Recently RLJ Lodging Trust (“RLJ”) (NYSE: RLJ) and FelCor Lodging Trust Incorporated (“FelCor”) (NYSE: FCH) announced that they have entered into a definitive merger agreement under which FelCor will merge with and into a wholly-owned subsidiary of RLJ in an all-stock transaction. According to the press release the merger will establish the third biggest pure-play lodging REIT by enterprise value, creating meaningful scale to capitalize on cost efficiencies, negotiate leverage and access to capital, and the opportunity to strategically recycle assets and optimize the portfolio. The combined company will have ownership interests in 160 hotels, including premium branded hotels located primarily in urban and coastal markets with multiple demand generators. The combination also provides significant penetration within key high-growth markets and broad geographic and brand diversity.
Summary of Strategic Benefits (per management):
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Combination creates the third largest pure-play lodging REIT with a combined enterprise value of $7 billion
– Increased shareholder liquidity and cost of capital efficiencies
– Stock transaction allows both sets of shareholders to participate in the upside
– Enhanced positioning with brands and operators -
Leading upscale portfolio of compact full-service and premium focused-service hotels generating strong operating margins
– Combined portfolio will include 160 hotels in 26 states and the District of Columbia, diversified across Marriott, Hilton, Hyatt and Wyndham flags
– Broad geographic diversity and strengthened presence in key markets such as California, Florida and Boston -
Positive financial impact and positioning for future value creation
– Accretive in first full year
– Expected cash G&A expense savings of approximately $12 million and approximately $10 million of potential savings from stock-based compensation expense and capitalized cash G&A
– Opportunity for additional ongoing operating and cash flow improvements through greater purchasing power, market leverage and capital expenditure efficiencies
• Future opportunities to unlock value from portfolio repositioning
• Potential conversion and redevelopment opportunities
• Opportunity to actively refine portfolio
• Strong and flexible balance sheet
• Significant liquidity, minimal near-term maturities and opportunity to lower cost of capital
Mergers such as these are predicated on these Strategic Benefits. The market will measure the success of this transaction in light of whether management ultimately realizes on these listed opportunities.