DALLAS—On the day Ashford Hospitality Trust Inc. appointed Douglas A. Kessler as its new CEO, the REIT today also submitted a non-binding proposal to acquire FelCor Lodging Trust for a total consideration of $9.27 per share, based on a closing price as of Feb. 17.
Over the past several months, Ashford Trust has repeatedly tried to engage in substantive discussions with FelCor—who just last week appointed Steven R. Goldman as its new CEO, effective March 1—regarding its proposal without success, according to the company. FelCor entered into a mutual non-disclosure agreement with Ashford Trust, but the firm states that FelCor has been “unwilling to share usual and customary information with the company, including historical property-level financial statements and property management agreements.”
In a conference call today, new CEO Kessler stated the merger proposal was prompted after a series of “missteps by FelCor,” which he alleges “led to subpar operating performance, lack of balance sheet management and imprudent capital allocations.”
“Ashford Trust can only reasonably assume from FelCor’s actions, including extending brand management contracts that Ashford Trust believes impact value and announcing the hiring of a new CEO, that FelCor is unwilling to engage in good faith discussions and seriously consider our proposal to create long-term value for all shareholders,” stated Kessler. “A merger would make the joined companies the largest REIT by number of hotels and the second largest by number of rooms. We are offering a strategic and compelling transaction that would create significant value that is superior to their standalone strategy, which is uncertain. Their current business strategy is status quo and will continue to lag behind. This proposal puts our best foot forward and it’s a full and fair offer. If the industry doesn’t consolidate these two entities here and now, then when and where?”
In response to Ashford Trust’s proposal, FelCor confirmed that its board of directors has received an unsolicited, non-binding and conditional proposal to combine the businesses. The FelCor Board established a transaction committee in December of 2016, comprised of independent directors, to facilitate consideration of AHT’s proposal and direct any related discussions, among other things. To date, however, the parties have not been able to reach mutually agreeable terms, the REIT said in a statement. FelCor advised its shareholders to take no action at this time. It also cautioned that “there can be no assurance that any transaction will be reached or the terms on which any such agreement would be based.” FelCor is expected to review Ashford Trust’s proposal.
Analysts from Baird Equity Research noted that “while we believe a merger, if consummated, could be a meaningful value creation event for Ashford Trust, we ascribe a low probability to a merger being completed given that (1) Trust’s discussions with FelCor appear to have stalled since they were first initiated in October and (2) FelCor’s recent appointment of Steve Goldman as CEO complicates the matter.” The analysts also noted that several FelCor shareholders may be opposed to receiving stock in another hotel REIT, but management and FelCor’s recourse bond covenants could hinder a sale to an all-cash buyer. “Additionally, the recent renewal of brand management contracts could also potentially result in less interest to acquire the company from owner-operators. Ashford Trust’s history of acquiring larger portfolios and selling off some of the pieces gives us confidence in management’s ability to create value if a merger is consummated; we also see a scenario where Ashford Trust could potentially sell a few of FelCor’s higher RevPAR hotels to Ashford Prime over time,” they wrote.
An analyst from Canaccord Genuity said, “It is unclear whether a deal will move forward, but we don’t expect any other suitors to come in at a higher price and given the 28% premium being offered, we believe FCH shareholders are likely more inclined to sell to AHT than to continue to have FCH operated as a going concern.”
With regard to Ashford’s new CEO, Kessler has been with Ashford Trust since its IPO in August 2003, serving most recently as president since 2009. Prior to being appointed president of Ashford Trust, Kessler served as Ashford Trust’s COO and head of acquisitions beginning in May 2003. Kessler has spearheaded numerous strategic, financial and transaction initiatives while at Ashford Trust.
From July 2002 until August 2003, Kessler served as the managing director and CIO of Remington Hotel Corporation. Prior to joining Remington Hotel Corporation in 2002, Kessler worked at Goldman Sachs’ Whitehall Real Estate Funds from 1993 to 2002, where he asset managed several billion dollars of diversified real estate investments, including hospitality. While at Whitehall, Kessler served on the boards or executive committees of several lodging companies, including Westin Hotels and Resorts and Strategic Hotel Capital.
Kessler has more than 30 years of diverse real estate industry experience in acquisition, sales, finance, asset management and capital markets.
“Douglas has been instrumental in all aspects of Ashford Trust’s growth over the past 13 years, and we are extremely pleased to announce his promotion to CEO,” said Monty J. Bennett, Ashford Trust’s chairman of the board. “His key roles in contributing to our industry leading investor returns since our IPO make him the right selection to lead Ashford Trust’s future. Under Douglas’ leadership and focus, the goal will continue to be to maximize the value for our shareholders.”