BETHESDA, Md.--(BUSINESS WIRE)--Pebblebrook Hotel Trust (NYSE: PEB) today filed definitive proxy materials with the U.S. Securities and Exchange Commission and began sending a letter to the shareholders of LaSalle Hotel Properties (NYSE: LHO), along with the definitive proxy statement and a GOLD proxy card, in connection with LaSalle’s Special Meeting of Shareholders. Pebblebrook urges LaSalle shareholders to vote AGAINST LaSalle’s merger agreement with BRE Landmark L.P., an affiliate of The Blackstone Group L.P. (NYSE:BX), at a price of $33.50 per share using the GOLD proxy card.

“The LaSalle Board’s pursuit of a transaction with Blackstone at a significant discount to our proposal is irrational and irresponsible, and we urge all LaSalle shareholders to join us in voting against it,” said Jon E. Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “Our value-maximizing proposal to combine with LaSalle continues to be a clearly superior alternative and we are committed to moving quickly to close our transaction should LaSalle shareholders reject Blackstone’s take-under. We encourage all LaSalle shareholders vote the GOLD proxy card against LaSalle’s proposals.”

Raymond James and BofA Merrill Lynch are acting as financial advisors, Hunton Andrews Kurth LLP is acting as legal counsel and Okapi Partners LLC is serving as information agent to Pebblebrook in connection with the proposed transaction.

The full text of Pebblebrook’s letter to LaSalle shareholders follows.

Letter from Pebblebrook to LaSalle Shareholders Dated July 30, 2018

July 30, 2018

Dear LaSalle Shareholders,

Pebblebrook Hotel Trust, which owns approximately 9.8% of LaSalle Hotel Properties’ outstanding common shares, stands in opposition to the “take-under” agreement the LaSalle Board announced with Blackstone, and we are reaching out to you directly to explain our reasoning. In our view, there is no legitimate rationale for LaSalle’s agreement with Blackstone when there is a superior offer available to you in the form of our merger proposal. The logic of a strategic combination of Pebblebrook and LaSalle is clear. A single portfolio of Pebblebrook’s and LaSalle’s hotels would be best-in-class, with upscale and luxury independent and branded hotels and resorts in or near urban markets in the U.S., well-positioned to generate strong cash flow, provide for a more stable dividend and create long-term incremental shareholder value.

We have taken numerous steps to reach an agreement with LaSalle’s Board that would maximize value for both LaSalle and Pebblebrook shareholders, including increasing the price and cash consideration of our offer multiple times. However, the LaSalle Board has refused to engage with us in good faith despite our repeated attempts, and rejected our much higher offers, most recently on July 30, 2018 when they rejected our July 20, 2018 offer, citing as their rationale the need to provide the certainty of Blackstone’s $33.50 all-cash offer price. That rationale is no longer valid given recent and ongoing trading levels of the common shares of both Pebblebrook and LaSalle.

We urge you to join us in voting with Pebblebrook “AGAINST” all three of the proposals relating to the Proposed BRE Merger by:

• Voting “AGAINST” the proposal to approve the Proposed BRE Merger dated as of May 20, 2018;
• Voting “AGAINST” the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to LaSalle’s named executive officers that is based on or otherwise relates to the Proposed BRE Merger; and
• Voting “AGAINST” the proposal to approve any adjournment of the LaSalle Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Special Meeting to approve the BRE Merger Proposal.

Our July 20, 2018 superior offer for a strategic combination with LaSalle remains outstanding, and we are prepared to move forward with it immediately.

THE BLACKSTONE PROPOSAL REPRESENTS AN EGREGIOUS TRANSFER OF VALUE FROM LASALLE SHAREHOLDERS TO BLACKSTONE

The Blackstone take-under agreement deprives LaSalle shareholders of significant value that they have a right to realize. In contrast, our offer would allow LaSalle shareholders to maximize immediate and long-term value. Pursuant to our offer, LaSalle shareholders would be able to elect to receive for each share they own either a) a fixed amount of $37.80 in cash (for up to 20% of the total outstanding LaSalle common shares), or b) a fixed exchange ratio of 0.92 Pebblebrook common share. Additionally, our offer takes into account the $112 million termination fee that would be owed to Blackstone pursuant to LaSalle’s agreement with Blackstone.

