Lone Star Funds Rescues Long-Suffering Lodgian with $270M Acquisition

Hotel firm Lodgian Inc. has a new lease on life after a $270M cash infusion from Lone Star Funds.

January 28, 2010
By Barbra Murray, Contributing Editor

Like other hotel firms, Lodgian Inc., has suffered from a downturn in business as well as leisure travel. However, there is good news for the Atlanta-based independent hotel owner and operator whose troubles date back to the early 2000s: The company has found a life raft in Lone Star Funds. The Dallas-headquartered global investment firm recently agreed to acquire Lodgian for $270 million including the assumption of existing debt.

Lone Star, which has orchestrated private equity funds valued at an aggregate $24 billion over the last 15 years, is dealing in all cash. The company will acquire all outstanding Lodgian stock at $2.50 per share, a figure that marks an approximately 67.2 percent premium above the hotelier’s average closing share price over a one-month period before January 15 of this year. Over the last 52 weeks, Lodgian’s share prices have ranged from $1.15 to $3.20.

Lodgian emerged from Chapter 11 bankruptcy in 2002 and completed financial restructuring in 2003, but the road from that point has not exactly been a smooth one. “The downturns set them back and they never really recovered,” Rod Petrik, analyst and managing director with brokerage and investment banking firm Stifel, Nicolaus & Co., told CPE. Presently, Lodgian’s portfolio consists of 34 properties with a total of more than 6,400 guestrooms across 20 states.

Despite widespread economic turmoil, though, Petrik said the company’s troubles do not indicate the current condition of the hotel real estate market.

“Lodgian is a different animal; it’s not a REIT, it doesn’t own a brand and it’s not a C-Corp,” he noted. “It’s such a small niche, so it’s not necessarily reflective of what’s going on with public hotel companies. A lot of REITS are thriving; they have been able to access equity and debt, and are just waiting for opportunities. Marriott and Starwood are in pretty good financial shape, and Hyatt just went public and is sitting on about $2 billion of liquidity.”

Lodgian is not alone in the plight to rise above hotel industry woes, he said, but it doesn’t represent the norm, either. “Lodgian was an over-levered small-cap name that went by the wayside,” Petrik said. “It’s not that there isn’t more of that happening, but larger well-capitalized companies should continue to do well.”