Grossly Inadequate Proposal Significantly
Undervalues LaSalle and is Not in the Best Interests of
Shareholders
LaSalle Reiterates Confidence in its Ability to
Deliver Exceptional Value to Shareholders
Emphasizes Commitment to Previously Announced
Share Repurchase Program
Announces Dividend Policy for 2018
LaSalle Hotel Properties (NYSE: LHO) (“LaSalle” or the
“Company”) today confirmed that its Board of Trustees (the “Board”)
unanimously rejected an unsolicited proposal received on March 6,
2018 from Pebblebrook Hotel Trust (NYSE: PEB) (“Pebblebrook”) to
acquire all outstanding shares of LaSalle in an all-stock
transaction with consideration of 0.8655 common shares of
Pebblebrook per common share of LaSalle.
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In consultation with its financial and legal advisors, the Board
thoroughly analyzed the proposal and concluded that it is
insufficient in both price and mix of consideration and is not in
the best interests of the Company’s shareholders.
“Consistent with our fiduciary duties, the Board has taken the
time to carefully evaluate the proposal and the future potential of
a combined company, and we have concluded that the proposal is
grossly inadequate and is, therefore, not in the best interests of
our shareholders,” said Stuart L. Scott, Chairman of the Board.
“The Board is focused on the continued execution of our strategic
plan, prudent capital allocation, and our superior hotel portfolio,
which will deliver greater value, sooner to our shareholders than
Pebblebrook’s low-premium proposal.”
Mr. Scott continued, “With our outstanding assets, solid balance
sheet and strong cash flow, we are well-positioned to execute
strategically on near-term and long-term opportunities, which will
enable us to drive growth and return capital to shareholders
through dividends and share repurchases. Of course, the Board
continues to be open-minded and will consider any alternatives that
enhance long-term shareholder value; however, this proposal does
not achieve that objective.”
Rationale for Unanimous Rejection of Pebblebrook’s
Proposal
In reaching its conclusion, the Board considered a number of
factors, including:
- Proposal Significantly Undervalues
LaSalle’s High Quality Hotel Portfolio and Prospects for Future
Value Creation. The Company has strategically assembled an
irreplaceable portfolio of trophy assets with significant upside in
prime, high-barrier-to-entry urban and resort markets. In addition,
the LaSalle portfolio has 38 out of 41 hotels with terminable at
will contracts, which provides ongoing optionality and translates
to higher value at sale. Pebblebrook’s proposal reflects neither
the value inherent in the Company’s high quality portfolio, nor its
potential for future value creation.
- Pebblebrook’s History of Missing
RevPAR Guidance. The Board has significant concerns that
Pebblebrook’s share price reflects its overly-optimistic growth
targets. Given Pebblebrook’s history of consistently missing its
RevPAR outlook over the past three years, as outlined below, and
based on current market conditions, LaSalle is not confident
Pebblebrook will meet its guidance.LaSalle’s RevPAR performance has
been superior to Pebblebrook’s for the past two years, and the
Company was able to better contain expenses over the same period.
As such, given Pebblebrook’s track record of missing its targets,
the LaSalle Board does not believe that Pebblebrook’s current
all-stock proposal is in the best interest of LaSalle
shareholders.
- Proposal Exploits Short-Term Pricing
Dislocation. Pebblebrook submitted its proposal during a
short-term dislocation in LaSalle’s share price, illustrating
Pebblebrook’s attempt to transfer LaSalle value to Pebblebrook’s
shareholders by using its overvalued share currency. LaSalle’s
shares traded above Pebblebrook’s proposal value as recently as
last month, implying the proposal reflects no premium to the
historical trading range for LaSalle.
