Park Hotels & Resorts Announces $2.7 Billion Strategic Acquisition of Chesapeake Lodging Trust

  • Greatly enhanced portfolio quality, with comparable RevPAR
    increasing nearly 4% to $182 and EBITDA margin increasing 60 basis
    points to 29.7%
  • Provides immediate brand, operator and geographic diversification
  • Acquiring high-quality portfolio at attractive pricing
  • Pro forma leverage to remain comfortably within target range of
    3-5x net debt to Adjusted EBITDA

TYSONS, Va.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24PK&src=ctag” target=”_blank”gt;$PKlt;/agt; lt;a href=”https://twitter.com/hashtag/chsp?src=hash” target=”_blank”gt;#chsplt;/agt;–Park Hotels & Resorts Inc. (“Park”, the “Company”) (NYSE:PK) and
Chesapeake Lodging Trust (“Chesapeake”) (NYSE:CHSP) today announced that
they have entered into a definitive merger agreement under which Park
will acquire all the outstanding shares of Chesapeake in a cash and
stock transaction valued at approximately $2.7 billion (inclusive of
transaction costs). Upon completion of the merger, the combined company
will have an estimated enterprise value of $12 billion, firmly
solidifying Park’s position as the second largest lodging REIT while
also advancing the Company’s strategic goals of portfolio enhancement
and diversification. The transaction has been approved by the board of
directors and board of trustees of Park and Chesapeake, respectively.

Under the terms of the merger agreement, Chesapeake shareholders will
receive $11.00 in cash and 0.628 of a share of Park common stock for
each Chesapeake share. The fixed exchange ratio represents an agreed
upon price of $31.00 per share of Chesapeake shares of beneficial
interest based on Park’s trailing 10-day volume weighted average price
(“VWAP”) as of May 3, 2019. Based on Park’s closing stock price on May
3, 2019, this represents $31.71 per share of aggregate value to
Chesapeake shareholders and represents a premium of approximately 11% to
Chesapeake’s trailing 10-day VWAP and approximately 8% to Chesapeake’s
closing stock price on May 3, 2019. Upon closing, Park stockholders and
Chesapeake shareholders will own approximately 84% and 16% of the
combined Company, respectively. The transaction is subject to customary
closing conditions, including receipt of the approval of Chesapeake
shareholders. The companies currently expect the transaction to close in
late third quarter or early fourth quarter of 2019.

“We are thrilled to strategically combine our two companies in a
compelling transaction that is accretive for stockholders,” said Thomas
J. Baltimore, Jr., Chairman and CEO of Park. “Chesapeake’s high-quality
portfolio of hotels will accelerate our strategic goals of upgrading the
quality of our portfolio and achieving brand, operator and geographic
diversity. This merger provides Park and its stockholders with
identifiable synergies and opportunities to drive incremental growth
through Park’s proven asset management capabilities. In short, we are
expecting to have the same record of success and growth from the
Chesapeake assets that we have enjoyed from the Hilton assets we took
over in January 2017 – and we will be laser focused every day to create
long-term value.”

“This merger will be a transformative event for the shareholders of both
companies,” said Thomas Natelli, Chairman of the Chesapeake Board of
Trustees. “We believe the combined company will create a superior
platform for delivering exceptional returns to Chesapeake’s existing
shareholders, by improving diversification, increasing scale, lowering
cost of capital and benefitting from combined synergies. Chesapeake’s
management team, under the leadership of CEO Jim Francis, has built a
fantastic portfolio of hotels in major markets and has consistently
delivered excellent results. We are confident that Park’s leadership
team will continue this trajectory with the addition of our portfolio of
leading hotels, which will translate into increased value for all
stakeholders.”

Leadership and Organization

Each of the Board of Directors of Park and Board of Trustees of
Chesapeake has approved the merger. Park’s Board of Directors will be
increased to ten members upon closing, with two additions from
Chesapeake’s Board of Trustees. Thomas J. Baltimore, Jr., Park’s
Chairman and CEO, will continue to serve as Chairman of Park’s Board of
Directors, and Mr. Baltimore will also continue to lead the combined
company, along with Park’s existing senior management team.

