BETHESDA, MD–This morning Pebblebrook Hotel Trust announced that last week it had made an offer to acquire LaSalle Hotel Properties in an all-stock offer at price that equates to $28.69 per share, according to RBC Capital Market's calculations. LaSalle rejected the offer, which would have valued it at around $3 billion, stating in a letter that the proposal was “insufficient from both a price and mix of consideration perspective.”
A successful merger of the two REITs would create the second-largest lodging REIT in the US, according to Pebblebrook.
Pebblebrook said it has already acquired 4.8% of LaSalle shares.
The first wave of analysis over Pebblebrook's proposed merger suggests that the offer appropriately valued and that ultimately a deal will be struck. “The proposed price appears very fair to us and compares with our estimated NAV/share for LaSalle of $29.01 and the consensus estimate of $27.92,” write BTIG analysts James Sullivan and Ami Probandt in a research note.
“Since Pebblebrook announced that it is prepared to engage on both issues, we would assume that this is a proposal that has a good chance of succeeding.”
RBC Capital Markets analysts Wes Golladay and Brian Hawthorne noted that a buyout of LaSalle makes sense for several reasons: the portfolios are very complementary and its CEO Jon Bortz was one of the founders of LaSalle Hotels and its CEO until September 2009. Other employees of Pebblebrook have also worked at LaSalle, they write. They conclude that:
Pebblebrook shareholders would benefit from scale as G&A as a percent of Hotel EBITDA increased following asset sales. LaSalle shareholders would benefit from Pebblebrook's top-tier management team and increased exposure to the lodging cycle as LaSalle reduced leverage and built a large cash position following asset sales.
LaSalle Explains Itself
LaSalle pushed back against these conclusions in a public statement.
It pointed to what it said was Pebblebrook's history of missing RevPAR guidance.
The Board has significant concerns that Pebblebrook's share price reflects its overly-optimistic growth targets. Given Pebblebrook's history of consistently missing its RevPAR outlook over the past three years, as outlined below, and based on current market conditions, LaSalle is not confident Pebblebrook will meet its guidance.
LaSalle's RevPAR performance has been superior to Pebblebrook's for the past two years, and it was able to better contain expenses over the same period, it continued.
LaSalle also claims that the proposal exploits a short-term pricing dislocation in LaSalle's share price “illustrating Pebblebrook's attempt to transfer LaSalle value to Pebblebrook's shareholders by using its overvalued share currency.”
“LaSalle's shares traded above Pebblebrook's proposal value as recently as last month, implying the proposal reflects no premium to the historical trading range for LaSalle.”
A Wave of Consolidation
The proposed acquisition is part of a larger trend of consolidation among REITs. This week Brookfield made a successful offer to acquire the rest of the GGP shares that it didn't already own, for example. In the lodging space specifically, last year RLJ Lodging and FelCor Lodging completed a $7 billion stock-for-stock transaction
Many of these transactions have had their critics — the RLJ Lodging deal has been lambasted by activist shareholder Jonathan Litt ever since.
As for GGP, the market reacted to what was deemed a disappointing bid price by sending retail REIT shares tumbling.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