Our offer provides LaSalle shareholders with materially superior value to the Blackstone agreement. As of market close on July 27, 2018, the implied price per share of our offer provides premiums to the Blackstone proposal of:

• $2.71 per share, or 8.1%, based on the 5-day VWAP of Pebblebrook common shares;
• $2.82 per share, or 8.4%, based on the 30-day VWAP of Pebblebrook common shares; and
• $2.92 per share, or 8.7%, based on the 60-day VWAP of Pebblebrook common shares1.

Given the consistent trading of Pebblebrook common shares over the last 90 days, these premiums have been generally consistent since the time of the announced merger agreement with Blackstone. In the face of steadily improving industry fundamentals, the value of Pebblebrook’s shares would have to decline by over 8.5% to eliminate our offer’s premium to the proposed Blackstone agreement price of $33.50 per LaSalle share.

By entering into an agreement with Blackstone and rejecting our offer, and by supporting a transaction at an unprecedented discount to an available alternative, it is our view that the LaSalle Board members have neither acted as responsible stewards of their shareholders’ interests nor upheld their fiduciary duties. Indeed, we are not aware of any listed equity REIT M&A transaction since 20062 in which a target has agreed to a cash offer at a discount of greater than 1% compared to a competing share or cash/stock offer. In fact, a survey of trends in public REIT M&A transactions recently published by LaSalle’s legal counsel has clearly stated that cash transaction prices are generally less attractive to stock or cash/stock alternatives in M&A transactions.3 Their research has shown that all-cash buyers typically pay higher premiums than cash/stock buyers in public M&A transactions.4 Currently, our offer provides premiums to the Blackstone proposal of $2.71 to $2.92 per share, or 8.1% to 8.7%, based on the above metrics.

The harm that the Blackstone take-under would do to shareholder value is real, and in a demonstration of the egregious transfer of value the proposal represents, Blackstone is currently marketing a number of LaSalle’s hotel properties to be sold contemporaneously with the close of their proposed transaction. Because the Blackstone offer is for a fixed amount of cash per share, the net proceeds of any such sale will benefit Blackstone, not LaSalle shareholders. These asset sales represent value that should be realized by LaSalle shareholders.

PEBBLEBROOK’S OFFER PROVIDES SHAREHOLDERS WITH THE SIGNIFICANT UPSIDE POTENTIAL AMID HIGHLY FAVORABLE ECONOMIC AND INDUSTRY FUNDAMENTALS

For those shareholders who wish to receive cash instead of shares, our proposal provides a fixed cash price per share of $37.80, subject to pro-rata cutbacks in the event shareholders elect cash for more than 20% of the total shares outstanding. However, as the list of LaSalle shareholders includes significant ownership by index funds and dedicated REIT investors, we believe that there is a significant desire among shareholders to receive the shares in order to avoid transaction costs and income tax implications, and most importantly, to participate in the bright future following the combination.

Ours is the only offer that gives LaSalle shareholders this long-term upside potential – a key consideration given that macro trends in the lodging industry are expected to continue on the same positive trajectory for the foreseeable future.

Pebblebrook’s proven track record of success as a public company and our extensive knowledge of LaSalle’s assets and markets makes us the perfect and obvious strategic partner for LaSalle. A single portfolio of LaSalle’s and Pebblebrook’s hotel properties would be exceptional among the industry, comprised of 69 primarily upper-upscale and luxury independent and branded hotels and resorts located in or near key urban markets in the United States. Under our control and management, the combined portfolio would be well-positioned to benefit disproportionately from recent improvements in the hotel industry and the broader economic landscape, particularly given Pebblebrook’s heavy concentration of hotel properties in San Francisco, which analysts forecast will experience significant growth in 2019 and beyond. Further, we believe that the hotel properties will benefit from significant capital investment and redevelopment projects that have already been made by each of Pebblebrook and LaSalle. Common shareholders of a company owning such a portfolio would be able to participate in its future performance.

Leading Hotel REIT Management Team with Deep Industry Experience and Excellent Long-Term Track Record

No other buyer on the market understands LaSalle’s portfolio better than Pebblebrook. Jon Bortz was the Founder and former Chief Executive Officer of LaSalle from its IPO in 1998 through August 2009, and served as Chairman of the Board of LaSalle from 2001 to 2009. Twenty-two of the hotels that LaSalle owns today were purchased while Mr. Bortz was CEO of the company, and LaSalle currently owns another 12 hotels that Pebblebrook previously bid on prior to purchase by LaSalle. As a matter of record, companies led by Mr. Bortz have historically consistently traded at premium multiples and outperformed peer groups and industry averages. Thus, Pebblebrook’s deep understanding of LaSalle’s portfolio makes Pebblebrook best positioned to provide shareholders with significant long-term upside.

