BTIG: Despite Blackstone Deal, Pebblebrook Still Has Options With LaSalle Hotel Properties

LaSalle Hotel Properties (NYSE: LHO) announced it has accepted a $3.7-billion all-cash acquisition offer from Blackstone Group LP (NYSE: BX), spurning a previous offer from Pebblebrook Hotel Trust (NYSE: PEB).

The Blackstone deal amounts to a $33.50-per-share offer, lower than Pebblebrook’s offer that valued the company at $35.44. Pebblebrook's offer was only 20-percent cash, with 80 percent coming in the form of Pebblebrook shares.

Analyst: Shareholders Could Wait For Better Offer

BTIG analyst James Sullivan reiterated a Buy rating on LaSalle with a $34.50 price target after the deal announcement. The deal still requires approval by two-thirds of LaSalle shareholders, the analyst said. 

“With a break-up fee of $112 million, which equates to $1/LBO share, Pebblebrook has to consider carefully whether it can increase its offer, which it had previously described as a ‘final’ offer,” Sullivan said. 

Pebblebrook’s offer has a substantially higher 12-month value, Sullivan said; BTIG raised its price target on Pebblebrook to $44 last week. 

A good chance exists that LaSalle shareholders will hold out for a higher offer, Sullivan said. 

“The LaSalle-Blackstone transaction requires shareholder approval by two-thirds of LaSalle holders, many of which are also Pebblebrook holders and presumably not necessarily interested in taking cash," the analyst said.

"Pebblebrook is arguably the most likely 'strategic' bidder for LaSalle, given the similarity of the portfolio and its ability to eliminate a significant amount of LaSalle’s overhead expense following acquisition. So Pebblebrook would appear to have several alternatives." 

Pebblebrook's Options 

After the Blackstone deal was announced, Pebblebrook Chairman and CEO Jon Bortz reacted in a statement.

“Our offer is substantially superior to the merger agreement that LaSalle has reached with Blackstone. We are disappointed that LaSalle's board of trustees has chosen not to pursue the unique opportunity that we presented," Bortz said. 

Pebblebrook has four options moving forward, BTIG's Sullivan said: 

• Sell its LaSalle shares at a significant profit and end its pursuit of an acquisition.
• Increase its offer.
• Adjust its current offer to increase the cash component.
• Take its competing bid to the shareholders of LaSalle without adjusting its offer.

Regardless of what ultimately occurs, the analyst forecast several tailwinds for LaSalle moving forward, including easier comps in Washington, D.C, Key West and San Francisco, which collectively combine for 30 percent of the company’s EBITDA.

“The rebound in room demand that we have seen clearly in [the first quarter] should be sustained for the next several quarters," Sullivan said.

"We appear to be in the early stages of a rebound in business travel demand following strong corporate profits growth as well as a surge in capital spending. The consumer outlook and the related leisure demand have remained strong for several quarters.”

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