Ashford announces combination with Remington

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Ashford announced that it has entered into a definitive agreement for a business combination with Remington Holdings. The transaction is expected to be completed in the first quarter of 2016, and is subject to receiving an acceptable private letter ruling from the U.S. Internal Revenue Service, the company’s stockholders’ approval, receipt of certain tax opinions, satisfaction of other tax-related conditions, and other customary closing conditions.

Remington is a premier hotel property and project management company with over 40 years of experience in the lodging industry, with a proven track record of outperforming other hotel property managers at its managed REITs. It currently operates 93 hotels in 28 states with almost 18,000 hotel rooms and approximately 8,000 associates. Current brand operations include: Marriott, Renaissance, Residence Inn, Courtyard, Fairfield Inn, SpringHill Suites, Sheraton, Westin, Crowne Plaza, Hilton, Embassy Suites, Hyatt, Hampton Inn, Hilton Garden Inn, and Homewood Suites. In addition to branded hotels, Remington also operates several independent hotels and The Gallery, Remington’s collection of independent luxury resort hotels. During 2015, Remington has added a net of 14 hotels to its property management portfolio reflecting growth of approximately 18 percent over 2014.

“We are extremely pleased with this opportunity to combine Remington’s proven expertise in improving RevPAR penetration and bottom-line asset performance with Ashford’s capabilities in investing and asset managing lodging real estate,” said Monty J. Bennett, Ashford’s chairman and chief executive officer. “This combination we believe will complement our asset management platform well and has great growth prospects.”

The transaction is being structured as a Section 351 tax-free exchange for federal income tax purposes. Ashford is creating a new subsidiary structure that will acquire an 80 percent stake in Remington and all of Ashford’s existing business. The Remington sellers will retain a 20 percent interest in Remington. Approximately 3 percent of the consideration delivered to the Remington sellers, or $10 million, will be paid in cash in equal quarterly installments of $625,000. Ashford’s new subsidiary will issue $230 million of participating convertible preferred securities with a dividend rate of 6.625 percent with a conversion premium 85 percent above yesterday’s Ashford common stock price and 916,500 shares of its nonvoting common stock (assuming a $100 stock price – 54 percent above yesterday’s Ashford common stock price) to the Remington sellers. Ashford will retain 100-percent of the subsidiary’s voting common stock. The subsidiary preferred and common stock and the retained 20-percent interest in Remington will be subject to certain put, call and/or conversion rights. The subsidiary common stock is intended to be economically equivalent to Ashford’s common stock. The transaction is expected to be immediately accretive to Ashford’s normalized adjusted net income per share. Also, as part of the transaction, the company and its managed REITs entered into letter agreements that stipulate that the incremental EBITDA to the company from the combination with Remington will not be included in the termination fee calculation under the advisory agreements.

Bennett added, “Our initiatives with forming the Ashford group of companies the past few years have positioned us well for this opportunity. With the rapid growth in operating scale and immediate incremental earnings this acquisition provides, this will be a transformational transaction for Ashford with little cash consideration. The transaction is also being completed at an estimated forward EBITDA multiple similar to where recent comparable transactions have been completed. We will continue to look for opportunities to install Remington as the property manager at the hotels owned by our managed REITs as Remington has a long, demonstrated track record of outperforming other property managers and driving revenue and EBITDA growth at the hotels it manages. Through that growth, this strategic transaction should deliver substantial long-term value to our shareholders.”

Remington is currently owned by Monty J. Bennett and Archie Bennett, Jr., the company’s CEO and his father. The company’s board of directors, therefore, formed a special committee of independent and disinterested directors to analyze and negotiate the transaction. The transaction is subject to approval by Ashford stockholders, regulatory approvals, the issuance by the IRS of a private letter ruling relating to Remington’s qualification as an eligible independent contractor under IRC Sec. 856(d)(9)(A), receipt of certain tax opinions, satisfaction of other tax related conditions, and other  customary closing conditions.

Ashford’s special committee was advised by BMO Capital Markets Corp. as financial advisor, and Norton Rose Fulbright US LLP acted as its legal advisor.  Robert W. Baird & Co. acted as Remington’s financial advisor, and Baker Botts L.L.P. acted as Remington’s legal advisor.

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