UNITE HERE Investor Report: Hotel REIT Corporate Governance Woes Apparent as Industry Convenes at Hotel on Strike

Corporate governance failures of hotel REITs are center stage this year as NAREIT gathers for its annual conference at the San Francisco Marriott Marquis, Host Hotels and Resort’s flagship 1,500 room convention hotel where workers have been on strike for over a month.

About 7,000 hotel workers are on strike at Marriotts (NYSE:MAR) in San Francisco, Boston, Hawaii, San Diego, and San Jose. Many of these hotels are high performers for their respective REITs and REITs are highly exposed to the costs of strikes:

  • Diamondrock’s (NYSE:DRH) Westin Waterfront by Marriott in Boston contributed 11% of 2017 EBITDA;
  • LaSalle’s (NYSE:LHO) Westin Copley Place contributed 9% of 2017 EBITDA;
  • Pebblebrook’s (NYSE:PEB) Westin Gaslamp in San Diego and W Boston combined for 10% of 2017 EBITDA;
  • Host’s SF Marriott Marquis and Sheraton Boston are a combined 2,720 rooms and 3.8% of 2017 EBITDA;
  • Braemar’s (NYSE:BHR) Courtyard Downtown SF was 10% of 2017 EBITDA;
  • RLJ’s (NYSE:RLJ) SF Marriott Union Square was 2% of 2017 EBITDA.

The main issues are economics and Marriott’s “Make a Green Choice” program that puts housekeepers at greater risk of pain and injury.

Well known environmental, social, and governance (“ESG”) failings at REITs predate the strikes.

  • Host Hotels & Resorts, Inc. opposed a shareholder proposal at its annual meeting this year that encouraged the company to issue an annual sustainability report with due diligence about operations at Host’s properties, including the impact on investors of hotel operators’ environmental, human rights, and labor practices.
  • Average support for nominating and governance committee directors at U.S.-based lodging REITs fell approximately 25 percentage points in 2017 — to an average of about 66% — from the previous uncontested election.
  • At Hospitality Properties Trust (NASDAQ:HPT), 81.9% of shareholder votes were cast against incumbent Nominating and Governance Committee member William Lamkin. Despite the overwhelming opposition, the Board elected Mr. Lamkin for another three-year term.

The REIT industry is known for its lack of diversity on corporate boards: “To be frank, the REIT industry is not the most enlightened group when it comes to diversity around the table,” said Bill Ferguson, chief executive of Ferguson Partners. Overall, just 17.5% of all directors on REIT boards are women. There are 32 REITs, or 16.7% of the 192 REITs, with no women board members. Nearly 70% of REITs have only one or two women on their boards.

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. See http://www.hotelcorpgov.org.


Dana Wise, 202-431-8831

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