BETHESDA, MD—In an earnings call, Pebblebrook Hotel Trust reported that it remains convinced that a merger with LaSalle Hotel Properties presents the most compelling strategic opportunity for the shareholders of both companies, and the company’s board of trustees unanimously supports a combination with LaSalle.
LaSalle, owner of 41 luxury hotels, previously received numerous offers from Pebblebrook Hotel Trust. Pebblebrook’s post-acquisition plan was to form a portfolio of upscale hotels in order to compete with REITs.
Pebblebrook’s offer was resubmitted to LaSalle’s board in a separate letter on July 20, and the company is prepared to move forward with it immediately. On July 10, the REIT filed a preliminary proxy statement to urge LaSalle’s shareholders to vote against the proposed Blackstone offer of $33.50 per share.
“Based upon the favorable industry trends, the continuing positive performance of our stock and all of the lodging REITs, LaSalle shareholders have been consistently valuing our offer at a significant premium to the Blackstone price as clearly evident by LaSalle’s shares consistently trading in a range with a very significant premium to what is now the Blackstone take under price,” said Pebblebrook CEO Jon E. Bortz. “Based upon our discussions with LaSalle’s shareholders owning the vast majority of LaSalle’s shares, it should come as no surprise that they are overwhelmingly in support of our offer and completely against the existing proposed agreement.”
Company Results
Pebblebrook’s portfolio generated healthy year-over-year growth in operational results and saw demand accelerated in the second quarter, driven by improvements in business travel demand—both group and transient—and inbound international travel that has reversed and is now growing.
“Elevated group spend that we experienced in the first quarter continued throughout the second quarter. Leisure remains strong, and non-room revenues continued to increase above our expectations. This enabled us to beat our second quarter outlook for Same-Property EBITDA, Adjusted EBITDAre and Adjusted FFO per diluted share,” said Bortz. “We expect that the encouraging travel demand trends we’ve been experiencing will continue into the second half of the year as short-term group and transient booking trends are very positive.”
In addition, Same-Property RevPAR increased 2.6%, which is at the upper end of Pebblebrook’s RevPAR outlook of 1% to 3%. The RevPAR increase was driven by a 1.5% increase in the REIT’s average rate and 1.1% increase in occupancy, according to the earnings call.
Hotels in Pebblebrook’s portfolio performed well through the second quarter as the company took advantage of improving business demand fundamentals, according to Bortz.
“San Francisco was our strongest market in the second quarter, with RevPAR climbing 15.5%, largely attributed to a more active convention calendar at the Moscone Convention Center, the favorable ramp-up of Hotel Zoe Fisherman’s Wharf, which was redeveloped and transformed last year, and our newfound ability to drive ADR growth with increased compression in the San Francisco market,” said Bortz during the earnings call.
Capital Reinvestments
Pebbelbrook completed $17.1 million of capital investments throughout its portfolio. During the remainder of the year, the company will execute additional renovations to improve performance in future years, including the following:
Mondrian Los Angeles—guestrooms and guest bathrooms, Skybar, beginning in the fourth quarter, with an expected completion date in the first quarter of 2019,
W Hotel Boston—guestroom renovation beginning in the fourth quarter, with an expected completion date in the first quarter of 2019.
Sir Francis Drake—upgrades to its lobby and an expanded guestroom refresh, featuring guest bathroom tub-to-shower conversions, beginning in the third quarter, to be completed at the end of this year.
Hotel Zelos San Francisco—guestroom refresh and an expanded guest bathroom renovation to be completed by the end of this year.
