ARLINGTON, VA. — Park Hotels & Resorts Inc. (NYSE: PK) has entered into an agreement to acquire Chesapeake Lodging Trust (NYSE: CHSP) in a stock-and-cash transaction valued at approximately $2.7 billion.
Both companies are Virginia-based hotel REITs, with Park headquartered in Tysons and Chesapeake headquartered in Arlington, just seven miles apart in the suburbs of Washington, D.C.
The deal, which is expected to close during the late third or early fourth quarter of this year, would create a company with an estimated enterprise value of $12 billion. Upon closing, Park stockholders will own roughly 84 percent of the new company, and Chesapeake shareholders will own roughly 16 percent.
Park’s current portfolio includes 52 hospitality properties totaling more than 30,000 rooms, mostly located in the U.S. with a handful in South America and the U.K. The company, which spun off from Hilton in 2017, focuses on high-end hotels.
Chesapeake’s current portfolio includes 20 properties totaling 6,288 rooms in eight states and Washington, D.C. The company also focuses on “upper-upscale” hotels.
Park has secured $1.1 billion in financing from Bank of America Merrill Lynch. Proceeds will be used to fund the cash component of the deal, as well as to cover some of Chesapeake’s outstanding debt and pay for a portion of closing costs.
Terms of the merger call for Chesapeake shareholders to receive $11 in cash and 0.628 shares of Park common stock for each Chesapeake share they hold. The fixed exchange ratio represents an agreed-upon price of $31 per share and a premium of 11 percent over Chesapeake’s 10-day volume weighted average stock price.
In addition, the ratio represents an 8 percent premium over Chesapeake’s closing stock price of $29.31 on May 3, 2019.
As part of the transaction, Park plans to sell five non-core hotels, including both of Chesapeake’s New York City properties: the 122-room Hyatt Herald Square New York and the 185-room Hyatt Place New York Midtown South.
On a pro forma basis that accounts for these sales, the portfolio of the combined company would consist of 66 properties across 17 states and Washington, D.C. The new entity will invest in capital improvement projects at select hotels, including adding more meeting space and guestrooms, and improving energy efficiency.
In a statement, Park CEO and chairman Thomas Baltimore cited the opportunity to improve his firm’s branding, operating platform and geographic range of holdings as key reasons behind the decision to merge.
Thomas Natelli, chairman of Chesapeake’s board of trustees, also affirmed his belief that the merger would have a variety of benefits for his company.
Stock prices saw noticeable changes due to pre-opening trade activity upon the deal announcement at 6:10 a.m. EST this morning. The CHSP stock price spiked more than a dollar before opening and continued to rise to $31.81 per share by 10 a.m. PK stock, on the other hand, fell slightly from its Friday close of $32.99 per share to $31.78 by 11 a.m.
One year ago, CHSP stock closed at $30.42 per share and PK stock closed at $29.87. Despite similar share prices, Park has many more shares and is a much larger company, with a $6.4 billion market cap compared to Chesapeake’s $1.9 billion cap.
— Taylor Williams