Superior Value Creation from LaSalle’s Current Plan
The Board considered the proposal relative to the strength of
the Company’s current operating plan and financial position, as
well as the Company’s ability to execute strategically through
continued prudent capital allocation, including:
- LaSalle’s Strong Track Record of
Creating Value. The Company has a long history of value
creation, illustrated by its returns on invested capital, which
have exceeded its peers over the last nine years.1
- LaSalle’s Superior Track Record of
Recycling Capital. Since 2014, all of LaSalle’s hotel
dispositions were sold for capital gains, which totaled
approximately $284 million. Those same assets were sold at an
average 6.8% cap rate on trailing NOI and provided a cumulative IRR
of over 10% to shareholders during the hold periods. In addition,
the Company has returned significant capital to shareholders
through share repurchases, including the recent repurchase of $74.5
million of common shares at an approximate implied 8.1% average cap
rate on trailing 2017 net operating income. The Company has
approximately $500 million of capacity remaining under the share
repurchase plan. As soon as repurchases are legally permissible and
the Company’s trading window reopens, the Company intends to
continue to opportunistically repurchase shares under the program.
In comparison, since inception, Pebblebrook has monetized interest
in nine hotel assets (inclusive of joint ventures). Of these
assets, only two were sold for a gain, while the remaining
investments were all sold for a capital loss.The Company is also
committed to returning capital to shareholders through dividends,
as evidenced by the Company’s dividend policy for the remainder of
2018, which includes an expected annualized dividend for the full
year 2018 of $1.125 per common share and a $0.90 annualized run
rate.
- Substantial Near-Term Value Creation
Opportunities. LaSalle is targeting additional dispositions of
up to $500 million over the next 12-18 months to provide increased
capital to allocate towards the Company’s value-enhancing
objectives, including stock buybacks, potential acquisitions and
internal capital projects that are expected to yield double-digit
return on cost.
- LaSalle’s Prudent Balance Sheet
Management. LaSalle has consistently maintained a strong
balance sheet that positions the Company to deliver long-term
shareholder value, especially late in the lodging cycle.
Pebblebrook Executives’ Potential Payouts and Self-Serving
Agenda
LaSalle is surprised that Pebblebrook has not waived “change
in control” payments to Pebblebrook executives in connection with
this proposed transaction. Under the terms of the Pebblebrook
proposal, existing Pebblebrook shareholders would own less than 50%
of the combined entity, which would constitute a change in control
under Pebblebrook’s equity incentive plan, share award agreements
and change in control severance agreements. As a result, the
transaction would trigger immediate vesting of outstanding equity
awards held by Pebblebrook’s executives and the payment of cash
stay bonuses to Pebblebrook’s executives on the first anniversary
of the transaction, with aggregate values of approximately $29
million and $4.5 million, respectively, according to Pebblebrook’s
definitive proxy statement filed on April 28, 2017. Moreover, in
lieu of such cash stay bonuses, Pebblebrook’s executives could be
entitled to the payment of cash severance payments in an aggregate
amount of approximately $21.6 million (including tax gross ups) in
the event of termination without cause or resignation for good
reason within a year following the transaction.
LaSalle Announces 2018 Dividend Policy
LaSalle today also announced its dividend policy for the
remaining quarters of 2018. Pursuant to the dividend policy, the
Company expects to pay a quarterly dividend of $0.225 per common
share of beneficial interest for each of the quarters ending June
30, 2018, September 30, 2018 and December 31, 2018.
As previously announced on March 15, 2018, the Company declared
a quarterly dividend of $0.45 per common share of beneficial
interest for the quarter ending March 31, 2018. The first quarter
dividend will be paid on April 16, 2018 to common shareholders of
record as of March 29, 2018.
To the extent that the regular quarterly dividends for 2018 do
not satisfy the annual distribution requirements under the REIT
provisions of the Internal Revenue Code, the Company expects to
satisfy the annual distribution requirements by paying a special
dividend in January 2019.
The adoption of a dividend policy does not commit the Company to
declare future dividends at the expected levels, or at all. The
timing, form and amount of any future dividends will be in the
discretion of the Board and will depend upon the Company’s cash
flow, financial condition and capital expenditure requirements, the
annual REIT distribution requirements and other factors that the
Board deems relevant.
Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC
are acting as financial advisors to LaSalle and Goodwin Procter LLP
and DLA Piper LLP (US) are acting as legal counsel.
