Trust fail to continue to qualify as REITs in any taxable year, it will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates.  Even if such companies continue to qualify for taxation as REITs, they may be subject to state and local income taxes and to federal income tax and excise tax on their undistributed income.

 

Americans with Disabilities Act.  As the advisor to Ashford Prime and Ashford Trust, we are responsible for ensuring that the hotels owned by such entities comply with applicable provisions of the Americans with Disabilities Act, or “ADA,”, to the extent that such hotels are “public accommodations” as defined by the ADA.  Non-compliance with the ADA could result in imposition of fines or an award of damages to private litigants.  The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess the hotels and to advise Ashford Prime or Ashford Trust, as applicable, to make alterations as appropriate in this respect.

 

Environmental Matters.  Under various laws relating to the protection of the environment, a current or previous owner or operator (including tenants) of real estate may be liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property and may be required to investigate and clean up such contamination at that property or emanating from that property.  These costs could be substantial and liability under these laws may attach without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the liability may be joint and several.  The presence of contamination or the failure to remediate contamination at the hotels owned by Ashford Prime or Ashford Trust may expose such entities, and potentially us, to third-party liability or materially and adversely affect the ability to sell, lease or develop the real estate or to incur debt using the real estate as collateral.

 

The hotels owned by Ashford Prime and Ashford Trust are subject to various federal, state, and local environmental, health and safety laws and regulations that address a wide variety of issues, including, but not limited to, storage tanks, air emissions from emergency generators, storm water and wastewater discharges, lead-based paint, mold and mildew and waste management.  These hotels incur costs to comply with these laws and regulations, and we or the property owners could be subject to fines and penalties for non-compliance.

 

Some of these hotels may contain or develop harmful mold or suffer from other adverse conditions, which could lead to liability for adverse health effects and costs of remediation.  The presence of significant mold or other airborne contaminants at any of the hotels owned by Ashford Prime or Ashford Trust could require a costly remediation program to contain or remove the mold or other airborne contaminants from the affected hotel or increase indoor ventilation.  In addition, the presence of significant mold or other airborne contaminants could expose us to liability from guests or employees at the hotels and others if property damage or health concerns arise.

 

In the judgment of management, while we do incur significant expense complying with the various regulation to which we are subject, existing statutes and regulations have not had a material adverse effect on our business.  However, it is not possible to forecast the nature of future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon our future business, financial condition, results of operations or prospects.

 

Competition

 

The asset management industry is highly competitive.  We compete on a regional, industry and niche basis based on a number of factors, including ability to raise capital, investment opportunities and performance, transaction execution skills, access to and retention of qualified personnel, reputation, range of products, innovation and fees for our services.  Our clients compete with many third parties engaged in the hotel industry, including other hotel operating companies, ownership companies (including hotel REITs) and national and international hotel brands.   Some of these competitors, including other REITs and private real estate companies and funds may have substantially greater financial and operational resources than Ashford Prime or Ashford Trust and may have greater

 

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We will, in general, remain as an emerging growth company for up to five full fiscal years following the distribution.  We would cease to be an emerging growth company and, therefore, become ineligible to rely on the above exemptions, if we:

 

·                  have more than $1 billion in annual revenue in a fiscal year;

 

·                  issue more than $1 billion of non-convertible debt during the preceding three-year period; or

 

·                  become a “large accelerated filer” as defined in Exchange Act Rule 12b-2, which would occur after: (i) we have filed at least one annual report pursuant to the Exchange Act; (ii) we have been an SEC-reporting company for at least 12 months; and (iii) the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.

 

Corporate Information

 

We were incorporated in Delaware on April 2, 2014.  Our principal executive offices are located at 14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254. Our telephone number is (972) 490-9600.  We have reserved the website located at www.ashfordinc.com.  The information that will be found on or accessible through our website is not incorporated into, and does not form a part of, this information statement or any other report or document that we file with or furnish to the SEC. We have included our website address in this information statement as an inactive textual reference and do not intend it to be an active link to our website.

 

HOSPITALITY INDUSTRY OVERVIEW

 

Although we do not directly operate in the hospitality industry and do not intend to limit our ability in the future to advising clients that operate strictly within the hospitality industry, our two initial clients, Ashford Trust and Ashford Prime, both operate exclusively in the hospitality industry.  Accordingly, the hospitality industry will, at least initially, have a significant impact on our business.

 

Lodging Fundamentals

 

The U.S. lodging industry is in the fifth year of what we anticipate will be a continuing recovery from the financial crisis and related economic recession. We believe this is an attractive point in the lodging investment cycle.

 

The deteriorating economic environment from the recession, combined with above average U.S. hotel supply growth in 2008 and 2009, contributed to a combined 18.7% decline in RevPAR from the end of 2007 to the end of 2009, according to data published by Smith Travel Research. RevPAR growth turned positive in 2010 and grew at rates of 5.4%, 8.2% and 6.8% respectively in 2010, 2011 and 2012. Given the strong correlation between room night demand and growth in real GDP, we believe the current projections of a gradual but consistent growth in real GDP provides an attractive backdrop for a sustained recovery phase of the lodging cycle.

 

We believe we are currently in the most profitable years of the current cycle resulting from favorable supply and demand dynamics. According to data provided by PKF Hospitality Research, LLC, hotel demand is expected to increase at a 2.3% compound annual rate from 2014 to 2016. This growth in demand represents a nearly 50% increase relative to the 25-year average per Smith Travel Research. At the same time, hotel supply is forecasted to grow more slowly, at a 1.4% compound annual rate from 2014 to 2016, including growth of 1.0% in 2014 and 1.3% in 2015. The combination of strong growth in room night demand with limited addition to supply should provide hotel owners with the opportunity to drive increases in ADR as industry occupancy exceeds long-term averages.

 

Given the high degree of operating leverage in the lodging industry, we believe that increases in ADR should result in significant gains in RevPAR and Hotel EBITDA. PKF Hospitality Research, LLC projects industry-wide RevPAR to grow 6.6% in 2014, 7.0% in 2015 and 4.7% in 2016, representing a compound annual growth rate over the period of 6.1%. This is more than two times the historical long-term annual average RevPAR growth rate of 3.0%.

 

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