Pebblebrook, LaSalle Complete Merger; Start Selling Hotels Immediately

The hotels sold are Park Central San Francisco and Park Central New York/WestHouse New York, Gild Hall, New York and the Embassy Suites Philadelphia Center City.

Park Central Hotel in New York

BETHESDA, MD–After a hard-fought battle, Pebblebrook Hotel Trust has completed its $5.2 billion acquisition of LaSalle Hotel Properties. Shareholders for both REITs approved the transaction last week.

Under the terms of the Pebblebrook-LaSalle agreement, each LaSalle shareholder is receiving either a fixed amount of $37.80 in cash or a fixed exchange ratio of 0.92 Pebblebrook common share. A maximum of 30% of the outstanding LaSalle common shares may be exchanged for cash.

According to LaSalle president and CEO Michael D. Barnello, the transaction represents a 48% premium to LaSalle’s unaffected share price.

Jon E. Bortz will continue to serve as Chairman, President and Chief Executive Officer of Pebblebrook, Raymond D. Martz will continue to serve as CFO and Thomas C. Fisher will continue to serve as Chief Investment Officer. The Pebblebrook Board of Trustees remains unchanged, and the combined company will remain headquartered in Bethesda. The common shares of the combined company will continue to trade on the NYSE under the symbol “PEB”.

Hotels Sold for $820M

In connection with the closing, five hotels have been sold for $820.8 million. Pebblebrook had previously announced that it had three hotels under contract for a total of $715 million.

Of the five Pebblebrook announced, these properties have traded:

As part of an investors’ call following the deal’s initial agreement earlier this year, Pebblebrook Hotel Trust also said that it plans plans to sell between $750 million to $1.25 billion of hotels in the six to 12 months following the merger’s closure.

The sales of Gild Hall, New York and Embassy Suites Philadelphia City Center represent the first sales under that plan. “We continue to be encouraged with the level of buyer interest in the assets that we are actively marketing for disposition,” said Fisher.

A Strong Sector

The competition for LaSalle — Blackstone had made an initial offer for the REIT, which Pebblebrook countered a handful of times — has been in part driven by the hotel industry’s strong fundamentals and rising property valuations. According to CBRE, hotel demand grew 3.1% in Q2 2018, up from the 2.9% rate in Q1. Separately, Green Street Advisors found that hotel valuations gained more than 5% in the last 12 months.

A more recent, and far less encouraging statistic however, comes from Ten X’s quarterly Hotel Monitor report, which finds that hotel revenue growth during the third quarter of the year fell to its slowest pace since 2013, gaining just 2.7% from a year ago.

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