Market Overview

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
  • 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

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