Blackstone In The Hunt To Take Another REIT Private

&l;p&g;&l;img class=&q;dam-image getty size-large wp-image-959623818&q; src=&q;×0.jpg?fit=scale&q; data-height=&q;638&q; data-width=&q;960&q;&g; Traders work on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange on May 17, 2018 in New York. (Photo by Bryan R. Smith / AFP) (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)

&l;strong&g;AS OUR STORY BEGINS&a;hellip;&l;/strong&g;

We awaited another royal union, when a new white knight appeared, offering better bounty. And now it&a;rsquo;s official &a;ndash; a major acquisition in the REIT Lodging space, as &l;strong&g;The Blackstone&l;/strong&g; &l;strong&g;Group L.P.&l;/strong&g; (BX) announced this morning that it&a;rsquo;s buying &l;strong&g;LaSalle Hotel Properties&l;/strong&g; (LHO) for $33.50 a share, in an all-cash transaction, totaling about $4.8 billion, including debt. BX and not &l;strong&g;Pebblebrook Hotel Trust&l;/strong&g; (PEB), whose $35.44 per share offer (as of Friday), had been on the table.

The new Blackstone offer for LaSalle, has been unanimously approved by LaSalle&s;s Board, and shows a premium of about 35 percent over LaSalle&s;s unaffected share price, and approximately 13 percent over LaSalle&a;rsquo;s consensus net asset value of $29.64 per share (per FactSet).

&l;strong&g;LAST WEEK OUTSIDE THE GATES&l;/strong&g;

Not without note, the news comes days after Blackstone sold its stake in Hilton Worldwide, as PEhubwire reported today. BX generated $14 billion in profit on its 11-year investment in Hilton Worldwide Holdings, Friday, agreeing to sell 15.8 million shares in Hilton (no longer beneficially owning any Hilton common stock). The deal dates to 2007 when Blackstone acquired Hilton.

&l;strong&g;PRINCIPAL PLAYERS&l;/strong&g;

Stuart L. Scott, LaSalle Board Chairman said, &a;ldquo;As part of the Board&a;rsquo;s review, the Company and its advisors contacted 20 potential buyers, including strategic parties, brands and private equity firms. As a result, 10 potential buyers executed confidentiality agreements and received non-public information, and the Board engaged in extensive negotiations over price and terms.

&l;!–nextpage–&g; After careful consideration of multiple proposals received, the Board determined that this transaction represents the most compelling opportunity for LaSalle&a;rsquo;s shareholders, delivering a significant premium with immediate and certain cash value.&a;rdquo;

Michael D. Barnello, LaSalle President and CEO agreed: &a;ldquo;After a robust and competitive process, we are pleased to enter into this transaction with Blackstone, which has a proven ability to complete large transactions on agreed terms and has extensive experience in the real estate industry.&a;rdquo;

Tyler Henritze, head of US real estate acquisitions for Blackstone, added, &a;ldquo;We are thrilled to acquire LaSalle and have the opportunity to invest in its high-quality urban hotel portfolio.&a;rdquo;

&l;strong&g;OH, THAT&l;/strong&g;

Completion of the transaction is expected in the third quarter of 2018, requires approval of LaSalle&a;rsquo;s shareholders (and not contingent upon financing).T here&a;rsquo;s also a mutual breakup fee if the deal goes sour: about $112 million if LaSalle rebuffs, and $336 million if Blackstone revokes (according to Bloomberg).

&l;strong&g;BUT WAIT, THERE&a;rsquo;S MORE&l;/strong&g;

Not 90 minutes after today&a;rsquo;s BX announcement, Pebblebrook noted Blackstone&a;rsquo;s price of $33.50 per share, was significantly lower than it has been willing to pay. So Pebblebrook upped their LaSalle merger proposal with an offer price of $35.89 (per LaSalle common share). That&a;rsquo;s 7.1% over Blackstone&a;rsquo;s offer, and 47.1% above LaSalle&a;rsquo;s closing price March 27, 2018 (the day before Pebblebrook publicly disclosed its initial offer of a business combination with LaSalle).

