AHT made its hostile bid for FelCor this past Tuesday, citing a “lack of responsiveness and willing to engage with us seriously” on a possible merger between the two hotel REITs. The offer was accompanied by AHT's nomination of seven independent directors to the FelCor board.

STAMFORD, CT—Shareholder Land and Buildings Investment Management weighed in Monday on Ashford Hospitality Trust's unsolicited bid for FelCor Lodging Trust, with CIO Jonathan Litt calling the proposal “woefully inadequate.” The all-stock AHT bid of approximately $1.27 billion values FelCor at $9.27 per share, compared to Land and Buildings' NAV estimate of $10.50 per share for the Irving, TX-based FelCor. Land and Buildings owns 6.1% of the hotel REIT's common stock; AHT owns about 4.5%.

“Given the substantial cash at both AHT and Ashford Inc., the external manager of AHT, totaling approximately $640 million, or nearly $5 per FelCor share, we are struggling to understand why any offer did not include a substantial cash component of at least the cash on hand,” writes Litt, Land and Buildings' co-founder, in an open letter to FelCor shareholders that was made public on Monday. “We would also note that a full cash offer could be made considering the likely proceeds from the assets being marketed at both companies.” He adds that AHT's offer “assigns no value to the perpetual management contract the FelCor assets would be encumbered with after the merger, which is likely worth in excess of $300 million, or more than $2 per FelCor share.”

Litt says he's pleased that FelCor is reviewing the AHT offer “to maximize value for all FelCor shareholders” rather than accepting it. On Friday, FelCor issued a statement expressing concern with the AHT bid, including a 30% dilution of FelCor's funds from operations. The AHT bid would also pass management of FelCor over to Ashford Inc., an arrangement that would result in “a significant value transfer” to Ashford, for which neither FelCor's nor AHT's shareholders would be compensated.

FelCor also cites the “extremely high leverage” of a combination with AHT, resulting in a company with leverage of approximately 8.5 times EBITDA, or about 1.5 times higher than its own current debt levels. “This increase in leverage is contrary to FelCor's stated strategy, which most long-term REIT investors, including many FelCor investors, support,” according to the company.

AHT made its hostile bid for FelCor this past Tuesday, citing a “lack of responsiveness and willing to engage with us seriously” on a possible merger between the two hotel REITs. The offer was accompanied by AHT's nomination of seven independent directors to the FelCor board.