3 LaSalle Hotels Are Under Contract For $715M
More sales are to come: Pebblebrook plans to sell between $500 million to $1 billion of hotels after the merger is complete.
BETHESDA, MD–Pebblebrook Hotel Trust laid out ambitious plans for the post-merger company in a joint Pebblebrook-LaSalle Hotel Properties investor call held last week. The REIT plans to sell between $500 million to $1 billion of hotels in the six to 12 months following the merger’s closure, executives said. The company won’t disclose the hotels its plans to sell as it would be disruptive. These hotels, it assumes, will trade at a 5.5% cap rate.
In addition, executives announced there were 3 LaSalle Hotels under contract for a total of $715 million. These are the Park Central in New York, WestHouse, which is also in New York and Park Central in San Francisco. The 1,614-key portfolio has a sale price cap rate of 5% and is selling for $443,000 per key. These sales are expected to close just before the merger does, which is scheduled for the end of November or beginning of December. Pebblebrook CFO Ray Martz said that the proceeds from these sales will be partially used to fund the cash component of the merger price as well as reduce debt if from stock is elected by the LaSalle shareholders.
Reducing leverage is the primary driver behind these sales as well as a desire to reduce or eliminate its exposure to less desirable properties or markets. The timing is also right. The hotel transaction market is very healthy right now with robust amount of debt and equity available for the type of hotels that will be offered by the company, it said. If anything, Pebblebrook CEO Jon Bortz said during the conference call, the economics for hotels have gotten better over the last two to three months. “We haven’t really seen that flow through in any kind of acceleration in RevPAR growth at this point in time.”
The combined LaSalle Pebblebrook company will have 66 upper-scale and luxury independent and branded hotels in its portfolio–a hefty size for a hotel portfolio, which the REIT plans to leverage as it markets the properties. Bortz noted that the combined company will be “the largest owner of independent and collection-branded hotels in the country and the third largest publicly-traded hotel REIT. This larger portfolio will provide us with increased influence and negotiating strength…”