REPORT FROM THE U.S.—Kimco Realty Corporation’s $735-million sale of its InTown Suites portfolio to an affiliate of Starwood Capital Group “will be well-received,” according to one analyst.
The deal with Starwood Distressed Opportunity Fund IX, , which includes $617 million of existing debt, is expected to close during the first half of 2013. Kimco, a publicly traded real-estate investment trust that focuses mostly on neighborhood shopping centers in North America, owns a 75% interest in InTown Hospitality Investors LP, the venture that owns InTown Suites, an extended-stay hotel chain.
If the deal closes, Kimco has agreed to maintain $147.5 million in preexisting guarantees of outstanding debt to be assumed by Starwood Capital’s fund.
There are 138 hotels in the portfolio, comprising 18,000 rooms, in 21 states stretching from Pennsylvania to Utah.
In a research note, Jeffrey J. Donnelly, senior analyst at Wells Fargo Securities, lists several reasons why he believes this is a positive transaction for Kimco. For one, “while small, it demonstrates management is making progress simplifying the Kimco story,” he wrote.
Also, Donnelly noted proceeds from the transaction (approximately $80 million) are higher than the $60 million he expected. The portfolio was sold at a price of approximately $40,800 per key, down 14% from the $47,700 per key paid in 2007, according to Donnelly’s note.
Donnelly said the ultimate pricing of the deal was uncertain given the ongoing volatility in the hotel industry and the capital markets.
Representatives from Kimco and Starwood Capital, a privately held investment firm with assets under management of $21 billion, were not available for comment prior to deadline.
InTown Suites history
Kimco acquired the InTown Suites portfolio in June 2007 for $781 million in a joint venture with Westmont Hospitality Group, according to Donnelly. Kimco kicked in an estimated $120 million in equity, with Westmont contributing an estimated $40 million and $621 million of debt, or 80% loan-to-cost.
At the time of the purchase, the portfolio consisted of 127 properties and 16,364 rooms.
A prospective sale of the InTown Suites portfolio has been “on again/off again” since last year, Donnelly said.
Kimco is scheduled on 31 October to discuss third-quarter earnings.