Monty Bennett’s efforts to trim the fat within his floundering hotel empire may violate federal tax law, a union representing hotel workers claims.
To receive coveted tax exemptions, real estate investment trusts must follow certain rules; one forbids them from operating the real estate assets under their control.
The REITs under Bennett’s Ashford Inc. haven’t been adhering to that requirement, UNITE HERE Local 11 in California claims.
In a letter to the state Attorney General and Franchise Tax Board, Local 11 claims some hotels owned by Ashford’s two REITs — Ashford Hospitality Trust and Braemar Hotels & Resorts — are managed by Remington Hospitality, a company Ashford also controls.
“Regardless of whether Ashford’s cost-cutting on the backs of hotel workers is motivated by the firm’s financial distress or just plain corporate greed, they can’t have it both ways,” Local 11 president Kurt Peterson told The Real Deal.
“Ashford and related companies can’t get a lucrative tax break for supposedly being passive investment vehicles and then turn around and engage in active involvement in operations.”
Remington manages at least 48 hotels owned by Ashford Hospitality Trust. Remington also manages four hotels owned by Braemar Hotels & Resorts, the companies’ websites show.
The letter points to a tax code provision that says money made from managing or operating property owned by a REIT is considered “impermissible tenant income.” It also provides excerpts from earnings calls to show the close relationships between Remington and the REITs in question.
The union is asking the California Office of the Attorney General and the Franchise Tax Board to investigate whether Ashford Hospitality Trust and Braemar Hotels & Resorts should be classified as REITs.
The letter comes on the heels of a bitter proxy battle launched by New York investor Blackwells to oust Bennett from Braemar Hotels & Resorts.
Activist investor Blackwells claimed that company shares plummeted while Bennett sat pretty on a growing mountain of management fees. The battle ended in a truce, but not before both sides traded heated attacks online.
During the conflict, Bennett also got smacked with a lawsuit accusing him of using his media outlet, the Dallas Express, to influence shareholders.
Meanwhile, Ashford has been desperate to make a dent in its mountain of debt and even delisted its tanking stock — purportedly to save money.
A $410 million loan backed by 17 hotels was transferred to special servicing in September for “imminent monetary default,” according to Morningstar Credit.
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Last summer, the firm announced plans to forego $335 million in debt payments and capital expenditures and return 19 hotels to lenders.
Ashford’s lenders requested a court-appointed receiver for seven distressed hotels a few months later. Two of those properties were scheduled for foreclosure in April, just a day after Ashford announced plans to leave the New York Stock Exchange.
