Pebblebrook Hotel Trust Revises Offer to Acquire LaSalle Hotel Properties, New Deal Valued at $4.17B

by John Nelson

BETHESDA, MD. — For the fourth time since March, Pebblebrook Hotel Trust (NYSE: PEB) has revised its merger proposal with LaSalle Hotel Properties (NYSE: LHO). Both hospitality REITs are based in Bethesda.

Pebblebrook’s offer is contingent on LaSalle breaking off its current merger agreement with Blackstone Group. Pebblebrook submitted its offer to LaSalle’s board of trustees a few weeks after Blackstone and LaSalle came to terms on their merger.

Blackstone’s deal was for $4.8 billion in an all-cash transaction. While a lower total dollar amount, Pebblebrook’s $4.17 billion offer excludes a debt portion, and The Wall Street Journal reports that Blackstone’s deal was valued at $3.7 billion when excluding debt.

Pebblebrook’s board of trustees has unanimously approved the new deal.

“The board of Pebblebrook remains convinced that a strategic combination with LaSalle represents a value-maximizing opportunity for the shareholders of both LaSalle and Pebblebrook,” said Jon Bortz, chairman, president and CEO of Pebblebrook.

The hospitality REIT’s new offer represents a 13 percent premium over the Blackstone agreement. For each LaSalle common share held, each LaSalle shareholder may elect to receive $37.80 in cash (compared to Blackstone’s $33.50 per share offer) or a fixed exchange ratio of 0.92 Pebblebrook share.

The deal caps the cash offer at 20 percent of the outstanding LaSalle shares. In the event that the cash option is oversubscribed by LaSalle shareholders, LaSalle shares will be subject to pro rata cutbacks.

As part of the new offer, Pebblebrook will pay the $112 million termination fee with Blackstone. The deal also offers for Pebblebrook’s senior executives to manage the combined company.

Looking at the last 12 years of merger and acquisition activity among REITs, Bortz is confident that LaSalle’s board will approve the new deal.

“We are not aware of any listed equity REIT M&A transactions since 2006 in which a target has agreed to a cash offer at a discount of greater than 1 percent compared to a competing share or share/cash offer,” says Bortz.

As of this writing, LaSalle’s board has not responded to the new offer.

Raymond James and BofA Merrill Lynch are acting as financial advisors, Hunton Andrews Kurth LLP is acting as legal counsel and Okapi Partners LLC is serving as information agent to Pebblebrook in connection with the proposed transaction.

Pebblebrook Hotel Trust owns 28 hotels totaling 6,973 guest rooms in nine states and Washington, D.C. The REIT’s stock price closed on Monday, June 11 at $39.99 per share, up from $32.39 a year ago.

LaSalle Hotel Properties owns 41 upscale, full-service hotels totaling approximately 10,400 guest rooms. The properties are situated in 11 markets in seven states and Washington, D.C. The company’s stock price closed on Monday at $35.20 per share, up from $30.49 a year ago.

— John Nelson

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