RLJ Lodging Trust endured a bumpy ride on the way to its acquisition of FelCor Lodging Trust, but a vocal shareholder signaled days after the deal closed that company leaders should not breathe easy just yet.
RLJ's share price fell steadily in the months after the FelCor deal was announced, and RLJ executives briefly engaged with a potential acquirer for their own company — reportedly Blackstone Group LP — before those talks fell apart.
The FelCor transaction closed Sept. 1, and the activist shareholder Land & Buildings Investment Management LLC, inherited from FelCor, said Sept. 6 that it wants more details on RLJ's plans for the combined portfolio. The firm owns roughly 2% of RLJ's outstanding shares.
In a letter to fellow shareholders, Land & Buildings founder Jonathan Litt said the firm's engagement with RLJ leadership has been "underwhelming," and said the real estate investment trust's chairman, CEO and CFO earn "generous" paychecks.
The chairman, Bob Johnson, is the company's founder, and has held that position since the company went public. But CEO Ross Bierkan and CFO Leslie Hale, who also serves as COO, are both relatively new to their jobs, having taken over in mid-2016. Bierkan, who previously served as chief investment officer, replaced Thomas Baltimore Jr., a respected and long-serving chief executive who left the company to head Hilton Worldwide Holdings Inc. spinoff Park Hotels & Resorts Inc.
Neither Jonathan Litt nor RLJ's investor relations department responded to requests for comment.
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Wes Golladay, an analyst at RBC Capital Markets, said perceptions of the RLJ-FelCor deal suffered because some shareholders in both companies had reasons to be unhappy. While FelCor has improved its portfolio in recent years, he argued, a history of strategic shifts and underperformance likely had some RLJ shareholders underwhelmed. At the same time, Golladay said, some FelCor shareholders believed that RLJ underpaid for the company.
Land & Buildings, which launched an activist campaign calling for changes at FelCor in early 2016 and then held on to its stake in the company, is now one of RLJ's largest shareholders following the acquisition. Litt called for the company to clarify whether it will specialize in full-service or limited-service hotels; when and for how much it will sell or renovate properties; and how it will save on expenses by combining with FelCor.
Litt also pointedly noted that the potential buyer who approached RLJ offered $24.00 per share for the company and later raised its offer to $25.00. RLJ said it rejected both offers before engaging with the buyer to discuss a $25.50-per-share offer, which was then taken off the table. The last time RLJ's share price closed a trading session over $25.00 per share was in October 2015.
Despite Litt's charges of opaqueness, however, Golladay argued that RLJ management disclosed some detailed plans in a May investor presentation. The company named several properties it could convert to more lucrative brands, several others it could renovate, and two more where it could seek to capitalize on its properties' underlying real estate value.
In the presentation, RLJ also sought to distinguish between the "compact full-service" properties that make up much of its and the former FelCor's portfolios, and the larger "traditional full-service" properties that fall outside its future strategy.
Golladay said sales of some properties — like FelCor's sale of two New York hotels in 2017 — could win favor from investors by streamlining the company's strategy, generating cash and improving debt metrics.
The calendar may also help the new, larger RLJ, he said. The company entered 2017 facing challenges from convention center closings in several cities where it owns properties, including Miami, San Francisco and Louisville, Ky. In 2018, some of those properties are expected to reopen, potentially giving a boost to RLJ's business that could mollify some disgruntled investors.