Three days after agreeing to sell off the last of its Hilton stake, Blackstone is buying another hotel company.
Blackstone Group LP agreed to acquire luxury hotel owner LaSalle Hotel Properties in an all-cash transaction that values LaSalle at $33.50 a share, or $4.8 billion including debt, the companies said in a statement Monday. The deal follows Blackstone’s announcement on Friday that it will sell the last of its Hilton Worldwide Holdings Inc. shares.
The Blackstone agreement thwarts a would-be merger between Bethesda, Maryland-based LaSalle, the owner of 41 luxury hotels, and smaller rival Pebblebrook Hotel Trust. Blackstone’s offer represents a premium of almost 35 percent above LaSalle’s share price on March 27, the day before Pebblebrook announced a proposed all-stock deal for LaSalle.
Pebblebrook had been seeking to combine with LaSalle to create a portfolio of upscale hotels and more formidably compete with REITs such as Host Hotels & Resorts Inc. and Park Hotels & Resorts Inc., the latter of which is a Hilton spinoff.
LaSalle and its advisers contacted 20 potential buyers, including strategic parties, brands and private equity firms, and 10 of them executed confidentiality agreements, leading to board negotiations over price and terms, Chairman Stuart L. Scott said in the statement.
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,” Scott said of the Blackstone agreement.
What Blackstone is offering is more than double the 14.7 percent median premium applied to U.S. real estate investment trust transactions over $1 billion in size over the past five years, according to Goldman Sachs Group Inc. data. LaSalle shares were trading at $33.50 before the market opened.
Pebblebrook has publicly made three proposals for LaSalle. Its most recent was disclosed on April 24 and involved the exchange of 0.9085 of a Pebblebrook share for each LaSalle share. That valued each LaSalle share at $35.44 based on Pebblebrook’s closing price on Friday, but based on its volume-weighted average price over the past month, the implied value is roughly $32.80. Even though by some measures the Pebblebrook proposal is higher than Blackstone’s cash offer, LaSalle’s board of directors prefers the certainty of the latter, according to the people with knowledge of the matter.
Still, it’s unclear how LaSalle’s investors, including HG Vora, which owns 9.1 percent of the hotel company’s stock, will view the transaction. The deal requires support from two-thirds of the shareholder base to proceed. HG Vora last week urged the company’s trustees to negotiate final structural terms with Pebblebrook, specifically singling out the mix of cash and stock, which had been a point of contention.
When LaSalle previously rejected Pebblebrook, it described its potential suitor’s stock as “overvalued” and said it had “significant concerns” that Pebblebrook’s share price reflected “its overly optimistic growth targets.” LaSalle also said that it was not confident Pebblebrook would meet its guidance. Pebblebrook’s third offer was also stock-based, but it allowed for 20 percent of LaSalle’s shareholders to seek cash proceeds, up from 15 percent in its second proposal.
Pebblebrook’s third proposal came after Bloomberg reported that other potential bidders including Blackstone were circling the company. Pebblebrook made its second proposal public in mid-April after its initial overture was rejected on March 28. LaSalle’s stock has gained 28 percent to $31.90 since Pebblebrook first revealed its interest. Over the same time, Pebblebrook’s shares have risen 16 percent to $39.01. They were trading at $38.80 before the market opened.
The breakup fee on the deal with Blackstone, should LaSalle choose to terminate it, is 3 percent of the overall equity value, or $112 million, according to a person with knowledge of the matter. Should Blackstone choose to walk away, the reverse breakup fee is $336 million, said the person, who asked not to be identified because the fee hasn’t been disclosed.
The acquisition is scheduled for completion in the third quarter. Bloomberg first reported Blackstone’s plans to buy LaSalle earlier Monday morning.
’The deal itself should bode well for LaSalle’s peers. In a note to clients on Sunday, Evercore ISI analysts led by Steve Sakwa upgraded lodging REITs to overweight from market weight, saying that prospects for potential mergers and acquisitions activity involving LaSalle and Pebblebrook “could be another tailwind for the sector.”
LaSalle represents the second REIT takeover deal in recent weeks involving Blackstone’s eighth flagship property fund, known as Blackstone Real Estate Partners VIII. Earlier this month, the firm said it would acquire warehouse owner Gramercy Property Trust for $7.6 billion including debt.
On Friday, Blackstone agreed to sell 15.8 million Hilton shares, the last of its holdings in the hotel company.