Non-Core Asset Sales

Park plans to sell five non-core hotels prior to the proposed closing,
including both of Chesapeake’s New York City hotels (the 122-room Hyatt
Herald Square New York and the 185-room Hyatt Place New York Midtown
South), in addition to three non-core Park hotels which are currently
under contract. On a pro forma basis that accounts for these sales, the
combined company would consist of 66 high-quality hotels located in key
urban and resort markets in 17 states and the District of Columbia.

Anticipated Synergies

The combined company expects to implement Park’s proven asset management
initiatives to create incremental value across Chesapeake’s existing
portfolio through already-identified opportunities. Those initiatives
include remixing the demand mix by increasing Chesapeake’s group
segmentation and replacing lower-rated contract business, enhancing food
and beverage profitability, driving ancillary income, and sourcing
additional cost savings. Overall, Park has identified approximately $24
million of potential EBITDA upside in 2020 and approximately $34 million
of potential EBITDA upside in 2021 across Chesapeake’s portfolio,
including approximately $17 million of annual G&A savings. Over time, we
expect additional value creation will be driven by select ROI projects,
potentially including the repurposing of underutilized space as meeting
space expansions, adding additional keys, energy efficiency projects and
brand repositionings at select properties. Please refer to the investor
presentation on Park’s website for additional detail regarding the
identified synergies and opportunities for the combined company.

The combined company also expects to benefit from enhanced scale in
markets in which both companies currently have a presence, such as San
Francisco, and from diversification of brand, operators and geography,
which translates into the identification and implementation of best
practices across the portfolio.

Advisors

BofA Merrill Lynch and Barclays are acting as financial advisors and
Hogan Lovells is acting as legal counsel to Park. J.P. Morgan Securities
LLC is acting as exclusive financial advisor and Paul, Weiss, Rifkind,
Wharton & Garrison LLP and Polsinelli PC are acting as legal counsel to
Chesapeake.

Financing

Park has secured a $1.1 billion financing commitment from BofA Merrill
Lynch to finance the cash component of the merger consideration, repay
Chesapeake’s unsecured term loan and two mortgages and pay for a portion
of the transaction costs. Net debt to Adjusted EBITDA pro-forma for the
transaction increases to 4.6x, however, when accounting for the five
hotels we anticipate selling prior to closing, pro-forma net debt to
Adjusted EBITDA falls to 4.4x, each of which are well within our stated
range of 3x to 5x.

Conference Call and Webcast Information

Park will hold a conference call on May 6, 2019 at 9:00am ET to discuss
both the transaction and its first quarter 2019 earnings results. This
call will replace Park’s previously scheduled earnings call which has
been cancelled. To participate in the conference call, please dial (877)
451-6152, or (201) 389-0879 for international participants, and request
Park Hotels & Resorts’ Market Call. Interested parties can also join the
live webcast of the conference call by accessing the Investors section
of Park’s website at www.pkhotelsandresorts.com.
A replay of the webcast will also be archived on the Investors section
of Park’s website. An investor presentation regarding the transaction is
available on the Investors section of Park’s website.

About Park Hotels & Resorts

Park Hotels & Resorts Inc. (NYSE:PK) is the second largest publicly
traded lodging real estate investment trust with a diverse portfolio of
market-leading hotels and resorts with significant underlying real
estate value. Park’s portfolio currently consists of 51 premium-branded
hotels and resorts with over 30,000 rooms located in prime U.S. markets
with high barriers to entry. For additional information, please visit
Park’s website at www.pkhotelsandresorts.com.

About Chesapeake Lodging Trust

Chesapeake Lodging Trust is a self-advised lodging real estate
investment trust (REIT) focused on investments primarily in
upper-upscale hotels in major business and convention markets and, on a
selective basis, premium select-service hotels in urban settings or
unique locations in the United States. The Trust owns 20 hotels with an
aggregate of 6,288 rooms in eight states and the District of Columbia.
Additional information can be found on the Trust’s website at www.chesapeakelodgingtrust.com.

