Toronto-based Morguard Corp. is selling 14 hotels in Ontario and Nova Scotia in a move designed to strengthen its balance sheet at a time of strong pricing for lodging properties.
Publicly traded Morguard did not name the buyer but said it had an unconditional agreement to sell the portfolio that includes 2,248 rooms.
"It is an opportune moment to divest these properties given the current market demand for a hotel portfolio of this size and quality, as well as their enhanced market value," said K. Rai Sahi, chairman and chief executive of the company, in a statement. "Morguard has strategically divested our hotel portfolio to align with our objectives of strengthening the company's balance sheet while owning a high-quality portfolio of income-producing real estate."
In a report issued at the end of 2023, Carrie Russell and Monique Rosszell of HVS Consulting said the Canadian hotel industry set new benchmarks in 2023, with revenue per available room set to grow 15% in 2023.
"Transaction activity was strong in the first half of 2023, however, the pace of activity slowed in [the third quarter]. We expect that overall transaction volume will be $1.5 billion for the year, which is slightly below 2022 and the forecasted $2 billion in trades," the pair wrote in the report. "On the transaction side, several larger deals are expected to close early in 2024, which should result in a comparable volume to 2022 and 2023."
Morguard said its transaction is subject to customary closing conditions and is expected to close in the first quarter of 2024.
In Ontario, the deal includes the Courtyard Marriott and Residence Inn Marriott in Markham, the Courtyard Marriott, the Hilton Garden Inn Toronto Airport West and Cambridge Suites in Mississauga, the Holiday Inn Express in Ottawa, the Towne Place Suites by Marriott in Sudbury, the Courtyard Marriott in Vaughan and the Courtyard by Marriott Toronto Airport, the Hotel Carlingview Toronto Airport, the Residence Inn by Marriott Toronto Airport and the Toronto Airport Marriott.
In Nova Scotia, Morguard is selling the Cambridge Suites Hotel and The Prince George Hotel in Halifax.
The transaction is for gross proceeds of $410 million before adjustments and closing costs. Upon completion of the transaction, Morguard will repay the first mortgage debt of $48.7 million, leaving expected net proceeds of $361.3 million.
Morguard said the move aligns with its commitment to optimize its real estate portfolio by focusing on core real estate investments, including office, industrial, retail and multifamily residential properties.
"The heightened level of financial flexibility provided by this transaction will empower us to strategically deleverage, which is important given the current interest rate environment, said Paul Miatello, chief financial officer of Morguard, in a statement.