&l;/p&g;&l;blockquote&g;&a;ldquo;Our offer is substantially superior to the merger agreement that LaSalle has reached with Blackstone,&a;rdquo; said Jon Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. &a;ldquo;We continue to believe that our offer maximizes immediate and long-term value for LaSalle&a;rsquo;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&a;rsquo;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&a;rsquo;s board of trustees has chosen not to pursue the unique opportunity that we presented.&a;rdquo;&l;/blockquote&g;

&l;strong&g;AN EXPERT&a;rsquo;S VIEW&l;/strong&g;

&l;!–nextpage–&g; BTIG equity analyst James Sullivan noted today, several &a;ldquo;tailwinds&a;rdquo; boost prospects for LaSalle and the broad Lodging industry, into 2019: the rebound in room demand, early stages of a recovery of business travel demand (following strong corporate profits growth and surge in capital spending), and strong consumer outlook and related leisure demand.

Sullivan points out Pebblebrook&a;rsquo;s offer (of cash &a;amp; stock shares), even when based on Friday&a;rsquo;s closing numbers, could equate in 12 months to more than $39.97 per LaSalle share. He also notes the LaSalle-Blackstone transaction, which requires two-thirds approval by LaSalle shareholders, includes many Pebblebrook holders, who presumably are not necessarily interested in taking cash; and that Pebblebrook is the most likely &a;ldquo;strategic&a;rdquo; bidder for LaSalle, given their portfolio similarities and ability to eliminate a significant amount of LaSalle&a;rsquo;s overhead expense following acquisition.

Pebblebrook, Sullivan says, still has alternative moves which include selling its LaSalle shares (4.8% of them) at a significant profit; and increasing its offer (which we saw this morning). A sufficient increase could help cover that &a;ldquo;break-up&a;rdquo; fee, which amounts to about $1 per share.

&l;strong&g;WHO&a;rsquo;S WHO IN THE CAST&l;/strong&g;

LaSalle Hotel Properties, a leading multi-operator real estate investment trust, owns 41 upscale, full-service hotels, totaling approximately 10,400 guest rooms, in 11 markets in seven states and the District of Columbia.

Blackstone is a global leader in real estate investing, and since 1991, has approximately $120 billion in investor capital under management, for its portfolio of hotel, office, retail, industrial and residential properties in the US, Europe, Asia and Latin America.

Pebblebrook Hotel Trust acquires and invests primarily in upper upscale, full-service hotels in urban markets in major gateway cities, with 28 hotels, and a total of 6,973 guest rooms, across 9 states and the District of Columbia

&l;strong&g;OTHER BENEFICIARIES&l;/strong&g;

&l;!–nextpage–&g; Other Lodging REITs which could see share price movements in the wake of the announcement are &l;strong&g;Hospitality Properties Trust&l;/strong&g; (HPT), &l;strong&g;Chatham Lodging Trust&l;/strong&g; (CLDT), &l;strong&g;Apple Hospitality&l;/strong&g; (APLE), &l;strong&g;Ashford Hospitality Trust&l;/strong&g; (AHT), &l;strong&g;Hersha Hospitality Trust&l;/strong&g; (HT), &l;strong&g;Sunstone Hotel Investors&l;/strong&g; (SHO), &l;strong&g;Park Hotels &a;amp; Resorts&l;/strong&g; (PK), and &l;strong&g;Host Hotels &a;amp; Resorts&l;/strong&g; (HST).

My newsletter covers these REITs, and more than 121 others, across 15 subsectors, every month in &l;a href=&q;; target=&q;_blank&q;&g;&l;em&g;Forbes Real Estate Investor&l;/em&g;.&l;/a&g;

I own shares in CLDT, APLE, and PK.


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