Proven Asset Management Approach with Benefits of Additional Scale

We also believe there is significant opportunity to improve EBITDA per key for LaSalle’s properties, given the approximately $5K per key higher average amount for Pebblebrook’s properties as compared to the per-key EBITDA of LaSalle’s portfolio, based on 2018 estimates. Pebblebrook’s properties were at a similar EBITDA per key level to LaSalle’s portfolio several years ago, but through Pebblebrook’s unique creativity, expertise and approach, Pebblebrook has delivered significantly higher growth levels in EBITDA per key over time.

A significantly larger Pebblebrook would offer an attractive financial profile with greater access to the capital markets, enhanced flexibility and increased influence and negotiating strength.

Receipt of Dividend

Under the terms of our current outstanding offer, LaSalle shareholders would benefit from receiving a dividend on their shares in the combined company. LaSalle’s most recent dividend per LaSalle common share was $0.225 for the quarter ended June 30, 2018. Under the terms of the Blackstone agreement, LaSalle is not permitted, with limited exceptions, to pay any other common share dividend in the future. If the Blackstone merger is consummated, LaSalle shareholders will receive cash in exchange for their LaSalle common shares and will receive no dividends thereafter.

Pebblebrook has paid a dividend per Pebblebrook common share of $0.38 for 10 consecutive quarters through the quarter ended June 30, 2018. Based on the 0.92 fixed exchange ratio of our outstanding offer, the Pebblebrook common share dividend at that historical rate would represent a 55% increase in the per-share dividend above that most recently paid per LaSalle common share. We expect to maintain that dividend rate if we are successful in acquiring LaSalle.

MARKET RESPONSE TO PEBBLEBROOK’S OFFER INDICATES BROAD SUPPORT FROM SHAREHOLDERS OF BOTH COMPANIES

Since LaSalle’s May 21, 2018 announcement of its merger agreement with Blackstone at $33.50 per share, over 112 million LaSalle shares have traded, and all above $33.50, and over 30 million LaSalle shares have traded at or above $35.00. This is a clear indication that LaSalle shareholders believe that a higher deal price for LaSalle is warranted given our outstanding offer and its significant premium, and that any shareholder who wanted certainty at $33.50 has had the opportunity to realize that value or more.

DON’T LET LASALLE FOIL AN OPPORTUNITY TO MAXIMIZE THE VALUE OF YOUR SHARES.
VOTE “AGAINST” ON THE GOLD PROXY CARD TO BLOCK THE LOWER-VALUE BLACKSTONE AGREEMENT AND SEND A CLEAR MESSAGE TO THE LASALLE BOARD

We urge you to make your vote count. As outlined in the proxy statement filed by LaSalle with the SEC on July 30, 2018, the proposed agreement with Blackstone must be approved by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding LaSalle common shares as of the record date for the special meeting. We intend to vote the approximately 10.8 million LaSalle common shares that we own AGAINST the proposed Blackstone agreement, and urge you to make your vote count too.

By voting on the Gold Card against the proposals, you are sending a message to the LaSalle Board to engage with us and enter into a value maximizing agreement. The “Never Pebblebrook” approach that the LaSalle Board has taken is unacceptable and irrational. As previously disclosed, we are prepared to enter into a merger agreement essentially identical to the Blackstone agreement adapted merely to reflect the proposed merger terms of our July 20, 2018 offer. A completed agreement could be negotiated in a day or two at most with LaSalle. Additionally, we believe a transaction can be completed within the next 75 to 90 days, which includes the time to gain approval from both sets of shareholders. For the reasons set forth below and in the enclosed materials, we urge you to vote AGAINST all three of LaSalle’s proposals using the enclosed GOLD proxy card.

Please follow the instructions on the enclosed GOLD proxy card to vote by telephone or Internet or sign, date and return the enclosed GOLD proxy card in the postage-paid envelope provided.

While your vote is of critical importance to ensuring LaSalle shareholders receive the value they deserve for their shares, there are actions you can take even before the transaction comes up for a vote. WE URGE YOU TO REACH OUT TO THE LASALLE BOARD IN WRITING TODAY AND EXPRESS YOUR VIEWS. Our proposal, which we most recently submitted to the LaSalle Board on July 20, 2018, remains outstanding and we are ready to move swiftly to complete a value-maximizing transaction.

Sincerely yours,

Jon E. Bortz
Chairman, President & CEO

Pebblebrook Hotel Trust