This week, the Board of Trustees of LaSalle Hotel Properties unanimously rejected an unsolicited proposal from Pebblebrook Hotel Trust to acquire all outstanding shares of LaSalle in an all-stock transaction.

The Offer

After consulting with its financial and legal advisors, the Board concluded that the offer was “insufficient” in both price and mix of consideration, and as such would not in the best interests of the company’s shareholders.

Pebblebrook’s proposal implied a merger price of about $30 per LaSalle common share and gave LaSalle a valuation of more than $3 billion, according to Reuters.

“Consistent with our fiduciary duties, the Board has taken the time to carefully evaluate the proposal and the future potential of a combined company, and we have concluded that the proposal is grossly inadequate and is, therefore, not in the best interests of our shareholders,” Stuart L. Scott, chairman of the board, said in a statement. “The Board is focused on the continued execution of our strategic plan, prudent capital allocation, and our superior hotel portfolio, which will deliver greater value, sooner to our shareholders than Pebblebrook’s low-premium proposal.”

The company, Scott continued, was already “well-positioned to execute strategically on near-term and long-term opportunities” that would drive growth and return capital to shareholders through dividends and share repurchases. “Of course, the Board continues to be open-minded and will consider any alternatives that enhance long-term shareholder value; however, this proposal does not achieve that objective.”

Pebblebrook similarly stated that it was prepared to engage in discussions and adjust the offer and other factors.

In its letters, Pebblebrook advocated for a combined company because the move would generate strong cash flow, provide a more stable dividend and improve liquidity. Pebblebrook reportedly claimed that the two companies combined would form the second-largest REIT in the country.

REIT Strength

LaSalle and Pebblebrook, both based in Bethesda, Md., are among the largest REITs in the Greater Washington area. In 2016, LaSalle had $1.23 billion in revenue, with 47 hotels and resorts, making it the region's fifth-largest publicly traded REIT overall, according to Washington Business Journal research. That year, Pebblebrook had $816.42 million in revenue with 37 hotels.

But since Bethesda-based RLJ Lodging Trust acquired Felcor Lodging Trust last year, creating a $7-billion company with ownership stakes in 160 hotels nationwide, the companies face a larger rival. A merger could help the smaller businesses present a united front to the giant.