Ashford Unveils Proposal to Buy FelCor

The combined company would be the second-largest pure-play lodging REIT by guestroom count and no. 3 by enterprise value.

Dallas—Ashford Hospitality Trust announced on Tuesday that it had submitted a non-binding proposal to acquire FelCor Lodging Trust for a total consideration of $9.27 per share, which reportedly represents an 11 percent premium to FelCor’s 52-week high closing stock price of $8.34. The premium is offered despite Ashford’s contention that FelCor has been seriously underperforming.

Dr. Benjamin Ansell
Dr. Benjamin Ansell

Ashford is a REIT that focuses on upper upscale, full-service hotels, with a portfolio that includes Sheraton, Ritz-Carlton, Marriott, Courtyard, W, Le Meridien, Hyatt Regency, Hilton, Hampton Inn, Homewood Suites, SpringHill Suites and Embassy Suites properties.

The combined company would be the second-largest pure-play publicly traded lodging REIT by room count (with 36,657 keys across 159 properties) and the third-largest by enterprise value, according to Ashford.

Ashford’s courtship evidently began in October, since which Ashford or its advisors reportedly conducted more than 20 private meetings, phone conversations and exchanges of written correspondence with FelCor and/or its advisors. Even after the execution of a mutual non-disclosure agreement on Jan. 11, however, Ashford contends, FelCor has been “unwilling to share usual and customary information … including historical property level financial statements and property management agreements.”

Ashford further asserted that “FelCor has delivered the worst total return for shareholders among lodging REIT peers over the past ten years,” in light of which, along with the reported lack of response to Ashford’s proposal, the would-be buyer made that proposal public.

In conjunction with this news, Ashford, as the owner of 4.5 percent of the outstanding common shares in FelCor, also announced its nomination of seven independent FelCor board members. The 2017 FelCor annual meeting, Commercial Property Executive has learned, has not yet been scheduled.

For its part, later on Tuesday FelCor acknowledged having received Ashford’s proposal and having formed in December a transaction committee composed of independent directors, “to facilitate consideration of AHT’s proposal…. To date, however, the parties have not been able to reach mutually agreeable terms.”

Ashford contends that FelCor shareholders would experience a dividend increase of more than 138 percent in the combined company and that other benefits would accrue from the combination. These include a larger and more diversified portfolio, limiting exposure to market-specific volatility; enhanced scale, enabling a larger equity float and trading volume; and strong alignment of interest with management through high insider ownership.

“The benefits of this proposal are compelling,” Dr. Benjamin Ansell, lead director of Ashford Trust, said in a prepared statement. We believe the combination would provide significant strategic and financial benefits to both sets of shareholders and create a clear path towards considerable long-term value creation far in excess of FelCor’s standalone prospects.”

Earlier this month, FelCor named as its new CEO Steven Goldman, who also joined the board of directors. In more than 30 years in the hospitality industry, Goldman has been a managing director at Starwood Capital Group & president of Starwood Capital Group’s affiliate SH Group. Prior to that, he was CEO of Groupe du Louvre, a Starwood Capital Group portfolio investment holding company based in France.