Commercial Real Estate Direct Staff Report
Pebblebrook Hotel Trust has proposed buying LaSalle Hotel Properties in a stock swap valued at roughly $3.4 billion.
The Bethesda, Md., REIT has already accumulated a 4.8 percent stake in LaSalle, which also is based in Bethesda.
In a letter to LaSalle, Jon Bortz, Pebblebrook's chairman, president and chief executive, said both companies would benefit from a merger. A bigger property portfolio would bring with it increased management and contracting efficiencies and greater balance-sheet flexibility, allowing the merged company to more actively manage its portfolio through acquisitions and dispositions, as well as provide improved liquidity to shareholders.
Bortz emphasized that Pebblebrook's common shares have outperformed LaSalle's over the past nine years.
He had been founder, chairman and chief executive of LaSalle before launching Pebblebrook in 2009 to pursue upper-upscale and luxury hotels. He formed LaSalle in 1998 and during his tenure oversaw that company's growth to 31 properties and the raising of more than $3 billion of capital.
In his letter to Michael Barnello, who is president and chief executive of LaSalle, Bortz said the combined companies would be the second largest hotel REIT and a dominant player in the upper-upscale and luxury segments with 69 such properties, some of which are independently operated and branded.
Under its offer, Pebblebrook would swap every LaSalle share, which closed yesterday at $24.35, for 0.8655 of its shares, which yesterday traded for $33.15 each. This morning, shares of both companies were up, with LaSalle's climbing by $4.50 and Pebblebrook's by nearly $1.50.
Pebblebrook also would assume LaSalle's preferred equity and debt. It could, however, refinance certain mortgages or loans.
Pebblebrook said it would hire Raymond James & Associates as its financial adviser and Hunton & Williams as legal counsel. The company as of the end of last year owned 28 hotels with 6,972 rooms in major cities. It also targets resort properties in or near certain urban markets and select tourist destinations in Florida and Southern California. Many of its properties are independently branded. They include the 202-room Hotel Zelos San Francisco, the 183-room Hotel Monaco in Washington, D.C., and The Nines with 331 rooms in Portland, Ore.
LaSalle, meanwhile, owns 41 hotels with 10,451 rooms in markets such as San Francisco, Washington, Boston, New York and San Diego. Its portfolio profile is similar to Pebblebrook's and includes properties such as the 761-room Park Central Hotel in New York, 139-room Hotel George in Washington and 681-room Park Central in San Francisco.
Revenue per available room, a widely followed hotel-sector metric, declined for both companies last year. Pebblebrook's fell by 2.21 percent, while LaSalle's fell by 1.8 percent last year. Both underperformed the wider hotel market in part because of softness in the San Francisco market, to which the two companies have a substantial exposure.
Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.
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