What happened

Ashford Hospitality Trust (AHT 3.49%) probably lost a bit of trust with its investors on Tuesday. The company announced what's effectively a secondary share sale, which was met with an investor sell-off that drove the stock price down 8% on the day.

So what

In a regulatory filing, Ashford disclosed that an entity called Seven Knots is purchasing slightly over 40 million new shares of the company's common stock. The shares will be resold by Seven Knots to the public "from time to time." Ashford, a real estate investment trust (REIT) that specializes in hotels, did not get more specific about the sale schedule.

REIT spelled out in wooden blocks.

Image source: Getty Images.

Seven Knots is acquiring its shares for around $5.42 per share, so Ashford's total proceeds should exceed $217.3 million.

Rather vaguely, Ashford wrote that it will use these monies

for general corporate purposes, which may include acquisitions of additional properties or hospitality-related securities, as suitable opportunities arise, the origination or acquisition of hotel debt, the joint venture of hotel investments, the repayment of outstanding indebtedness, the repurchase of our outstanding equity securities, capital expenditures, the expansion, redevelopment or improvement of properties in our portfolio, working capital and other general purposes.

Now what

Prior to the share issue/resale, Ashford had just over 200.5 million shares of its common stock outstanding, so this new arrangement is quite dilutive. This is compounded by the somewhat convoluted nature of the deal; investors would probably have been more comfortable with a more traditionally direct share flotation by the REIT.