Just two years ago, Chatham Lodging Trust took part in the $1-billion acquisition of Innkeepers USA Trust. Today, executives at Chatham are weighing another big acquisition deal, albeit from the other side of the transaction.
The company earlier this week received an unsolicited proposal from BlueMountain Capital Management, which wants to buy Chatham for $21.50 a share. My guess is officials from other real estate investment trusts across the hotel industry are going to be faced with similar decisions during the course of the next several months. The hotel REIT space is a crowded one, and the sector appears to be ripe for consolidation.
During a conference call with analysts earlier this year, RLJ Lodging Trust’s President and CEO Thomas J. Baltimore Jr., said his company plans to be an “aggregator” in the REIT space.
“I, for one, believe and believe passionately that having 13 REITs is probably too many in my view and there ought to be some consolidation, and we want to be part of that discussion,” he said.
The field of REITs certainly hasn’t thinned out since Baltimore’s comments in March; it’s grown. In June, Ashford Hospitality Trust announced it would spin off eight of its top revenue-per-available-room hotels into a separate public REIT called Ashford Hospitality Prime. The company is expected to spin off Ashford Prime on 19 November.
Comprised of upper-upscale properties, the darling of the industry right now, I’d be surprised if Monty Bennett, Ashford’s chairman and CEO, doesn’t field a call or two from potential acquirers for the portfolio of hotels at some point following the spinoff. And given the ongoing rebound seen in the hotel sector during the past several months, other top REIT executives might be getting similar calls.
We have already seen the transacting of other hotel REITs elsewhere in the world. In France, for instance, Fonciére Paris France, which according to its website has an interest in hotel development, was acquired by Paris Hôtels Roissy Vaugirard in April, according to Ernst & Young’s “Global perspectives 2012 REIT report.”
“The French REIT sector is consolidating as some REITs seek to strengthen their balance sheets, realize economies of scale and establish stronger competitive positions,” according to the report.
Back in the U.S., Chatham’s executives emphasized to analysts during the company’s earnings call Tuesday that they would not discuss BlueMountain’s offer. But that didn’t prevent Charles Fitzgerald, founder and senior managing director of V3 Capital Management (Chatham’s largest shareholder with a 6.7% stake), from weighing in during the Q-and-A portion of Chatham’s earnings call.
While complimenting Chatham’s management of an “outstanding” portfolio, which owns interests in 76 hotels comprising 10,526 rooms, Fitzgerald urged the REIT’s management team to consider a sale. Year-to-date through Wednesday, Chatham’s stock price is up 34.9%, closing at $20.75 per share. Meanwhile, the Baird/STR Hotel Stock Index is up 23.3%, closing Wednesday at 3,018.72.
“We believe running a full sales process through now and maximizing value while investor interest is high is the best course for the company and its shareholders,” he said.
Fitzgerald said he spoke up during the call so Chatham executives would keep V3’s opinion in mind as the management team considers BlueMountain’s proposal.
“We intend to do just that,” Jeffrey H. Fisher, Chatham’s president and CEO, told Fitzgerald.
No doubt, other REITs will soon have their own offers to consider.
Tweet of the Week
This is the best hotel pool I’ve ever seen. The Kerry Hotel in Shanghai replaced the water in its pool, which measures 25 meters long by 12 meters wide (82 feet by 41 feet), with 1 million plastic balls as part of a charity event for breast cancer. This is reported by local media to be the largest ball pit ever made. It’s definitely the most awesome. I dare you to tell me you don’t have the irresistible urge to cannonball the heck out of that thing right now.
So a hotel in China emptied out their pool and filled it with plastic balls.....who wants to go to China? - Marcello pic.twitter.com/UyfFP1mJMf — X92.9 (@X929) November 5, 2013
Email Shawn A. Turner or find him on Twitter.
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