RLJ Lodging Trust, co-founded by African American business magnate Robert Johnson, has completed its purchase of FelCor Lodging Trust in a stock deal worth about $1 billion.
(Robert “Bob” Johnson Image: file)
The deal closed in late August after shareholders of RLJ Lodging, based in Bethesda, Maryland, approved the acquisition of the Irving, Texas-based FelCor.
Simultaneously, an investor that owns some of RLJ Lodging’s stock is, among other things, questioning how the company will boost value for shareholders after the merger.
RLJ Lodging counters the claims, swearing it is dedicated to enhancing shareholder value.
The purchase of FelCor will make RLJ Lodging the nation’s third-largest publicly traded lodging real estate investment trust (REIT). RLJ Lodging has reported the transaction will create a combined company with a market cap of about $4 billion and a total enterprise value of nearly $7 billion.
The deal, first announced in April, calls for converting each share of FelCor into 0.362 shares of newly issued common shares of RLJ Lodging stock. RLJ Lodging shareholders will own 71% of the combined company’s equity, and FelCor shareholders 29%.
The new lodging company will have an ownership stake in about 160 hotels nationally. Those properties include a portfolio of nearly 31,500 rooms in 26 states, Washington, D.C. and mainly urban and coastal markets. RLJ Lodging operates hotels under many well-known brands, including Courtyard by Marriott, Homewood Suites by Hilton, Hyatt Place, and Wyndham.
RLJ Lodging is the outgrowth of companies started by RLJ Cos.
The new company will be based in Bethesda, and will retain the RLJ Lodging name and will trade under the “RLJ” ticker symbol on the New York Stock Exchange.
Robert Johnson will keep running the combined company as executive chairman of RLJ Lodging, and Ross Bierkan will remain as CEO. “Today’s vote solidifies our position as the premier lodging REIT within the most profitable segment of the hotel market,” Johnson stated in a press release in mid-August.
The deal comes after RLJ Lodging in July rejected an offer estimated to be worth about $3 billion from an unnamed private equity group. Observers claim the offer was from Blackstone Group LP, among the world’s largest real estate investment companies.
On Sept. 6, an activist investor who says it owns about 2% of RLJ Lodging’s outstanding shares asked that the company offer clarity on its strategy after the merger and evaluate strategic alternatives. One alternative the investor suggested is that the company seeks interest from potential buyers.
The investor, Land and Buildings, stated in an open letter to shareholders that RLJ management has been disappointing and the company’s performance casts doubt on its ability to unlock shareholder value. The news agency Reuters reported Land and Buildings, run by Jonathan Litt, is known to aggressively target companies that he views undervalued and needs leadership or strategic changes.
Land and Buildings also asked RLJ Lodging to provide a plan that offers a better value than the more than $25 per share offer it denied from Blackstone. The investor criticized RLJ Lodging’s executive pay structure and claims its stock value is underperforming when compared to peer REIT companies.
In response to Land & Buildings, RLJ Lodging said on Sept. 7 that the company remains committed to acting in the best interest of all its shareholders.
The company stated: “We have and will continue to cultivate strong relationships with our shareholders and welcome their input and constructive dialogue. Our board of trustees and management team are fully committed to maximizing shareholder value.”
In respect to its FelCor merger, RLJ stated: “We will continue to focus on unlocking the strategic benefits from the merger such as the realization of synergies, balance sheet optimization, strategic dispositions, and repositioning projects, which we believe will drive long-term shareholder value.
RLJ said it will discuss the deal’s merits on an earnings conference call this November. It added that benefits of the merger were previously made available to shareholders in May.