During his company’s first-quarter earnings call, Pebblebrook Hotel Trust Chairman, President and CEO Jon Bortz outlined how the offer to merge with LaSalle Hotel Properties came to be and explained why he believes the deal should move forward.
BETHESDA, Maryland—The merger of Pebblebrook Hotel Trust and LaSalle Hotel Properties is “likely the most obvious” combination of two companies in the history of real estate investment trusts, Pebblebrook’s Chairman, President and CEO Jon Bortz said during his company’s first-quarter earnings call.
Though he told analysts he would be unable to answer their questions regarding the proposed merger based on advice from his legal counsel, Bortz did share some background on the deal in his prepared statements.
Bortz said he had dinner in early March with LaSalle CEO Michael Barnello to discuss the possible merger. The formal proposal on 6 March included a “substantial premium” of 18% to LaSalle’s shareholders, he said, which grew to 33% by the time of the final offer on 20 April.
The two companies have similar strategies, overlapping focus markets, similar quality of hotels in their portfolios and a number of the same shareholders, he said. The two REITs also partner with mostly the same operators and brands, he added.
In addition, Pebblebrook’s leadership knows LaSalle’s portfolio “incredibly well,” Bortz said.
Bortz, who was CEO of LaSalle before he started Pebblebrook, said 22 of LaSalle’s hotels were acquired under his leadership. Pebblebrook either bid on or reviewed and underwrote another 13 of LaSalle’s hotels before LaSalle acquired them, he added.
“Outside of the team at LaSalle, no one has better knowledge of this portfolio than we do,” he said.
Having Pebblebrook take on ownership of LaSalle’s hotel portfolio would allow the company to use its expertise in renovating and redeveloping hotels and restaurants to provide guests with a more unique experience, “which, as we’ve repeatedly proven over 20 years, can deliver more revenue and more profits to the bottom line,” Bortz said.
The merger would also lead to an increase in earnings before interest, taxes, depreciation and amortization as much as $3,000 to $5,000 per room over the long term, compared to the more than $6,000 per key differential between Pebblebrook’s outlook for its portfolio in 2018 and LaSalle’s portfolio outlook this year, he said.
“While there would be significant investment to achieve these potential results, we’ve demonstrated our consistent ability to earn double-digit EBITDA yields on the investments we’ve made in our portfolio,” he said.
In speaking with Pebblebrook and LaSalle shareholders, Bortz said he’s heard nothing but support for the merger. The research community has taken a similar position, he added.
He said he’s confident LaSalle’s board of directors will consider Pebblebrook’s final offer, which he called “highly attractive,” expeditiously and in a fair manner while recognizing that it will maximize value for LaSalle’s shareholders.
Bortz said Pebblebrook’s offer was revised to include significant cash components after he learned LaSalle’s board rejected the initial offer because it was only share-for-share. He noted the share offer was designed to appeal particularly to those who owned shares of both companies.
“If they choose not to do anything or choose a lower bid, that would be troubling,” he said. “If we lose to a higher bidder, then so be it. We will have exercised our fiduciary duty to our shareholders to create greater value.”
Check back at Hotel News Now next week for further coverage of Pebblebrook Hotel Trust’s Q1 2018 earnings call.