For additional information or to receive press releases via e-mail,
please visit our website at

www.pkhotelsandresorts.com

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements include, but are not limited to, statements
related to Park’s current expectations regarding the performance of its
business, financial results, liquidity and capital resources, the
effects of competition and the effects of future legislation or
regulations, the expected completion of anticipated acquisitions and
dispositions, the declaration and payment of future dividends,
statements about the benefits of the proposed transaction involving Park
and Chesapeake and statements that address operating performance, events
or developments that Park expects or anticipates will occur in the
future, including but not limited to statements regarding anticipated
synergies and G&A savings, future financial and operating results,
plans, objectives, expectations and intentions, expected sources of
financing, anticipated asset dispositions, anticipated leadership and
governance, creation of value for stockholders, benefits of the proposed
transaction to customers, employees, stockholders and other constituents
of the combined company, the integration of Park and Chesapeake, cost
savings and the expected timetable for completing the proposed
transaction, and other non-historical statements. Forward-looking
statements include all statements that are not historical facts, and in
some cases, can be identified by the use of forward-looking terminology
such as the words “outlook,” “believes,” “expects,” “potential,”
“continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,”
“predicts,” “intends,” “plans,” “estimates,” “anticipates” or the
negative version of these words or other comparable words.

Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements for various reasons, including risks
associated with Park’s ability to consummate the proposed transaction
and the timing of the closing of the proposed transaction; the ability
to satisfy conditions necessary to close the proposed transaction;
applicable regulatory changes; the availability of financing; risks
associated with acquisitions generally, including the integration of the
combined companies’ businesses; risks associated with execution of
anticipated asset dispositions; risks associated with achieving expected
revenue synergies or cost savings; as well as other risks and
uncertainties detailed from time to time in Park’s filings with the SEC.
You should not put undue reliance on any forward-looking statements and
Park urges investors to carefully review the disclosures Park makes
concerning risk and uncertainties in Item 1A: “Risk Factors” in Park’s
Annual Report on Form 10-K for the year ended December 31, 2018, as such
factors may be updated from time to time in Park’s periodic filings with
the SEC, which are accessible on the SEC’s website at www.sec.gov.
Except as required by law, Park undertakes no obligation to update or
revise publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.

Additional Information about the Proposed
Transaction and Where to Find It

In connection with the proposed transaction, Park intends to file with
the SEC a registration statement on Form S-4 that will include a proxy
statement of Chesapeake and also constitutes a prospectus of Park. Park
and Chesapeake also plan to file other relevant documents with the SEC
regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE
URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT
DOCUMENTS FILED WITH THE SEC, WHEN THEY BECOME AVAILABLE, BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. A
definitive proxy statement/prospectus will be sent to Chesapeake’s
shareholders. Investors may obtain a free copy of the proxy
statement/prospectus (if and when it becomes available) and other
relevant documents filed by Park and Chesapeake with the SEC at the
SEC’s website at www.sec.gov.
Copies of the documents filed by Park with the SEC will be available
free of charge on Park’s website at http://www.pkhotelsandresorts.com
or by contacting Park’s Investor Relations at (571) 302-5591. Copies of
the documents filed by Chesapeake with the SEC will be available free of
charge on Chesapeake’s website at http://www.chesapeakelodgingtrust.com
or by contacting Chesapeake’s Investor Relations at (571) 349-9452.

Chesapeake and its trustees and executive officers and other members of
management and employees may be deemed to be participants in the
solicitation of proxies in respect of the proposed transaction.
Information about trustees and executive officers of Chesapeake is
available in the proxy statement for its 2019 Annual Meeting, which was
filed with the SEC on April 30, 2019. Other information regarding the
participants in the proxy solicitation and a description of their direct
and indirect interests, by security holdings or otherwise, will be
contained in the proxy statement/prospectus and other relevant materials
filed with the SEC regarding the proposed transaction when they become
available. Investors should read the proxy statement/prospectus
carefully before making any voting or investment decisions when it
becomes available before making any voting or investment decisions.
Investors may obtain free copies of these documents from Park or
Chesapeake using the sources indicated above.

This communication and the information contained herein shall not
constitute an offer to sell or the solicitation of an offer to buy any
securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any
such jurisdiction. No offering of securities shall be made except by
means of a prospectus meeting the requirements of Section 10 of the
Securities Act of 1933, as amended.

Contacts

Ian Weissman
Senior Vice President, Corporate Strategy
571-302-5591
[email protected]

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