PALM BEACH, Florida—Chatham Lodging Trust’s $1.3-billion acquisition of partial and sole ownership in 51 former Innkeepers USA Trust hotels is a “transformative” deal for the real estate investment trust, Jeff Fisher, chairman, president and CEO, said Friday during an earnings call with analysts.
Chatham, and its joint-venture partner Cerberus Capital Management, began marketing the portfolio in January for $1.3 billion. The REIT, and new JV partner Northstar, will acquire 47 of the hotels with Chatham taking sole ownership of four Silicon Valley-based Residence Inn by Marriott properties. Northstar will have an 89.7% ownership stake in the JV.
Chatham’s stock price closed Friday at $21.88 and is up 7% year to date. The R.W. Baird/STR Hotel Stock Index is up 6.6% year to date.
“Both the joint venture and the acquisition of four hotels certainly is very meaningful from an earnings perspective to Chatham and for the long-term value of the portfolio,” said Dennis Craven, executive VP and CFO.
Chatham and Cerberus initially acquired the former Innkeeper’s portfolio in 2011 for $1 billion. The deal is expected to close before the end of the second quarter. “We are under firm contract here,” Fisher said.
He continued: “We’ve had incredible success, and it’s been a mutually beneficial joint venture with Cerberus.”
Fisher said he is happy to be working with the team at Northstar.
“We’ve had great experience working with them, and we certainly look forward to a profitable relationship as we move forward,” he said. Additional details surrounding the deal will be released at a later date, Fisher said.
Fisher said operating results stemming from its ownership of the Innkeepers hotels have been impressive. The company’s initial $37-million investment in the portfolio has yielded profits of approximately $77 million in less than three years.
“I think I like that,” Fisher said of the returns from the Innkeepers deal. That Fisher is enamored of the portfolio is perhaps not surprising considering he formerly served as CEO of Innkeepers.
Chatham has plans to partially redevelop and expand all four of the Silicon Valley hotels and will increase room count by 36%, adding 272 rooms to a total 1,023. The work will be done at a cost of approximately $59 million, or $217,000 per key.
One analyst asked Fisher why those four assets were chosen specifically to be wholly owned by Chatham. Fisher responded by saying that as a REIT, he felt Chatham was in the better position to handle the renovation work.
“We really were overall trying to meet what Northstar’s needs are and ours,” Fisher said. “These assets represent probably a lower (capitalization) rate going in than the 47 (remaining hotels).” He added that further expansion of the four hotels could be in the cards, too.