• New twist at LaSalle

The battle for LaSalle Hotel Properties took on a new twist with an unsolicited bid from Pebblebrook Hotel Trust.

Pebblebrook said that its terms were “clearly superior to the Blackstone proposal”, which was due to be voted on at a 6 September meeting, as the US Reit sector continued its period of M&A activity.

Pebblebrook increased the cash component of its USD37.80-per-share offer to a maximum of 30% of LaSalle’s outstanding shares from 20%. Blackstone made an all-cash offer of USD33.5 per share to LaSalle in May.

LaSalle said that it was allowed to engage in discussions with Pebblebrook, adding that there was no assurance that discussion would decide that the proposal was a superior one to the pending transaction with Blackstone.

Pebblebrook said: “LaSalle shareholders will receive consideration of substantially greater value at closing than under the Blackstone proposal and will also have the option to participate in the value creation of the combined company going forward.”

Jon Bortz, chairman, president & CEO of Pebblebrook Hotel Trust, added: “The terms of our enhanced offer are clearly superior to the Blackstone proposal, as was our prior offer. We’ve recently entered into an agreement to sell certain LaSalle properties in connection with the closing of a Pebblebrook-LaSalle merger. These strategic sales will allow us to continue to focus on properties and markets that are core to our go-forward strategy and also enable us to materially increase the cash component of our offer – and the overall value of our offer – without increasing our leverage compared to our prior proposal.”

Pebblebrook, which owns 9.8% of LaSalle, said it would, unsurpisingly, vote against Blackstone’s bid.

In July LaSalle agreed to a bid from Blackstone Group, which recently exited its position in Hilton, beating competition from Pebblebrook and, it was reported, Starwood Capital and Northwood Investors.

In spite of the higher per share price that was ultimately offered by Pebblebrook, LaSalle’s board favoured the Blackstone all-cash offer, citing the failure of Pebblebrook’s proposal to address the significant price risks and uncertainties inherent in a stock transaction.

LaSalle chairman Stuart Scott said: “After careful consideration of multiple proposals received, the board determined that this transaction represents the most compelling opportunity for LaSalle’s shareholders, delivering a significant premium with immediate and certain cash value.”

Both Pebblebrook and LaSalle were founded by Bortz, who said: “Our shareholders and LaSalle’s shareholders have long encouraged us to explore a combination to create a stronger industry leader.”

LaSalle owns four hotels in Manhattan: Gild Hall, Park Central New York, the Roger, and WestHouse. Pebblebrook responded by increasing its holding in LaSalle to 9%.

Blackstone’s success thus far in this transaction came after its failure last year to acquire FelCor, with RLJ Lodging winning in the event. The private equity group was more successful in Spain, where it acquired the remainder of Hispania it did not already own, valuing the Reit at over EUR2bn. Blackstone already held a 16.6%, acquired from Soros Fund Management, and planned to delist the Reit, which was launched in 2014.

Hispania’s portfolio included more than 180,000sqm in offices, 650 dwellings and 46 hotels. The real estate asset portfolio was currently valued at EUR2.81bn, an increase of 5.7% over the valuation carried out at the end of last year.

News of the fresh bid at LaSalle came as Strategic Hotels & Resorts was thought to be entering the M&A fray as Anbang Insurance withdrew from its overseas investments.

Anbang Insurance purchased Strategic Hotels & Resorts for USD6.5bn, including USD3.9bn in debt, in 2016. The deal gave Anbang Insurance a 16-strong portfolio of resorts and urban properties, which included sites under the Four Seasons, Fairmont and Intercontinental flags in Washington, D.C., Austin, Chicago, San Francisco, Southern California and Jackson Hole.

The deal saw a USD450m profit for Blackstone, which took Strategic Hotels & Resorts private in a buyout three months prior. Blackstone was linked to a bid for the group earlier this year, since when the assets have instead been marketed individually.

HA Perspective [by Katherine Doggrell]: While the disposal of Strategic Hotels & Resorts may be runs the risk of appearing something of a fire sale, given Anbang’s need to make a rapid exit, such is the enthusiasm for builder ever larger, stronger, more colossal hotel Reits, that it might just turn out OK for the Chinese after all.

Reits have not been having such a chipper time of it, with the latest Baird/STR Hotel Stock Index reporting that its hotel Reits sub index decreased by 3.3% to 1,769 in June, with the blame laid at the door of stronger US dollar, a lack of a material revpar growth reacceleration in May and June and lower interest rates.

STR did not expect a bearish trend to develop, however, the busy summer travel months were likely to bolster growth from already peak performance levels. With the market peaking on its peak, it’s no great wonder the Reits were seeking strength in numbers.

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