About LaSalle Hotel Properties
LaSalle Hotel Properties is a leading multi-operator real estate
investment trust. The Company owns 41 properties, which are
upscale, full-service hotels, totaling approximately 10,400 guest
rooms in 11 markets in seven states and the District of Columbia.
The Company focuses on owning, redeveloping and repositioning
upscale, full service hotels located in urban, resort and
convention markets. LaSalle Hotel Properties seeks to grow through
strategic relationships with premier lodging groups, including
Access Hotels & Resorts, Accor, Benchmark Hospitality, Davidson
Hotel Company, Evolution Hospitality, HEI Hotels & Resorts,
Highgate Hotels, Hilton, Hyatt Hotels Corporation, IHG, JRK Hotel
Group, Inc., Marriott International, Noble House Hotels &
Resorts, Outrigger Lodging Services, Provenance Hotels, Two Roads
Hospitality, and Viceroy Hotel Group.
Forward-Looking Statements
This press release, together with other statements and
information publicly disseminated by the Company, contains certain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends
such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and includes this
statement for purposes of complying with these safe harbor
provisions. Forward-looking statements, which are based on certain
assumptions and describe the Company's future plans, strategies and
expectations, are generally identifiable by use of the words
“will,” "believe," "expect," "intend," "anticipate," "estimate,"
"project," “may,” “plan,” “seek,” “should,” or similar expressions.
Forward-looking statements in this press release include, among
others, statements about the Company’s response to the Pebblebrook
unsolicited proposal, and the Company’s capital allocation and
asset management strategies, dividend policy, and share repurchase
program. You should not rely on forward-looking statements since
they involve known and unknown risks, uncertainties and other
factors that are, in some cases, beyond the Company's control and
which could materially affect actual results, performances or
achievements. Factors that may cause actual results to differ
materially from current expectations include, but are not limited
to, (i) uncertainties regarding future actions that may be taken by
Pebblebrook in furtherance of its unsolicited proposal, (ii) risks
associated with the hotel industry, including competition for
guests and meetings from other hotels and alternative lodging
companies, increases in wages, energy costs and other operating
costs, potential unionization or union disruption, actual or
threatened terrorist attacks, any type of flu or disease-related
pandemic and downturns in general and local economic conditions,
(iii) the availability and terms of financing and capital and the
general volatility of securities markets, (iv) the Company’s
dependence on third-party managers of its hotels, including its
inability to implement strategic business decisions directly, (v)
risks associated with the real estate industry, including
environmental contamination and costs of complying with the
Americans with Disabilities Act of 1990, as amended, and similar
laws, (vi) interest rate increases, (vii) the possible failure of
the Company to maintain its qualification as a REIT and the risk of
changes in laws affecting REITs, (viii) the possibility of
uninsured losses, (ix) risks associated with redevelopment and
repositioning projects, including delays and cost overruns, (x) the
risk of a material failure, inadequacy, interruption or security
failure of the Company’s or the hotel managers’ information
technology networks and systems, and (xi) the risk factors
discussed in the Company’s Annual Report on Form 10-K as updated in
its Quarterly Reports. Accordingly, there is no assurance that the
Company's expectations will be realized. Except as otherwise
required by the federal securities laws, the Company disclaims any
obligation or undertaking to publicly release any updates or
revisions to any forward-looking statement contained herein (or
elsewhere) to reflect any change in the Company’s expectations with
regard thereto or any change in events, conditions or circumstances
on which any such statement is based.
# # #
For additional information or to receive press releases via
e-mail, please visit our website at
http://www.lasallehotels.com/.
1 ROIC defined as AFFO before taxes divided by debt plus
equity
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version on businesswire.com: https://www.businesswire.com/news/home/20180328005805/en/
Additional:LaSalle Hotel
PropertiesKenneth G. Fuller or Max D.
Leinweber301-941-1500orInnisfree M&A IncorporatedScott Winter /
Jonathan Salzberger212-750-5833orMedia:Joele Frank, Wilkinson Brimmer
KatcherJon Keehner / Meaghan Repko / Andrew Siegel212-355-4449
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