RLJ Lodging Trust said on Monday it would buy FelCor Lodging Trust in an all-stock transaction that values FelCor at US$8.54 per share based on the April 21 closing price (a 16.7% premium for FelCor shareholders), making it one of the biggest U.S. lodging real estate investment trusts.
The new combination, which will have a pro-forma market value of US$4.2 billion and an enterprise value of US$7 billion, will own 160 hotels in 26 states and the District of Columbia, across brands including Marriott, Hilton, Hyatt and Wyndham.
The exchange ratio is 0.362 shares of RLJ in exchange for each share of FelCor stock, which results in RLJ’s shareholders owning 71% of the combined entity.
Other transaction details, according to a note published by R.W. Baird analyst Michael Bellisario:
- The transaction was unanimously approved by the boards of both companies;
- RLJ is expected to maintain its US$0.33/share quarterly dividend payout;
- RLJ expects to achieve US$22 million of G&A savings, which compares to FCH’s US$27 million of 2016A G&A; additionally, RLJ believes the transaction will be accretive to earnings in the first full year post-closing;
- Pro forma leverage is expected to be <4.5x (<5.0x inclusive of FCH’s preferreds) during the first full year of operations, which compares to RLJ’s current 3.0x leverage ratio;
- RLJ plans to evaluate the sale of several assets, which represent ~20% of FCH’s EBITDA;
- RLJ board’s trustee will be expanded by one additional FelCor designee
Monday’s deal news follows Ashford Trust’s hostile proposal to acquire FelCor, which Ashford Trust initially made public on February 21. Ballisario said while R.W. Baird believes it is possible that Ashford Trust (which owns 4.5% of FelCor stock) increases its bid for FelCor, all else equal, it also believes FelCor’s board prefers the combination with RLJ given that the pro forma company will have lower leverage than under a merger with Ashford Trust.