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Hotel REITs in $1B deal
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April 21, 1998: 8:36 a.m. ET
Equity Inns and RFS Hotel Investors link properties to create mega-lodger
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NEW YORK (CNNfn) - Equity Inns Inc., a real estate investment trust with a vast array of upscale hotel and motel holdings, on Tuesday agreed to merge with rival RFS Hotel Investors Inc. in a $990 million stock swap that will spawn an even larger REIT.
The acquisition will add 61 hotels to Equity's already plump portfolio of 95 extended-stay and and premium-service hotels to create a $1.8 billion lodging leviathan with properties sprinkled across 34 states.
As a REIT, the new entity will enjoy tax-exempt status, giving its directors a possible advantage over industry competitors in financing new acquisitions and freeing up cash flow.
The rush to REITs has gained momentum lately. In a similar transaction earlier this month, Host Marriott Corp. turned itself into a REIT after acquiring a $1.7 billion portfolio of luxury hotels from the Blackstone Group.
Under the deal with the Memphis, Tenn.-based RFS, Equity will assume $330 million in debt that includes the costs of terminating certain leases on some of RFS' 61 hotels.
After closing, RFS shareholders will receive 1.5 Equity Inns shares for each RFS share, provided Equity's share price falls within a $14 to $17 range over a 20-day measurement period. Should Equity's share price exceed $17, the exchange ratio will be adjusted to provide RFS stockholders Equity stock worth $25.50 per share for each share of RFS.
RFS board members Robert Solmson and Bruce Campbell Jr. will join Equity Inn's board of directors . Equity Inns' current chairman and chief executive officer, Phillip McNeil Sr., will continue to lead the combined company.
The acquisition is expected to add to Equity Inns' funds from operations for 1998 and 1999.
The Silicon Valley market, where RFS invested more than $100 million in four hotels last year, is cited as one of the fastest-growing hotel markets in the country. McNeill said the merger would promote his goal of extending the REIT's reach on both coasts and across the Midwest.
Executives at both companies said the merger is likely to result in cost savings in annual operations of $3.5 million.
RFS's holdings span 24 states and include full-service hotels such as Comfort Inns, Residence Inns, Hampton Inns and Holiday Inns. Equity Inn's portfolio is comprised largely of Hampton Inns properties, but also includes AmeriSuites, Homewood Suites, Residence Inn, Comfort, Holiday Inn and Holiday Inn Express hotels.
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