ISS Finds Actions of Hospitality Properties Trust “Signal That It is in Open Conflict with Its Shareholders,” Reports UNITE HERE

Proxy advisor finds “material governance failure” merits votes against all director nominees

NEW YORK--()--Leading proxy advisor Institutional Shareholder Services (“ISS”) has recommended shareholders withhold votes from all director nominees at Hospitality Properties Trust [Nasdaq: HPT] at the company’s upcoming June 15, 2017 annual meeting, after HPT eliminated annual director elections and put in place additional restrictions on shareholders’ right to select board representatives of their choice.

“could deter legitimate efforts to seek board representation via a proxy contest.”

HPT shareholders have repeatedly and consistently voted in support of establishing annual director elections, and protecting annual director elections by opting out of Maryland’s unsolicited takeovers act (MUTA).

Other recent restrictions on shareholder rights at HPT flagged by ISS include:

  • Sharp restrictions on who can nominate directors or propose other business. HPT’s bylaws were amended in 2015 to provide that shareholders must have owned at least 1% of outstanding shares (over $47 million as of 6/9/17) for 3 years to nominate a director or propose other business – far in excess of SEC Rule 14a-8 thresholds.
  • Restrictions on potential shareholder nominees to the board. New bylaws excluding nominees receiving certain forms of compensation during their candidacy “could deter legitimate efforts to seek board representation via a proxy contest.”
  • Not permitting shareholders to amend company bylaws
  • Not permitting shareholders to take action between annual meetings (i.e., call a special meeting or act by written consent).

Thus, HPT has made it much harder for shareholders to nominate directors of their choice. By reclassifying its board, HPT has also made it harder to hold existing directors accountable. Shareholders’ support for existing board representation remains weak. No incumbent director at HPT received the support of a voting majority in 2015 or 2016, but in every case, directors have determined not to accept one another’s resignations.

HPT’s externally-advised structure may exacerbate governance concerns. As REIT commentator Brad Thomas explains, “… when you buy shares in an externally managed REIT, you are not actually hiring the management team. …The rub with external management typically involves conflicts of interest within the external manager's compensation arrangement.” ISS notes HPT does not disclose what portion of the external advisory fee is attributable to named executive officer (NEO) compensation.

ISS also flags the advisory agreement’s 20-year lock-in period, carrying a termination fee that could amount to hundreds of millions of dollars in payments.

UNITE HERE urges shareholders to vote FOR proposal 5, recommending HPT opt out of Maryland’s antitakeover statute; FOR proposal 6, recommending HPT adopt proxy access, and AGAINST all directors standing for re-election.

UNITE HERE represents hospitality workers and is a member of the Council of Institutional Investors. Its members are beneficiaries of pension funds with over $60 billion in assets. Since 2012, UNITE HERE has worked to improve shareholder rights at hospitality REITs. There is a labor dispute at one hotel owned by HPT. For additional information, please see http://www.hotelcorpgov.org.

Contacts

UNITE HERE
JJ Fueser, 416-893-8570
jjfueser@unitehere.org

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Institutional Shareholder Services finds "material governance failure" at Hospitality Properties Trust following board re-classification

UNITE HERE