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Northstar, Chatham Team Up On Deal to Buy $1.3B Innkeepers Portfolio

Cerberus Capital to Exit Joint Venture Which Contains 51 Hotels Totaling 6,848 Rooms
May 13, 2014
NorthStar Realty Finance Corp. agreed to buy a majority stake in 47 hotels as part of in a $958.5 million deal with Chatham Lodging Trust (NYSE: CLDT) and New York City-based private equity firm Cerberus Capital Management LP.

NorthStar (NYSE: NRF) will acquire Cerberus’s 89.7% stake in an existing joint venture for the hotels, known as the Innkeepers portfolio, while Chatham, a Palm Beach, FL-based lodging REIT, will retain its 10.3% interest in the properties and acquire outright another four properties in the portfolio. Chatham's purchase of the four Residence Inn hotels in California's Silicon Valley for $341.5 million brings the total deal value to $1.3 billion.

Cerberus and Chatham acquired 65 hotels from bankrupt Innkeepers USA Trust in late 2011. With lodging industry revenues and occupancies on the rise, the Chatham/Cerberus venture began marketing the 51-hotel, 6,848- room portfolio for sale in January.

The new joint venture between NorthStar and Chatham is expected to close on 47 of the 51 hotels in what Chatham Chairman, President and CEO Jeffrey H. Fisher called "a transformative deal," expected to close by June 30.

Upon closing, "the investment will be a home run for Chatham and its shareholders, as we expect we will have received total distributions of approximately $114 million in less than three years on our initial $37 million investment," Fisher told investors and analysts Friday. "I think I like that."

NorthStar will contribute $213 million of equity for its nearly 90% interest in the Innkeepers portfolio, which will continue to be managed by Island Hospitality. NorthStar expects to earn an initial current yield of about 18% on its invested equity.

The portfolio consists of 47 extended stay hotels and premium branded select service hotels with about 6,100 rooms, with 83% affiliated with Marriott or Hilton. The bi-coastal portfolio is located primarily in top U.S. metros, with the largest concentration of net operating income from hotels in California, NorthStar said.
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