Blackstone has been eyeing a hotel real estate investment trust as its next public-to-private takeover, making multiple offers since mid-June for RLJ Lodging Trust, PERE has learned.
Bethesda, Maryland-based RLJ was founded as private equity real estate company RLJ Development in 2000 and currently owns 122 properties across 21 states, with brands such as Courtyard by Marriott and Embassy Suites in its portfolio, according to its website.
In April, RLJ agreed to purchase FelCor Lodging Trust, another REIT, in a stock deal. However, in a June filing with the Securities and Exchange Commission, RLJ disclosed that a private equity firm proposed three rounds of all-cash bids before RLJ decided the unsolicited bidder’s offer might constitute a superior proposal to the merger. PERE subsequently confirmed that the firm in question was Blackstone.
After due diligence, Blackstone lowered its latest offer on July 6 to $3 billion, down from its previous $3.2 billion proposal. RLJ’s board ruled the revised bid was not a superior proposal to the FelCor merger.
It was unclear if Blackstone planned to revise its offer. A spokesman for Blackstone declined to comment, and RLJ could not be reached for comment. RLJ’s shareholder vote on the deal is scheduled for August 15.
RLJ went public in 2011 with the holdings of its second and third value-added funds, the latter of which closed in 2007 on $1.2 billion, according to PERE data. RLJ Lodging Fund II, also a 2007 vintage, generated a 3.6 percent internal rate of return as of June 30, 2016, while Fund III had a 9.6 percent IRR as of that time, according to documents from the North Carolina Retirement System, which earmarked $50 million to each fund.
Blackstone’s pursuit of RLJ is the latest in a series of privatization bids by private equity real estate investors this year, as public real estate companies have been trading at a discount to the perceived private market values of their underlying properties, said Jim Sullivan, the president of Newport Beach, California-based Green Street Advisors’ advisory group.
“The backdrop is there’s a ton of capital that’s been raised and committed that’s trying to find an investment home in real estate,” he said. “Transaction volumes for large assets are way down this year and so some of that capital may be getting antsy. When that capital looks for a home, it looks for a home in large-size transactions, and naturally the publicly-traded REITs hit the radar.”
Earlier this month, Greystar Real Estate Partners, the Charleston, South Carolina-based private equity real estate firm, agreed to acquire Monogram Residential Trust, which owns 49 luxury apartment communities, in a $3 billion deal, PERE reported at the time. The take-private seeded Greystar’s debut core-plus fund. Late last month, the Canada Pension Plan Investment Board agreed to buy Parkway, a Houston-based office real estate investment trust, in a $2.1 billion deal.
Greenwich, Connecticut-based Starwood Capital Group also has been chasing take-private transactions, including the April purchase of Milestone Apartments, a multifamily REIT, for $2.6 billion, PERE previously reported. The firm also was engaged in a bidding war with D.R. Horton for Forestar Group, a homebuilding REIT, but ultimately lost to its Texas homebuilder rival last month.
He called the take-private activity an uptick, and expected more transactions to come. “As long as you have companies that own good real estate trading at significant discounts to their net asset values, that’s a recipe for additional take-privates going forward,” Sullivan told PERE. “Many companies are trading more cheaply on Wall Street than on Main Street. Finding companies where boards and management teams are willing sellers – those are few and far between.”
Blackstone’s most recent privatization deal was its June agreement to buy Helsinki-listed real estate investment company Sponda for €1.8 billion, PERE previously reported. Stockholm-based private equity real estate firm Areim is partnering with Blackstone in the deal, co-investing approximately 10 percent of the capital.