Skift Take

That didn't take long. No sooner did private equity powerhouse Blackstone say it was exiting Hilton completely than it emerges three days later with a bid for LaSalle Hotel Properties. Maybe the $14 billion it made on Hilton has something to do with being keen to get back into hotels.

Blackstone’s checking out of Hilton and into LaSalle.

Just days after announcing plans to sell the last of its Hilton Worldwide Holdings Inc. shares, Blackstone Group LP has agreed to buy luxury hotel owner LaSalle Hotel Properties, according to people with knowledge of the matter. The all-cash transaction values LaSalle at $33.50 a share, or $4.8 billion including debt, said the people, who asked not to be identified because the deal is confidential. Representatives for Blackstone and LaSalle declined to comment.

The agreement represents a premium of almost 35 percent above LaSalle’s share price on March 27, the day before its smaller rival, Pebblebrook Hotel Trust, announced a proposed all-stock deal for LaSalle, the owner of 41 luxury hotels. 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.

The Blackstone agreement thwarts a would-be merger between Bethesda, Maryland-based LaSalle and Pebblebrook, which 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.

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.

Support Needed

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, which 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. It’s possible its shares could decline on Monday with LaSalle agreeing to a purchase by Blackstone.

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 one of the people with knowledge of the matter. Should Blackstone choose to walk away, the reverse breakup fee is $336 million, the person said.

‘Another Tailwind’

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.

©2018 Bloomberg L.P.

This article was written by Gillian Tan from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to [email protected].


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Tags: blackstone, Pebblebrook Hotel Trust, private equity

Photo credit: If Blackstone is successful in its bid for LaSalle Hotel Properties, it will add the Viceroy Santa Monica to its portfolio, and the Viceroy's cool pool (pictured). Viceroy Santa Monica