Blackstone Group’s all-cash offer on Monday to acquire LaSalle Hotel Properties at a valuation of US$33.50 a share, or US$4.8 billion including debt, appears to have won the day for the 41-hotel REIT, besting Pebblebrook Hotel Trust’s most recent offer.
Despite a Monday morning follow up bid from Pebblebrook, at approximately US$35.89 a share offer (a 7.1% premium over Blackstone’s offer with 20% cash and the rest in stock), it appears the certainty of cash is king. R.W. Baird analyst Michael Bellisario said Monday afternoon that they believe the Pebblebrook counter offer is not the start/continuation of a bidding war as LaSalle’s board had received this revised proposal prior to entering into the agreement with Blackstone. The 3% equity valuation termination fee (US$112 million) attached to the Blackstone also would be hard for LaSalle to swallow.
For consolation, Pebblebrook, which already owns a 5% stake in Bethesda, Maryland-based LaSalle, would profit nicely from the Blackstone deal. Nonetheless, it was not going away quietly.
Pebblebrook Chairman and CEO Jon Bortz, seeking to create a portfolio on par of hotel REIT giants, Host Hotels & Resorts and Hilton spinoff Park Hotels & Resorts, said in a statement, “Our offer is substantially superior to the merger agreement that LaSalle has reached with Blackstone. We continue to believe that our offer maximizes immediate and long-term value for LaSalle’s shareholders. The combination of Pebblebrook and LaSalle would create a hotel industry leader, particularly in the independent and lifestyle segment, and it would allow shareholders of both companies to benefit from Pebblebrook’s management of the combined portfolio and the synergies that would result from bringing these two highly similar companies together. We are disappointed that LaSalle’s board of trustees has chosen not to pursue the unique opportunity that we presented.”
When LaSalle previously rejected Pebblebrook, it described its potential suitor’s stock as “overvalued” and said it had “significant concerns” that Pebblebrook’s share price reflected “its overly optimistic growth targets.” Interestingly enough, Bortz served as president and CEO of LaSalle Hotel Properties from its inception in April 1998 until September 2009.
Three days after agreeing to sell off the last of its Hilton stake and reportedly realizing a US$14 billion profit, Blackstone’s offer for LaSalle was more than double the 14.7% median premium in U.S. REIT transactions of more than US$1 billion over the past five years, according to Goldman Sachs Group data. It apparently was the best offer from 20 potential buyers, 10 of whom signed confidentiality agreements, according to LaSalle.
That is particularly good news for everyone in the hotel REIT sector as this bidding war bodes well for valuations, in general. But Bellisario noted that LaSalle’s portfolio has some of the highest-value real estate and highest brand and management optionality within the sector.
The transaction is expected to close in 3Q18 and is subject to approval by at least two-thirds of LaSalle’s shareholders.